<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-63421
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CONGOLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 3996 02-0398678
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
ROGER S. MARCUS
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
CONGOLEUM CORPORATION
3705 QUAKERBRIDGE ROAD 3705 QUAKERBRIDGE ROAD
MERCERVILLE, NEW JERSEY 08619 MERCERVILLE, NEW JERSEY 08619
(609) 584-3000 (609) 584-3000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE AND
NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AGENT FOR SERVICE)
</TABLE>
---------------
COPY TO:
JEFFREY E. LAGUEUX, ESQ.
PATTERSON, BELKNAP,
WEBB & TYLER LLP
1133 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 336-2500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
CONGOLEUM CORPORATION
Congoleum
OFFER TO EXCHANGE 8 5/8% SENIOR NOTES DUE AUGUST 1, 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR AN EQUAL PRINCIPAL AMOUNT OF ITS 8 5/8%
SENIOR NOTES DUE AUGUST 1, 2008, WHICH HAVE NOT BEEN SO
REGISTERED
---------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 2, 1998, UNLESS EXTENDED.
---------------
Congoleum Corporation, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount of
up to $100,000,000 of its new 8 5/8% Senior Notes due August 1, 2008 (the
"Exchange Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), for a like principal amount of its
outstanding 8 5/8% Senior Notes due August 1, 2008 (the "Original Notes" and,
together with the Exchange Notes, the "Notes") from the holders (the
"Holders") thereof. The terms of the Exchange Notes are identical in all
material respects to the Original Notes, except for certain transfer
restrictions and registration rights relating to the Original Notes.
The Company will accept for exchange any and all Original Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on November
2, 1998, unless extended (as so extended, the "Expiration Date"). Tenders of
Original Notes may be withdrawn at any time prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of
Original Notes being tendered for exchange pursuant to the Exchange Offer.
Pursuant to the terms of the Registration Rights Agreement (as defined
herein), the Exchange Offer will remain open for at least 20 business days and
for not more than 30 business days after the date hereof, unless extended. The
Exchange Offer is subject to certain other customary conditions. See "The
Exchange Offer".
Interest on the Exchange Notes will be payable semi-annually on February 1
and August 1 of each year, commencing February 1, 1999. The Exchange Notes are
redeemable at the option of the Company, in whole or in part, from time to
time on or after August 1, 2003, at the redemption prices set forth herein,
together with accrued and unpaid interest to the date of redemption. In
addition, at any time or from time to time, prior to August 1, 2001, up to an
aggregate of $30 million in aggregate principal amount of Notes will be
redeemable at the option of the Company from the net proceeds of one or more
Public Equity Offerings (as defined in the Indenture governing the Notes), at
a redemption price of 108.625% of the principal amount of the Notes, together
with accrued and unpaid interest to the date of redemption; provided that at
least $70 million in aggregate principal amount of Notes remains outstanding
immediately after each such redemption. Upon the occurrence of a Change of
Control (as defined in the Indenture governing the Notes), each holder of
Exchange Notes may require the Company to repurchase all or a portion of such
holder's Exchange Notes at 101% of the aggregate principal amount of the
Exchange Notes together with accrued and unpaid interest, to the date of
repurchase. See "Description of the Exchange Notes".
The Exchange Notes will be senior, unsecured obligations of the Company,
will rank pari passu with all existing and future senior debt of the Company
and will be senior in right of payment to all existing and future subordinated
debt of the Company, if any. The Company maintains a $30 million senior credit
facility secured by substantially all of the inventory and accounts receivable
of the Company and its subsidiaries. As of October 2, 1998, the Company had no
outstanding senior debt other than the Original Notes. See "Use of Proceeds"
and "Capitalization".
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement
dated August 3, 1998, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). The Company believes that based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by each Holder thereof (other than any Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder has no arrangement with any
person to participate in the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company will not receive any proceeds from the Exchange Offer and will
pay all expenses incident to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is October 2, 1998.
<PAGE>
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, Holders of Original Notes in any jurisdiction in
which such Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
All resales must be made in compliance with applicable state securities or
"blue sky" laws. Such compliance may require that the Exchange Notes be
registered or qualified in a particular state or that the resales be made by
or through a licensed broker-dealer, unless exemptions from these requirements
are available. The Company assumes no responsibility with regard to compliance
with such requirements.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depository and its participants. After the initial
issuance of the Global Note, Exchange Notes in certificated form will be
issued in exchange for the Global Note only on the terms set forth in the
Indenture (the "Indenture") between the Company and First Union National Bank,
as trustee (the "Trustee"), dated as of August 3, 1998. See "Description of
Exchange Notes--Book Entry Transfer".
Prior to this Exchange Offer, there has been no public market for the
Original Notes. To the extent that Original Notes are tendered and accepted in
the Exchange Offer, a Holder's ability to sell untendered Original Notes could
be adversely affected. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their face value. The Company
does not currently intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system.
The Company has been advised by Goldman, Sachs & Co., Credit Suisse First
Boston and ING Barings, the initial purchasers of the Original Notes (the
"Initial Purchasers"), that they intend to make a market in the Original Notes
and that, following the Exchange Offer, they intend to make a market in the
Exchange Notes; however, the Initial Purchasers are under no obligation to do
so and any market making activities with respect to the Exchange Notes may be
discontinued at any time.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution".
----------------
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (herein referred
to, together with all exhibits and schedules thereto and any amendments
thereto, as the "Exchange Offer Registration Statement") under the Securities
Act with respect to the Exchange Notes offered hereby. This Prospectus, which
forms a part of the Exchange Offer Registration Statement, does not contain
all of the information set forth in the Exchange Offer Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as
to the contents of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as an exhibit to
the Exchange Offer Registration Statement.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with
the Commission (including the Exchange Offer Registration Statement) can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the Commission at 1-
800-SEC-0330. The Commission also maintains a website at http://www.sec.gov
which contains reports, proxy statements and other information regarding
registrants (including the Company) that file electronically with the
Commission.
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data,
including the financial statements and the notes thereto, appearing elsewhere
in this Prospectus. Unless otherwise indicated, references to "Congoleum" or
the "Company" shall mean Congoleum Corporation and its subsidiaries.
THE COMPANY
Congoleum is a leader in the resilient flooring industry and has marketed
flooring products under the Congoleum brand name since 1924. The Company
believes that its products are recognized for their high quality and superior
style by customers in the residential, manufactured housing and commercial
markets. Congoleum has historically been an innovator in production techniques
and design; the Company developed the chemical embossing process now utilized
throughout the resilient flooring industry and introduced major innovations
such as the no-wax floor. Currently, Congoleum produces 23 sheet vinyl products
in over 500 design and color combinations and 20 vinyl tile products in more
than 250 design and color combinations. The Company believes that it has an
approximate 20% share of the sheet vinyl portion and an approximate 10% share
of the vinyl tile portion of the total resilient flooring industry in the
United States, which it estimates to have been $1.6 billion in 1997.
Congoleum's resilient flooring products are intended for use in a variety of
residential and commercial applications. The Company believes that the largest
individual component of demand for its products arises from the need to replace
flooring in existing homes regularly, a demand source which is less cyclical
than new housing construction. Sales of products intended for the remodeling
and replacement markets represented approximately 60% of the Company's
residential sales for the year ended December 31, 1997, with an additional 26%
comprised of sales to the manufactured housing market segment. The Company's
products are distributed primarily through 35 wholesale distributors to over
18,000 specialty retail flooring stores. In addition, Congoleum markets its
products through national mass-market merchandisers and retail home centers
such as The Home Depot, Sears and Menards, which collectively supply the retail
market through over 2,000 locations.
The Company continues to promote growth through new marketing initiatives and
the development of innovative product applications. In addition, since the
beginning of 1993 the Company has completed over $60 million of capital
expenditures which have substantially increased operating efficiency and
expanded the Company's ability to manufacture unique products for certain
market segments. For the three months ended June 30, 1998 and 1997, the Company
had net sales of $69.8 million and $64.9 million, respectively, and earnings
before income taxes and extraordinary item plus net interest expense,
depreciation and amortization ("EBITDA") of $8.2 million and $7.1 million,
respectively. For the twelve months ended June 30, 1998, net sales and EBITDA
totaled $260.2 million and $26.7 million, respectively.
COMPANY STRATEGY
Congoleum's strategy is centered on its strong, well-known brand name. The
Company believes that the Congoleum brand name provides a significant advantage
to the Company's sales and marketing efforts. The Congoleum brand name is
widely recognized, registering an aided awareness of 68% among retail consumers
according to a survey conducted by International Communications Research during
May 1998. The Company believes that retailers and consumers associate the
Congoleum brand name with superior design, color and styling, which represent
major determinants in purchasing decisions within the resilient flooring
industry. Major components of the Company's strategy include:
4
<PAGE>
DEVELOP NEW PRODUCTS. Historically, Congoleum has generated significant sales
through the development of innovative products and designs. The Company's
product innovation and design efforts are focused on developing new features
and benefits which enable an expanded market presence, provide higher margins
and enhance the Congoleum brand image. In addition to innovations such as the
chemical embossing process and the no-wax floor product, the Company designed a
proprietary transfer-printing process for certain tile products that it
believes only one other industry competitor is presently able to duplicate.
During 1997 and 1998, the Company has continued to introduce not only new
designs, but also new products such as ArmorBright, a unique product that is
marketed to the manufactured housing segment and offers urethane coating in an
extra-wide, sheet vinyl product. Since the beginning of 1993, Congoleum has
expended approximately $20 million relating to research and development. The
Company anticipates that continued investment in new product efforts and the
extensive experience of its design personnel will support the ongoing
development of innovative and profitable extensions to the Company's existing
product line.
INCREASE RETAIL PRESENCE. In addition to specialty retail flooring stores,
Congoleum's products are also sold through several mass-market merchandisers
and retail home centers. Congoleum has been recognized by these customers for
excellence in service, receiving the "Partner of the Year" award from The Home
Depot and the "Partner in Progress" award from Sears during 1997. In addition,
during 1998 the Company began marketing its products to Menards, the fourth
largest retail home center operator in the United States with 133 retail
locations. The Company believes that this customer segment exhibits significant
growth potential through (i) expansion by existing customers, as illustrated by
The Home Depot's intention to open 125 new stores during 1998, (ii) recent
increases in the number of Congoleum products carried by existing customers and
(iii) the addition of new mass-market merchandiser and retail home center
customer accounts, such as the establishment of the Menards account during
1998.
REINFORCE LEADERSHIP POSITION IN MANUFACTURED HOUSING MARKET. Congoleum
maintains the leading position in the manufactured housing market with an
estimated market share of 66%, and intends to continue working closely with
manufacturers in this market to design and develop new products. Congoleum is
the only manufacturer currently capable of producing the extra-wide, sheet
vinyl flooring preferred for oversize manufactured homes, which represent an
increasing portion of total manufactured housing sales. In addition, the
Company has established a track record of successful product innovations
designed specifically for the manufactured housing market which provide high
levels of quality and in-plant durability during the construction process.
Congoleum is the exclusive resilient flooring supplier to the largest wholesale
flooring products distributor in the manufactured housing industry, a
relationship the Company has maintained for over 30 years.
MAINTAIN EXISTING DISTRIBUTOR NETWORK. Congoleum currently sells its products
through 35 wholesale distributors providing approximately 100 distribution
points throughout the United States and Canada. The Company is the exclusive
resilient flooring supplier to nearly all of its wholesale distributors, and
has maintained consistent relationships with its distributors averaging 20
years in duration. The Company currently has well over 10,000 displays in place
in specialty retail flooring stores, representing substantial floor space and
significant investment. Congoleum believes its established distributor network
and extensive retail presence provide a competitive advantage and represent a
major barrier to entry by new competitors.
ENHANCE MANUFACTURING EFFICIENCY. Since the beginning of 1993, Congoleum has
invested over $60 million in capital expenditures in order to expand capacity
and product capabilities, improve operating efficiency and reduce manufacturing
costs. During 1997, the Company completed a major
5
<PAGE>
capital improvement initiative which involved the rebuilding of the Company's
main production line in Marcus Hook, Pennsylvania. The rebuilding program
substantially increased the speed and capacity of the Company's largest
production facility and enhanced the Company's position as the only
manufacturer capable of producing extra-wide, sheet vinyl products in the
flooring industry. The Company intends to pursue specific investment
initiatives during the next several years which are designed to further
increase efficiency and reduce operating costs.
RECENT DEVELOPMENTS
On August 3, 1998, the Company consummated the sale of the Original Notes in
a transaction exempt from the registration requirements of the Securities Act
(the "Initial Offering"). On September 3, 1998, the Company used a portion of
the proceeds received from the Initial Offering to repay the indebtedness
represented by its 9% Senior Notes due 2001 (the "2001 Notes"), and accrued but
unpaid interest and prepayment premium thereon. The remainder of such proceeds
were used to pay certain fees and expenses in connection with the Initial
Offering and will be used for working capital and general corporate purposes.
In connection with the Initial Offering, the Company entered into the
Registration Rights Agreement with the Initial Purchasers pursuant to which it
agreed to register the Exchange Notes under the Securities Act and offer them
in exchange for the Original Notes.
The Company's principal executive offices are located at 3705 Quakerbridge
Road, Mercerville, New Jersey 08619 and its telephone number at that office is
(609) 584-3000.
THE EXCHANGE OFFER
The Exchange Offer.......... Up to $100 million aggregate principal amount of
Exchange Notes are being offered in exchange for
a like aggregate principal amount of Original
Notes. The Company is making the Exchange Offer
in order to satisfy its obligations under the
Registration Rights Agreement relating to the
Original Notes. For a description of the
procedures for tendering Original Notes, see "The
Exchange Offer--Procedures for Tendering Original
Notes".
Expiration Date.............
5:00 p.m., New York City time, on November 2,
1998, unless the Exchange Offer is extended by
the Company in its sole discretion (in which case
the Expiration Date will be the latest date and
time to which the Exchange Offer is extended).
See "The Exchange Offer--Terms of the Exchange
Offer".
Conditions To The Exchange The Exchange Offer is subject to the condition
Offer...................... that the Exchange Offer does not violate
applicable law or Commission staff
interpretation. If the Company determines that
the Exchange Offer is not permitted by applicable
federal law, it may terminate the Exchange Offer.
The Exchange Offer is not conditioned upon any
minimum principal amount of Original Notes being
tendered. See "The Exchange Offer--Conditions to
the Exchange Offer".
Resale Of The Exchange Based on an interpretation by the staff of the
Notes...................... Commission set forth in no-action letters issued
to third parties, the Company
6
<PAGE>
believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than (i) a broker-dealer who purchased
such Original Notes directly from the Company for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act or
(ii) a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that the holder is
acquiring the Exchange Notes in its ordinary
course of business and is not participating, and
has no arrangement or understanding with any
person to participate, in the distribution of the
Exchange Notes. Holders of Original Notes wishing
to accept the Exchange Offer must represent to
the Company that such conditions have been met.
In the event that the Company's belief is
inaccurate, holders of Exchange Notes who
transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities
Act and without an exemption from registration
thereunder may incur liability under the
Securities Act. The Company does not assume or
indemnify holders against such liability,
although the Company does not believe that any
such liability should exist.
A broker-dealer that receives Exchange Notes in
exchange for Original Notes held for its own
account, as a result of market-making activities
or other trading activities (a "Participating
Broker-Dealer"), must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. Although such
broker-dealer may be an "underwriter" within the
meaning of the Securities Act, the Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "Plan of Distribution".
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchange from,
Holders of Original Notes in any jurisdiction in
which the Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Procedures For Tendering
Original Notes............. Each Holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Original Notes and any other required
documentation to the Exchange Agent (as defined
herein) at
7
<PAGE>
the address set forth herein. By executing a
Letter of Transmittal, each Holder will represent
to the Company that, among other things, (i) the
Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving such Exchange
Notes, whether or not such person is the Holder,
(ii) neither the Holder nor any such other person
has any arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and that such Holder is not
engaged in, and does not intend to engage in, a
distribution of Exchange Notes, and (iii) that
neither the Holder nor any such other person is
an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer-- Procedures for Tendering Original Notes".
Special Procedures For
Beneficial Owners.......... Any beneficial owner whose Original Notes are
registered in the name of a broker-dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. See "The Exchange Offer--
Procedures for Tendering Original Notes".
Guaranteed Delivery Holders of Original Notes who wish to tender
Procedures................. their Original Notes and whose Original Notes are
not immediately available or who cannot deliver
their Original Notes, the Letter of Transmittal,
or any other documents required by such Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Original
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures".
Untendered Original Notes... Following the consummation of the Exchange Offer,
Holders of Original Notes eligible to participate
but who do not tender their Original Notes will
not have any further exchange rights and such
Original Notes will continue to be subject to
certain restrictions on transfer. Accordingly,
the liquidity of the market for such Original
Notes could be adversely affected by the Exchange
Offer.
Consequences Of Failure To
Exchange................... The Original Notes that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside
the United States to a foreign person pursuant to
the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the Securities Act.
See "The Exchange Offer--Consequences of Failure
to Exchange".
8
<PAGE>
Shelf
RegistrationStatement...... In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect
the Exchange Offer or upon the request of a
Holder of Transfer Restricted Securities (as
defined) under certain circumstances the Company
has agreed pursuant to the Registration Rights
Agreement to register the Original Notes issued
by it on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission. The Company has agreed to
maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, at least two years, to cover
resales of the Original Notes held by any such
Holders.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance Of Original
Notes And Delivery Of The Company will accept for exchange any and all
Exchange Notes............. Original Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer".
Federal Tax The exchange pursuant to the Exchange Offer will
Considerations............. generally not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Consequences".
Use Of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. First Union National Bank
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes
except that (i) the Exchange Notes have been
registered under the Securities Act and,
therefore, will generally not bear legends
restricting the transfer thereof, and (ii) the
holders of Exchange Notes will not be entitled to
rights under the Registration Rights Agreement.
See "The Exchange Offer". The Exchange Notes will
evidence the same debt as the Original Notes and
will be entitled to the benefits of the
Indenture.
Securities Offered.......... $100 million in aggregate principal amount of 8
5/8% Senior Notes due 2008.
Maturity Date............... August 1, 2008.
Interest Payment Dates...... February 1 and August 1 of each year, commencing
February 1, 1999.
9
<PAGE>
Optional Redemption......... Except as described below, the Exchange Notes are
not redeemable at the Company's option prior to
August 1, 2003. From and after August 1, 2003,
the Exchange Notes will be subject to redemption
at the option of the Company, in whole or in
part, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of
redemption.
In addition, prior to August 1, 2001, up to an
aggregate of $30 million in aggregate principal
amount of Notes will be redeemable at the option
of the Company from the net proceeds of one or
more Public Equity Offerings (as defined in the
Indenture) at a redemption price of 108.625% of
the principal amount of the Notes, plus accrued
and unpaid interest to the date of redemption;
provided that at least $70 million in aggregate
principal amount of Notes remains outstanding
immediately after each such redemption; and
provided, further, that the notice of any such
redemption shall be mailed within 60 days of the
date of closing of such Public Equity Offering.
Change of Control........... In the event of a Change of Control (as defined
in the Indenture), holders of the Exchange Notes
will have the right to require the Company to
repurchase their Exchange Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest to the date of repurchase.
Ranking..................... The Exchange Notes will be senior, unsecured
obligations of the Company, will rank pari passu
with all senior debt of the Company and will be
senior in right of payment to all existing and
future subordinated debt of the Company, if any.
The Company maintains a senior revolving credit
facility secured by substantially all of the
inventory and accounts receivable of the Company
and its subsidiaries. As of September , 1998,
the Company had no outstanding senior debt other
than the Original Notes.
Restrictive Covenants....... The Indenture contains certain covenants that
will, among other things, limit the ability of
the Company and its subsidiaries to incur
additional Indebtedness (as defined in the
Indenture), pay dividends or distributions or
make investments or make certain other Restricted
Payments (as defined in the Indenture), dispose
of certain assets, incur liens, enter into
certain transactions with affiliates and engage
in mergers and consolidations. See "Description
of the Exchange Notes".
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are summary historical and pro forma financial data of the
Company. The summary historical financial data of the Company for each of the
three years in the period ended December 31, 1997 have been derived from the
Company's audited financial statements for those periods. The summary
historical financial data for the six months ended June 30, 1997 and June 30,
1998 have been derived from the Company's unaudited financial statements for
these periods and, in the opinion of management, include all necessary
adjustments for a fair presentation of such information in conformity with
generally accepted accounting principles. The unaudited pro forma financial
data of the Company for the year ended December 31, 1997 and the six months
ended June 30, 1998 are based upon available data and certain assumptions that
the Company's management believes are reasonable and do not purport to
represent what the Company's financial position or results of operations might
be for any future period or date. The information presented below should be
read in conjunction with "Capitalization", "Unaudited Summary Pro Forma Balance
Sheet", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $263,147 $269,451 $252,526 $125,992 $133,625
Cost of sales............... 186,382 182,585 180,093 87,946 95,267
-------- -------- -------- -------- --------
Gross profit................ 76,765 86,866 72,433 38,046 38,358
Selling, general and
administrative expenses.... 55,228 61,597 57,094 31,060 31,167
-------- -------- -------- -------- --------
Income from operations...... 21,537 25,269 15,339 6,986 7,191
Interest income............. 1,479 1,784 1,539 959 460
Interest expense............ (8,187) (8,153) (6,797) (3,599) (3,346)
Other income (expense),
net........................ 1,135 1,095 974 638 533
-------- -------- -------- -------- --------
Income before income taxes
and extraordinary item..... 15,964 19,995 11,055 4,984 4,838
Provision for income taxes.. 6,529 7,898 4,035 1,867 1,766
-------- -------- -------- -------- --------
Income before extraordinary
item....................... 9,435 12,097 7,020 3,117 3,072
Extraordinary item net of
income tax benefit(a)...... -- -- (279) -- --
-------- -------- -------- -------- --------
Net income.................. $ 9,435 $ 12,097 $ 6,741 $ 3,117 $ 3,072
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(b)................... $ 31,290 $ 36,147 $ 26,407 $ 12,802 $ 13,063
Capital expenditures........ 10,178 12,817 19,767 10,142 3,773
Ratio of EBITDA to net
interest expense(c)........ 4.7x 5.7x 5.0x 4.8x 4.5x
Ratio of net debt to
EBITDA(d).................. 1.6x 1.1x 2.2x 1.7x 2.0x
Ratio of earnings to fixed
charges(e)................. 2.8x 3.2x 2.2x 2.1x 2.2x
PRO FORMA FINANCIAL DATA(F):
Ratio of EBITDA to net
interest expense(c)........ -- -- 4.1x -- 3.5x
Ratio of net debt to
EBITDA(d).................. -- -- 2.4x -- 2.3x
Ratio of earnings to fixed
charges(e)................. -- -- 2.0x -- 1.8x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
---------------------
ACTUAL PRO FORMA(G)
BALANCE SHEET DATA: -------- ------------
<S> <C> <C>
Cash, cash equivalents and short-term investments......... $ 23,235 $ 37,666
Total assets.............................................. 213,756 230,208
Long-term debt, including current portion................. 76,594 99,505
Stockholders' equity...................................... 34,855 32,576
</TABLE>
11
<PAGE>
- --------
(a) Extraordinary item related to the early retirement of debt.
(b) EBITDA represents earnings before income taxes and extraordinary item plus
net interest expense, depreciation and amortization. EBITDA is not a
measurement of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as a substitute
for other income statement or cash flow statement data prepared in
conformity with generally accepted accounting principles, or as a measure
of profitability or liquidity.
(c) Net interest expense represents interest expense less interest income.
(d) Net debt represents long-term debt, including current portion, less cash,
cash equivalents and short-term investments. For the six months ended June
30, 1997 and 1998, EBITDA was calculated using data from the 12 months
ended June 30, 1997 and 1998, respectively.
(e) The ratio of earnings to fixed charges has been computed by dividing income
before income taxes and extraordinary item plus fixed charges by fixed
charges. Fixed charges consist of interest on all indebtedness,
amortization of deferred financing fees and the portion of rental expense
representative of interest.
(f) Pro forma for the Initial Offering and application of the proceeds
therefrom to redeem the Company's 9% Senior Notes due 2001 as described in
"Use of Proceeds". Based on an effective interest rate of 8.7% on the
Notes. The pro forma impact of the Initial Offering on the historical
statement of operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 results in a net increase to interest expense of
$1,107 and $882, respectively; a net increase in amortization of deferred
financing fees of $229 and $92, respectively; and a reduction in income tax
expense of $320 and $288, respectively.
(g) Refer to "Unaudited Summary Pro Forma Balance Sheet" for explanation of
adjustments.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Exchange Notes offered hereby. This Prospectus contains
certain "forward-looking statements" within the meaning of Section 27A of the
Securities Act. Actual results could differ materially from the Company's
forward-looking statements as a result of certain factors and uncertainties
set forth below and elsewhere in this Prospectus, including and in particular
the Summary, Management's Discussion and Analysis of Financial Condition and
Results of Operations and this Risk Factors section. Factors that could cause
actual results to differ from expectations, in addition to the risk factors
described below, include: (i) increases in raw material prices, (ii) increased
competitive activity from companies in the flooring industry, some of which
have greater resources and broader distribution channels than the Company,
(iii) unfavorable developments in the national economy or in the housing
industry in general, and competitive pricing and consolidation in the
industry, (iv) shipment delays, depletion of inventory and increased
production costs resulting from unforeseen disruptions of operations at any of
the Company's facilities or distributors and (v) the future cost and timing of
payments associated with environmental, product or general liability claims.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS
As a result of the Initial Offering, the Company will be highly leveraged.
As of October 2, 1998, the Company's total long-term indebtedness was
approximately $99.5 million. See "Capitalization".
The degree to which the Company is leveraged could have important
consequences to the holders of the Exchange Notes, including the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, general corporate purposes or other
purposes may be impaired, (ii) the Company's substantial degree of leverage
could make it more vulnerable to a downturn in general economic conditions and
(iii) the Company may be more highly leveraged than other companies with which
it competes, which may place it at a competitive disadvantage.
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness (including the Notes), or
to fund planned capital expenditures will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive and other factors that are beyond its control. Based upon the
current level of operations, the Company believes that cash flow from
operations and available cash will be adequate to meet the Company's
anticipated future requirements for working capital, budgeted capital
expenditures and scheduled payments of principal and interest on its
indebtedness, including the Notes, for the next several years. The Company is
permitted under the Indenture to increase the amounts currently available for
borrowing under the Company's existing $30 million senior credit facility (the
"Credit Facility") which expires on July 31, 2000. The Company may, however,
need to refinance all or a portion of the principal of the Notes on or prior
to maturity. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will
be available under the Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or make anticipated
capital expenditures or acquisitions. In addition, there can be no assurance
that the Company will be able to effect any such refinancing on commercially
reasonable terms, or at all.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture contains certain covenants that will, among other things,
limit the ability of the Company and its subsidiaries to incur additional
Indebtedness (as defined in the Indenture), pay
13
<PAGE>
dividends or distributions or make investments or make certain other
Restricted Payments (as defined in the Indenture), dispose of certain assets,
incur liens, enter into certain transactions with affiliates and engage in
mergers and consolidations. In addition, the Company maintains the Credit
Facility secured by substantially all of the inventory and accounts receivable
of the Company and its subsidiaries which contains additional restrictive
covenants. The Credit Facility requires the Company to satisfy a financial
condition test. The Company's ability to meet this financial condition test
can be affected by events beyond its control, and there can be no assurance
that the Company will meet this test. A breach of any of these covenants could
result in a default under the Credit Facility and/or the Indenture. Upon the
occurrence of an event of default under the Credit Facility, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the lenders under the Credit Facility accelerate the payment of such
indebtedness, there can be no assurance that the assets of the Company would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the Notes. See "Description of the Exchange Notes--
Certain Covenants".
UNSECURED STATUS OF THE EXCHANGE NOTES
The Exchange Notes will be senior unsecured obligations of the Company, will
rank pari passu with all existing and future senior indebtedness of the
Company and will rank senior in right of payment to all existing and future
subordinated indebtedness, if any, of the Company. However, because the
Company has granted security interests in all of its inventory and accounts
receivable in connection with the Credit Facility, the Exchange Notes will be
effectively subordinated to the indebtedness under the Credit Facility to the
extent of such security interests. In addition, the Indenture permits the
Company to grant additional security interests in its assets in certain
circumstances including any successor facility. See "Description of the
Exchange Notes".
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a change of control, each holder of Exchange Notes
may require the Company to repurchase all or a portion of such holder's
Exchange Notes at 101% of the principal amount of the Exchange Notes together
with accrued and unpaid interest to the date of repurchase. There can be no
assurance that the Company would have the funds necessary or access to
financing sufficient to effect such a purchase if such an event were to occur.
In addition, the Credit Facility prohibits the Company from purchasing any
Exchange Notes and also provides that certain changes in control of the
Company would constitute a default thereunder. If the Company does not obtain
a consent under the Credit Facility or repay borrowings thereunder, the
Company will be prohibited from purchasing the Exchange Notes. In such case,
the Company's failure to purchase tendered Exchange Notes would constitute an
Event of Default under the Indenture. See "Description of the Exchange Notes--
Change of Control".
BUSINESS CONDITIONS
The Company's business is cyclical and is affected by the same economic
factors that affect the remodeling and housing industries in general,
including the availability of credit, consumer confidence, changes in interest
rates, market demand and general economic conditions. In addition to external
economic factors, the Company's results are sensitive to sales and
manufacturing volume, competitors' pricing, consumer preferences for flooring
products, raw material costs and the mix of products sold. As a result, an
adverse change in one or more of these factors may have a material adverse
effect on the Company's business.
The Company's business is also affected by fluctuations in the price levels
of certain raw materials including vinyl resins, plasticizers, latex,
limestone, stabilizers, cellulose paper fibers, urethane and transfer print
paper which are utilized in the Company's manufacturing process. The Company
has had no difficulty in obtaining its requirements for these materials,
although significant price increases in certain materials have been
experienced at times. See "Management's Discussion and Analysis of
14
<PAGE>
Financial Condition and Results of Operations". The Company obtains the
majority of its supply of raw materials pursuant to supply contracts with
terms of one to five years, although availability and pricing may be dependent
on market conditions. The Company does not have readily available alternative
sources of supply for specific designs of transfer print paper, which are
produced utilizing print cylinders engraved to the Company's specifications.
Although no loss of this source of supply is anticipated, replacement could
take a considerable period of time and interrupt production of certain
products. The Company maintains a raw material inventory and has an ongoing
program to develop new sources which will provide continuity of supply for its
raw material requirements. However, supply interruptions or significant
increases in the costs incurred by the Company to purchase these materials
could have a material adverse effect on the Company's business. See
"Business--Manufacturing Process; Raw Materials".
CUSTOMER CONCENTRATION
For the year ended December 31, 1997, 19% of the Company's total net sales
were to L.D.Brinkman & Co., which distributes products to the Southwest and
West Coast, and 23% of the Company's total net sales were to LaSalle Bristol
Corporation, which distributes the Company's products to the manufactured
housing market. The loss of either of these distributors could have a material
adverse effect on the Company. See "Business--Distribution Sales and
Marketing".
COMPETITION
The market for the Company's floor covering products is highly competitive.
The Company's resilient flooring products compete with other resilient
flooring products as well as with alternative floor covering products such as
carpeting, hardwood, ceramic tile, rubber tile, laminates and stone (marble,
granite and others). The competitive success of the Company will depend upon
its ability to design, manufacture and market resilient flooring products
which appeal to consumers in a dynamic marketplace characterized by frequent
introductions of new product styles. Certain of the Company's competitors have
substantially greater financial and other resources than the Company. While
the Company does not expect the recent consolidation in the industry to have a
material adverse effect on the Company's sales volume or profitability, there
can be no assurance that recent or future consolidation will not adversely
affect the Company's business. See "Business--Competition".
CONTROLLING STOCKHOLDER
As of October 2, 1998, American Biltrite controlled 64% of the voting power
of the Company through its ownership of 4,395,605 shares of Class B common
stock. By virtue of such control, American Biltrite has the power to control
all matters submitted to stockholders of the Company, other than certain
extraordinary matters, and to elect all directors of the Company. American
Biltrite is a publicly traded company which, in addition to its interest in
Congoleum, produces pressure sensitive tapes and adhesive products used for
applications in the footwear, heating, ventilating and air conditioning,
automotive and electrical and electronic industries. American Biltrite is also
a national supplier, distributor and servicer of a wide variety of adult,
children's and specialty items of fashion jewelry and related accessories. In
Canada, American Biltrite is a producer of floor tile and a manufacturer of
industrial products. See "Principal Stockholders".
ENVIRONMENTAL LAWS AND LEGAL AND ADMINISTRATIVE CLAIMS
The Company is subject to federal, state and local environmental laws and
regulations and certain legal and administrative claims are pending or have
been asserted against the Company. Among these claims, the Company is a named
party in several actions associated with waste disposal sites, asbestos-
related claims and general liability claims. These actions include possible
obligations to remove or mitigate the effects on the environment of wastes
deposited at various sites, including Superfund sites and certain of the
Company's owned and previously owned facilities. The contingencies also
include claims for personal injury and/or property damage. The exact amount of
15
<PAGE>
such future cost and timing of payments are indeterminable due to such unknown
factors as the magnitude of cleanup costs, the timing and extent of the
remedial actions that may be required, the determination of the Company's
liability in proportion to other potentially responsible parties, the fact
that the Company's liability may be joint and several with other parties, and
the extent to which costs may be recoverable pursuant to insurance coverage
maintained by the Company.
The Company has recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities, including
provisions for testing for potential remediation of conditions at its own
facilities. While the Company believes its estimate of the future amount of
these liabilities is reasonable, that such amounts will not have a material
adverse impact on the Company's financial position, and that they will be paid
over a period of five to ten years, the timing and amount of such payments may
differ significantly from the Company's assumptions. Although the effect of
future government regulation could have a significant effect on the Company's
costs, the Company is not aware of any pending legislation which could have a
material adverse effect on its financial position. There can be no assurances
that the costs of any future government regulations could be passed along to
its customers. See "Business--Environmental Regulation" and "--Legal
Proceedings".
POTENTIAL "YEAR 2000" PROBLEMS
The Company has completed an assessment of the steps it believes will be
necessary for its existing and planned data processing systems to operate
properly when confronted with dates beginning in the year 2000. A plan has
been developed which identifies the systems affected and the steps that will
be required to assure year 2000 compliance. The Company's existing plan to
improve operations by replacing or upgrading systems in the ordinary course of
business during 1998 and 1999 will have the additional benefit of providing
year 2000 compliance in many instances. The resources required to make the
remaining systems compliant have been estimated and are being provided by a
combination of existing employees and outside contractors. The Company has
retained or believes it will be able to retain the necessary employees and
outside resources to accomplish this, and that the cost to achieve compliance
will not be material to the Company's financial position, liquidity or results
of operations. As of June 1998, the Company has completed converting 57% of
the systems identified as requiring modification. The timing and resource
requirements to date have been consistent with the Company's plan, and the
Company anticipates that all of its mission-critical systems will be year 2000
compliant by the end of 1998. However, if any governmental agencies, key
customers or key suppliers are unable to make the necessary computer systems
changes on a timely basis, such inability could negatively impact the
Company's results of operations.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company, at the time it incurred the indebtedness evidenced by the Notes, (i)
(a) was or is insolvent or rendered insolvent by reason of such incurrence or
(b) was or is engaged in a business or transactions for which the assets
remaining with the Company constituted unreasonably small capital or (c)
intended or intends to incur, or believed or believes that it would incur
debts beyond its ability to pay such debts as they mature, and (ii) received
or receives less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness, then the Notes could be voided, or claims
in respect of the Notes could be subordinated to all other debts of the
Company. In addition, the payment of interest and principal by the Company
pursuant to the Notes could be voided and required to be returned to the
person making such payment, or to a fund for the benefit of the creditors of
the Company.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company
16
<PAGE>
would be considered insolvent if (i) the sum of its debts, including
contingent liabilities, were greater than the saleable value of all of its
assets at a fair valuation or if the present fair saleable value of its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become
absolute and mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that after giving effect to the
indebtedness incurred in the Initial Offering, the Company will not be
insolvent, will not have unreasonably small capital for the business in which
it is engaged and will not incur debts beyond its ability to pay such debts as
they mature. There can be no assurance, however, as to what standard a court
would apply in making such determinations or that a court would agree with the
Company's conclusions in this regard.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON RESALE
The Exchange Notes are new securities for which there currently is no
market. Although the Initial Purchasers have informed the Company that they
intend to make a market in the Exchange Notes, they are not obligated to do so
and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Exchange Notes. The Exchange Notes are expected to be
eligible for trading by qualified buyers in the Private Offerings, Resale and
Trading through Automated Linkages ("PORTAL") Market. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange
or for quotation through the Nasdaq National Market.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects of, the Company.
17
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Notes.
A portion of the gross proceeds of $99.5 million from the Initial Offering
was used to redeem all of the 2001 Notes, including accrued interest and the
applicable prepayment premium, and to pay certain fees and expenses in
connection with the Initial Offering. The remainder of such proceeds will be
used for working capital and general corporate purposes.
RECENT DEVELOPMENTS
On August 3, 1998, the Company consummated the sale of the Original Notes in
a transaction exempt from the registration requirements of the Securities Act.
On September 3, 1998, the Company used a portion of the proceeds received from
the Initial Offering to repay the indebtedness represented by its 9% Senior
Notes due 2001, and accrued but unpaid interest and prepayment premium
thereon. The remainder of such proceeds will be used to pay certain fees and
expenses in connection with the Initial Offering and will be used for working
capital and general corporate purposes. In connection with the Initial
Offering, the Company entered into the Registration Rights Agreement with the
Initial Purchasers pursuant to which it agreed to register the Exchange Notes
under the Securities Act and offer them in exchange for the Original Notes.
See "Use of Proceeds," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
CAPITALIZATION
The following table sets forth the unaudited cash, cash equivalents and
short-term investments and capitalization of the Company at June 30, 1998 and
as adjusted to give effect to the Initial Offering and the Exchange Offer.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Unaudited Summary
Pro Forma Balance Sheet" and the financial statements and notes thereto
included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED(A)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments...... $ 23,235 $ 37,666
Long-term debt:
9% Senior Notes due 2001.............................. 76,594 --
8 5/8% Senior Notes due 2008.......................... 0 99,505
-------- --------
Total long-term debt................................ 76,594 99,505
Total stockholders' equity............................. 34,855 32,576
-------- --------
Total capitalization................................... $111,449 $132,081
======== ========
</TABLE>
- --------
(a) Refer to "Unaudited Summary Pro Forma Balance Sheet" for a description of
the pro forma adjustments. The adjusted amounts shown in the
capitalization table assume the extinguishment of the 2001 Notes after the
30-day call period has expired.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of the Company. The
selected historical financial data of the Company for the ten months ended
December 31, 1993 and for each of the four years in the period ended December
31, 1997 have been derived from the Company's audited financial statements for
those periods. The selected historical financial data for the six months ended
June 30, 1998 and June 30, 1997 have been derived from the Company's unaudited
financial statements for these periods and, in the opinion of management,
include all necessary adjustments for a fair presentation of such information
in conformity with generally accepted accounting principles. The information
presented below should be read in conjunction with "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
TEN
MONTHS SIX
ENDED YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------ -------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------------ -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $211,140 $265,784 $263,147 $269,451 $252,526 $125,992 $133,625
Cost of sales........... 143,461 175,059 186,382 182,585 180,093 87,946 95,267
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 67,679 90,725 76,765 86,866 72,433 38,046 38,358
Selling, general and
administrative
expenses............... 44,043 56,315 55,228 61,597 57,094 31,060 31,167
Income from operations.. 23,636 34,410 21,537 25,269 15,339 6,986 7,191
Interest income......... 8 879 1,479 1,784 1,539 959 460
Interest expense........ (5,349) (7,847) (8,187) (8,153) (6,797) (3,599) (3,346)
Other income (expense),
net.................... (562) 1,184 1,135 1,095 974 638 533
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and extraordinary
item................... 17,733 28,626 15,964 19,995 11,055 4,984 4,838
Provision for income
taxes.................. 6,561 11,131 6,529 7,898 4,035 1,867 1,766
-------- -------- -------- -------- -------- -------- --------
Income before extraordi-
nary item.............. 11,172 17,495 9,435 12,097 7,020 3,117 3,072
Extraordinary item net
of income tax
benefit(a)............. -- -- -- -- (279) -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 11,172 $ 17,495 $ 9,435 $ 12,097 $ 6,741 $ 3,117 $ 3,072
======== ======== ======== ======== ======== ======== ========
Net income before ex-
traordinary item per
share.................. $ 0.79 $ 1.75 $ 0.94 $ 1.21 $ 0.72 $ 0.31 $ 0.34
======== ======== ======== ======== ======== ======== ========
Average weighted shares
outstanding............ 11,447 10,000 10,022 10,007 9,839 9,990 9,038
OTHER FINANCIAL DATA:
EBITDA(b)............... $ 32,994 $ 44,337 $ 31,290 $ 36,147 $ 26,407 $ 12,802 $ 13,063
Capital expenditures.... 4,956 10,726 10,178 12,817 19,767 10,142 3,773
Ratio of EBITDA to net
interest expense(c).... 6.2x 6.4x 4.7x 5.7x 5.0x 4.8x 4.5x
Ratio of net debt to
EBITDA(d).............. 0.6x 1.2x 1.6x 1.1x 2.2x 1.7x 2.0x
Ratio of earnings to
fixed charges(e)....... 4.2x 4.3x 2.8x 3.2x 2.2x 2.1x 2.2x
BALANCE SHEET DATA (END
OF PERIOD):
Cash, cash equivalents
and short-term
investments............ $ 2,735 $ 38,818 $ 40,103 $ 48,129 $ 18,969 $ 26,685 $ 23,235
Total assets............ 175,546 204,822 206,842 219,798 196,581 224,715 213,756
Long-term debt,
including current
portion................ 29,673 90,000 90,000 87,750 76,594 86,925 76,594
Stockholders' equity.... 9,017 19,410 22,602 33,667 31,783 35,004 34,855
</TABLE>
- --------
(a) Extraordinary item related to the early retirement of debt.
(b) EBITDA represents earnings before income taxes and extraordinary item plus
net interest expense, depreciation and amortization. EBITDA is not a
measurement of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as a
substitute for other income statement or cash flow statement data prepared
in conformity with generally accepted accounting principles, or as a
measure of profitability or liquidity.
(c) Net interest expense represents interest expense less interest income.
(d) Net debt represents long-term debt, including current portion, less cash,
cash equivalents and short-term investments. For the six months ended June
30, 1997 and 1998, EBITDA was calculated using data from the 12 months
ended June 30, 1997 and 1998, respectively.
(e) The ratio of earnings to fixed charges has been computed by dividing
earnings before income taxes and extraordinary item plus fixed charges by
fixed charges. Fixed charges consist of interest on all indebtedness,
amortization of deferred financing fees and the portion of rental expense
representative of interest.
19
<PAGE>
UNAUDITED SUMMARY PRO FORMA BALANCE SHEET
The following unaudited summary pro forma balance sheet reflects the
historical June 30, 1998 balance sheet as adjusted to give effect to the
Initial Offering and the Exchange Offer and the application of the proceeds
therefrom as described under "Use of Proceeds". The summary pro forma balance
sheet is based on available data and certain assumptions that the Company's
management believes are reasonable and do not purport to represent what the
Company's financial position might be for any future period or date.
<TABLE>
<CAPTION>
JUNE 30, 1998
(IN THOUSANDS)
------------------------
ACTUAL PRO FORMA(1)(2)
-------- ---------------
<S> <C> <C>
Cash, cash equivalents and short-term investments..... $ 23,235 $ 37,666
Total assets.......................................... 213,756 230,208
Long-term debt, including current portion............. 76,594 99,505
Total liabilities..................................... 178,901 197,632
Stockholders' equity.................................. 34,855 32,576
</TABLE>
- --------
(1) Unaudited Summary Pro Forma Balance Sheet Adjustments include:
<TABLE>
<CAPTION>
ACCRUED
INTEREST
OTHER NON- AND
CURRENT TOTAL LONG-TERM INCOME TOTAL STOCKHOLDERS'
CASH ASSETS ASSETS DEBT TAXES LIABILITIES EQUITY
--------- ---------- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance....... $ 23,235 $ 9,129 $213,756 $(76,594) $(5,240) $(178,901) $34,855
Debt issuance(a)........ 99,505 -- 99,505 (99,505) -- (99,505) --
Debt repurchase(b)...... (76,594) -- (76,594) 76,594 -- 76,594 --
Payment of accrued
interest .............. (2,870) -- (2,870) -- 2,870 2,870 --
Financing fees(c)....... (3,310) 3,310 -- -- -- -- --
Write-off of fees(d).... -- (1,289) (1,289) -- 470 470 (819)
Premium paid on debt
repurchase(e).......... (2,300) -- (2,300) -- 840 840 (1,460)
--------- ------- -------- -------- ------- --------- -------
Ending balance.......... $ 37,666 $11,150 $230,208 $(99,505) $(1,060) $(197,632) $32,576
========= ======= ======== ======== ======= ========= =======
</TABLE>
(a)Represents proceeds from the Initial Offering net of original issue
discount of $495.
(b)Represents the assumed repayment of the 2001 Notes.
(c)Represents the deferred financing fees, including underwriting discounts
and costs related to the Initial Offering.
(d) Represents the write-off of deferred financing costs associated with the
assumed repayment of the 2001 Notes and the related tax benefit.
(e)Represents the premium paid on the assumed repayment of the 2001 Notes and
the related tax benefit.
(2) The extinguishment of the 2001 Notes is subject to a 30-day call period.
The pro forma adjustments assume the repayment of the 2001 Notes and
write-off of the deferred financing fees as of June 30, 1998 after the 30-
day call period expires.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of the Company for the six months ended
June 30, 1998 and June 30, 1997 and the fiscal years ended December 31, 1997,
December 31, 1996 and December 31, 1995. This discussion should be read in
conjunction with, and is qualified in its entirety by, the financial
statements and the notes thereto included elsewhere in this Prospectus.
GENERAL
The Company's business is cyclical and is affected by the same economic
factors that affect the remodeling and housing industries in general,
including the availability of credit, consumer confidence, changes in interest
rates, market demand and general economic conditions.
In addition to external economic factors, the Company's results are
sensitive to sales and manufacturing volume, competitors' pricing, consumer
preferences for flooring products, raw material costs and the mix of products
sold. The manufacturing process is capital intensive and requires substantial
investment in facilities and equipment. The cost of operating these facilities
generally does not vary in direct proportion to production volume, and
consequently operating results fluctuate disproportionately with changes in
sales volume.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated certain historical
income statement data derived from the Company's audited financial statements
for the three years in the period ended December 31, 1997 and the Company's
unaudited financial statements for the six months ended June 30, 1998 and June
30, 1997:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................... $263,147 $269,451 $252,526 $125,992 $133,625
Cost of sales............... 186,382 182,585 180,093 87,946 95,267
-------- -------- -------- -------- --------
Gross profit................ 76,765 86,866 72,433 38,046 38,358
As a percent of net
sales.................... 29.2% 32.2% 28.7% 30.2% 28.7%
Selling, general and
administrative expenses.... $ 55,228 $ 61,597 $ 57,094 $ 31,060 $ 31,167
As a percent of net
sales.................... 21.0% 22.9% 22.6% 24.7% 23.3%
Income from operations...... $ 21,537 $ 25,269 $ 15,339 $ 6,986 $ 7,191
As a percent of net
sales.................... 8.2% 9.4% 6.1% 5.5% 5.4%
Interest income............. $ 1,479 $ 1,784 $ 1,539 $ 959 $ 460
Interest expense............ (8,187) (8,153) (6,797) (3,599) (3,346)
Other income (expense),
net........................ 1,135 1,095 974 638 533
-------- -------- -------- -------- --------
Income before income taxes
and extraordinary item..... 15,964 19,995 11,055 4,984 4,838
Provision for income taxes.. 6,529 7,898 4,035 1,867 1,766
-------- -------- -------- -------- --------
Income before extraordinary
item....................... 9,435 12,097 7,020 3,117 3,072
Extraordinary item net of
income tax benefit......... -- -- (279) -- --
-------- -------- -------- -------- --------
Net income.................. $ 9,435 $ 12,097 $ 6,741 $ 3,117 $ 3,072
======== ======== ======== ======== ========
</TABLE>
21
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales for the six months ended June 30, 1998 were $133.6 million
compared to $126.0 million for the same period ended June 30, 1997, an
increase of $7.6 million or 6.1%. This increase was due to additional sales to
the retail home center channel, higher sales to the manufactured housing
sector, and sales of recently introduced products.
Gross profit for the six months ended June 30, 1998 was $38.4 million
compared to $38.0 million for the first six months of 1997. As a percentage of
net sales, gross profit was 28.7% for the first six months of 1998, as
compared to 30.2% for the six months ended June 30, 1997. Profit margins
declined in the first half of 1998 from 1997 levels due to competitive
industry conditions, which more than offset lower raw material costs and
improved manufacturing efficiency.
Selling, general and administrative expenses were $31.2 million for the
first half of 1998 compared to $31.1 million in the same period last year. As
a percentage of net sales, selling, general and administrative expenses were
23.3% for the first half of 1998, down from 24.7% for the first half of 1997.
Increases in sales related expenses were offset by reductions in other
expenses.
Income from operations for the first half of 1998 was $7.2 million (5.4% of
net sales), compared to $7.0 million (5.5% of net sales) for the same period
in 1997, an increase of $0.2 million. The increase was due to the higher sales
and gross profit during the first half of 1998.
Net income for the six months ended June 30, 1998 was $3.1 million, the same
as the first half of 1997.
1997 COMPARED TO 1996
Net sales for the year ended December 31, 1997 were $252.5 million, compared
to $269.5 million for the year ended December 31, 1996, a decrease of $17.0
million or 6.3%. The decline in sales was due to a number of factors. These
were reduced sales volume of higher priced sheet goods, an inventory reduction
by the Company's largest distributor, lower average selling prices for certain
products, and a decline in shipments to Color Tile, Inc., a major retailer
which ceased operations in mid-1997. In addition, the Company's largest
production line was shut down for refurbishment for four months, which limited
its ability to pursue certain sales initiatives.
Gross profit for the year ended December 31, 1997 was $72.4 million, or
28.7% of sales, compared to $86.9 million, or 32.2% of sales for the previous
year, a decline of $14.5 million or 16.7%. The decline in gross profit was due
to higher raw material costs, a less profitable mix of products sold, and
manufacturing inefficiencies experienced preparing for a planned shutdown of
the largest production line.
Selling, general and administrative expenses were $57.1 million for the year
ended December 31, 1997, compared to $61.6 million for the year ended December
31, 1996, a decline of $4.5 million, or 7.3%. This decrease was due to
declines in sales-related costs and incentive compensation, combined with an
overall program of cost control. As a percent of sales, selling, general and
administrative expenses declined to 22.6% in 1997 from 22.9% in 1996.
Income from operations was $15.3 million (6.1% of sales) for the year ended
December 31, 1997, down from $25.3 million (9.4% of sales) for 1996, a
decrease of $10 million or 39.5%. This decline reflects the lower sales and
gross profit, partly offset by reduced selling, general and administrative
expenses discussed above.
22
<PAGE>
Interest expense decreased from $8.2 million in 1996 to $6.8 million in
1997, a decrease of 16.6%, as a result of lower average debt outstanding and a
greater amount of interest capitalized in connection with capital
expenditures. The provision for income taxes declined from 39.5% of income
before income taxes in 1996 to 36.5% of income before income taxes in 1997 as
a result of the lower income level, which reduced the average effective
statutory rate, and lower effective state income tax rates.
The Company recorded an extraordinary charge of $0.3 million or $.03 per
share in 1997 for premiums and write-off of deferred financing costs in
connection with the open market purchase of $11.2 million of its Existing
Notes.
Net income for the year ended December 31, 1997 was $6.7 million, down 44.3%
from $12.1 million in 1996. Net income per share in 1997 was $0.69, down from
$1.21 in 1996.
1996 COMPARED TO 1995
Net sales for the year ended December 31, 1996 were $269.5 million, compared
to $263.1 million for the year ended December 31, 1995, an increase of $6.3
million or 2.4%. Sales were higher in 1996 due to new customers, increased
demand from the manufactured housing industry and a 2-3% price increase.
Partially offsetting this was a decline in purchases by Color Tile, Inc.
Gross profit for the year ended December 31, 1996 was $86.9 million, or
32.2% of sales, compared to $76.8 million, or 29.2% of sales for the previous
year, an increase of $10.1 million, or 13.2%. The improvement in gross profit
during 1996 was due to lower raw material costs, increased sales and pricing,
and improved manufacturing productivity.
Selling, general and administrative expenses amounted to $61.6 million for
the year ended December 31, 1996, compared to $55.2 million for 1995, an
increase of $6.4 million or 11.6%. Higher spending on marketing and new
product development programs, together with costs associated with establishing
new distribution in Canada, were the primary contributors to the increase,
which was partially offset by lower bad debt expenses in 1996. As a percent of
sales, selling, general and administrative expenses amounted to 22.9% for the
year ended December 31, 1996, compared to 21.0% for 1995.
Income from operations was $25.3 million (9.4% of net sales) for the year
ended December 31, 1996, up from $21.5 million (8.2% of net sales) for 1995,
an increase of $3.8 million (17.7%). The improvement in operating income
during 1996 was the result of higher sales and gross profit margins, net of
the increase in selling, general and administrative costs.
Interest income increased from $1.5 million in 1995 to $1.8 million in 1996
due to higher average cash and short-term investment balances during the year
ended December 31, 1996. The provision for income taxes declined from 40.9% of
income before income taxes for 1995 to 39.5% for 1996 as a result of lower
effective state income tax rates.
Net income for the year ended December 31, 1996 was $12.1 million, compared
to net income of $9.4 million for 1995, an increase of $2.7 million or 28.2%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, including short-term investments, increased $4.3
million for the six months ended June 30, 1998, to $23.2 million. Working
capital at June 30, 1998 was $43.0 million, up from $39.0 million at December
31, 1997. The ratio of current assets to current liabilities at June 30, 1998
was 1.7 to one compared to 1.9 to one at December 31, 1997. The ratio of debt
to total capital at June 30, 1998 was .36 compared to .39 at December 31,
1997. Cash provided by operations was $8.0 million for the first six months of
1998 compared to $8.9 million used in the first six months of 1997.
23
<PAGE>
Cash and equivalents, including short-term investments at December 31, 1997,
were $19.0 million, a decrease of $29.2 million from December 31, 1996.
Working capital was $39.0 million, down from $62.0 million one year earlier.
The ratio of current assets to current liabilities at December 31, 1997 was
1.9 to one, compared to 2.1 to one a year earlier. The ratio of debt to total
capital at December 31, 1997 was .39, compared to .40 at December 31, 1996.
Net cash provided by operations during the year ended December 31, 1997 was
$11.0 million, down from $23.1 million in 1996.
Capital expenditures totaled $3.8 million during the first six months of
1998 and $19.8 million during 1997. The Company projects total capital
spending of $16 million to $18 million in 1998 and $20 million to $25 million
in 1999. During 1997, the Company repurchased an aggregate of 959,700 shares
of its Class A common stock and Class B common stock for an aggregate cost of
$9.5 million. The Company also purchased $11.2 million par value of the 2001
Notes.
The Company records a liability for environmental remediation, asbestos-
related claim costs and general liability claims when a cleanup program or
claim payment becomes probable and the costs can be reasonably estimated. As
assessments and cleanups progress, these liabilities are adjusted based upon
progress in determining the timing and extent of remedial actions and the
related costs and damages. The extent and amounts of the liabilities can
change substantially due to factors such as the nature or extent of
contamination, changes in remedial requirements and technological
improvements. Estimated insurance recoveries related to these liabilities are
reflected in other noncurrent assets.
Although the outcome of these matters could result in significant expenses
or judgments, management does not believe based on present facts and
circumstances that their disposition will have a material adverse effect on
the financial position of the Company.
The Credit Facility provides for borrowings up to $30 million with interest
at 1% over prime, or 2 3/4% over the London Interbank Offered Rate and it
contains certain covenants which include the maintenance of minimum net worth
and restrictions on the incurrence of additional debt. Borrowings under the
Credit Facility are collateralized by inventory and receivables. At June 30,
1998, the Company had unused borrowing availability under the Credit Facility
of $26.7 million.
The Company's principal sources of capital are net cash provided by
operating activities and borrowings under the Credit Facility. The Company
believes these sources, in addition to its cash, cash equivalents and short-
term investments will be adequate to fund working capital requirements, debt
service payments and planned capital expenditures through the foreseeable
future.
In 1996, the Company's Board of Directors approved a plan to repurchase up
to $5 million (increased to $10 million in 1997) of the Company's common stock
(Class A and Class B shares) and up to $10 million of its 9% Senior Notes
(increased to $20 million in 1997). At December 31, 1997, $9.6 million had
been expended on stock purchases and $13.4 million had been expended on note
repurchases pursuant to these authorizations. There have been no repurchases
in 1998.
On August 3, 1998 the Company issued $100 million of 8 5/8% Senior Notes
maturing August 1, 2008 priced at 99.505 to yield 8.70%. Proceeds of the
offering were used to redeem all of the 9% Senior Notes, including accrued
interest and prepayment premium, to pay certain fees and expenses in
connection with the offering, and for working capital and general corporate
purposes. In connection with this offering, the Company will record an
extraordinary after-tax charge of $2.4 million ($0.27 per share) in the third
quarter of 1998.
The Company has recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities, including
provisions for testing for potential remediation of conditions at its own
facilities. While the Company believes its estimate of the future amount of
these liabilities is reasonable, that such amounts will not have a material
adverse effect on the financial position of the Company and that they will be
paid over a period of five to ten years, the timing and
24
<PAGE>
amount of such payments may differ significantly from the Company's
assumptions. Although the effect of future government regulation could have a
significant effect on the Company's costs, the Company is not aware of any
pending legislation which could have a material adverse effect on its results
of operations or financial position. There can be no assurances that such
costs could be passed along to its customers.
The Company has completed an assessment of the steps it believes will be
necessary for its existing and planned data processing systems and equipment
to operate properly when confronted with dates beginning in the year 2000. A
plan has been developed which identifies the systems affected and the steps
that will be required to assure year 2000 compliance. The Company's existing
plan to improve operations by replacing or upgrading systems in the ordinary
course of business during 1998 and 1999 will have the additional benefit of
providing year 2000 compliance in many instances. The resources required to
make the remaining systems compliant have been estimated and are being
provided by a combination of existing employees and outside contractors. The
Company has retained or believes it will be able to retain the necessary
employees and outside resources to accomplish this, and that the cost to
achieve compliance will not be material to the Company's financial position,
liquidity or results of operations. As of June 1998, the Company has completed
converting 57% of the systems identified as requiring modification. The timing
and resource requirements to date have been consistent with the Company's
plan, and the Company anticipates that all of its mission-critical systems
will be year 2000 compliant by the end of 1998. However, if any government
agencies, key customers or key suppliers are unable to make the necessary
computer system changes on a timely basis, such inability could negatively
impact the Company's results of operations.
Some of the information presented in or incorporated by reference in this
report constitutes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Although the Company
believes that its expectations are based on reasonable assumptions, within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from its
expectations. Factors that could cause actual results to differ from
expectations include: (i) increases in raw material prices, (ii) increased
competitive activity from companies in the flooring industry, some of which
have greater resources and broader distribution channels than the Company,
(iii) unfavorable developments in the national economy or in the housing
industry in general, (iv) shipment delays, depletion of inventory and
increased production costs resulting from unforeseen disruptions of operations
at any of the Company's facilities or distributors and (v) the future cost and
timing of payments associated with environmental, product and general
liability claims.
25
<PAGE>
BUSINESS
GENERAL
Congoleum is a leader in the resilient flooring industry and has marketed
flooring products under the Congoleum brand name since 1924. The Company
believes that its products are recognized for their high quality and superior
style by customers in the residential, manufactured housing and commercial
markets. Congoleum has historically been an innovator in production techniques
and design; the Company developed the chemical embossing process now utilized
throughout the resilient flooring industry and introduced major innovations
such as the no-wax floor. Currently, Congoleum produces 23 sheet vinyl
products in over 500 design and color combinations and 20 vinyl tile products
in more than 250 design and color combinations. The Company believes that it
has an approximate 20% share of the sheet vinyl portion and an approximate 10%
share of the vinyl tile portion of the total resilient flooring industry in
the United States, which it estimates to have been $1.6 billion in 1997.
Congoleum's resilient flooring products are intended for use in a variety of
residential and commercial applications. The Company believes that the largest
individual component of demand for its products arises from the need to
replace flooring in existing homes regularly, a demand source which is less
cyclical than new housing construction. Sales of products intended for the
remodeling and replacement markets represented approximately 60% of the
Company's residential sales for the year ended December 31, 1997, with an
additional 26% comprised of sales to the manufactured housing market segment.
The Company's products are distributed primarily through 35 wholesale
distributors to over 18,000 specialty retail flooring stores. In addition,
Congoleum markets its products through national mass-market merchandisers and
retail home centers such as The Home Depot, Sears and Menards, which
collectively supply the retail market through over 2,000 locations.
The Company continues to promote growth through new marketing initiatives
and the development of innovative product applications. In addition, since the
beginning of 1993 the Company has completed over $60 million of capital
expenditures which have substantially increased operating efficiency and
expanded the Company's ability to manufacture unique products for certain
market segments. For the three months ended June 30, 1998 and 1997, the
Company had net sales of $69.8 million and $64.9 million, respectively, and
EBITDA of $8.2 million and $7.1 million, respectively. For the twelve months
ended June 30, 1998, net sales and EBITDA totaled $260.2 million and $26.7
million, respectively.
THE INDUSTRY
The floor covering market is supplied by manufacturers of resilient flooring
such as the Company as well as by manufacturers of carpeting, hardwood,
ceramic tile, laminates and stone (marble, granite and others). The Company
believes that domestic sales of sheet vinyl and vinyl tile totaled $1.6
billion, or 11% of the estimated $14.3 billion total United States floor
covering market (13% of the total United States floor covering market based on
unit volume). The resilient flooring share of United States floor covering
sales has been relatively stable during the past ten years.
Sheet vinyl and vinyl tile flooring products compete for both residential
and commercial customers primarily with carpeting, hardwood, ceramic tile and
laminate flooring. Carpeting is used primarily in bedrooms, family rooms and
living rooms. Hardwood flooring and laminate flooring are used primarily in
family rooms, foyers and kitchens. Ceramic tile is used primarily in kitchens,
bathrooms and foyers. Commercial resilient flooring faces substantial
competition from carpeting, ceramic tile, rubber tile, hardwood flooring and
stone. During the past five years, hard surface floorings have represented an
increasing portion of domestic floor covering sales. The Company believes,
based upon its market research, that purchase decisions are influenced
primarily by fashion elements such as design, color and style as well as
durability, ease of maintenance, price and ease of installation. Both vinyl
tile and
26
<PAGE>
sheet vinyl are easy to replace for repair and redecoration purposes and, in
the Company's view, have advantages over certain other floor covering products
in terms of price, ease of installation and maintenance.
COMPANY STRATEGY
Congoleum's strategy is centered on its strong, well-known brand name. The
Company believes that the Congoleum brand name provides a significant
advantage to the Company's sales and marketing efforts. The Congoleum brand
name is widely recognized, registering an aided awareness of 68% among retail
consumers according to a survey conducted by International Communications
Research during May 1998. The Company believes that retailers and consumers
associate the Congoleum brand name with superior design, color and styling,
which represent major determinants in purchasing decisions within the
resilient flooring industry. Major components of the Company's strategy
include:
DEVELOP NEW PRODUCTS. Historically, Congoleum has generated significant
sales through the development of innovative products and designs. The
Company's product innovation and design efforts are focused on developing new
features and benefits which enable an expanded market presence, provide higher
margins and enhance the Congoleum brand image. In addition to innovations such
as the chemical embossing process and the no-wax floor product, the Company
designed a proprietary transfer-printing process for certain tile products
that it believes only one other industry competitor is presently able to
duplicate. During 1997 and 1998, the Company has continued to introduce not
only new designs, but also new products such as ArmorBright, a unique product
that is marketed to the manufactured housing segment and offers urethane
coating in an extra-wide, sheet vinyl product. Since the beginning of 1993,
Congoleum has expended approximately $20 million relating to research and
development. The Company anticipates that continued investment in new product
efforts and the extensive experience of its design personnel will support the
ongoing development of innovative and profitable extensions to the Company's
existing product line.
INCREASE RETAIL PRESENCE. In addition to specialty retail flooring stores,
Congoleum's products are also sold through several mass-market merchandisers
and retail home centers. Congoleum has been recognized by these customers for
excellence in service, receiving the "Partner of the Year" award from The Home
Depot and the "Partner in Progress" award from Sears during 1997. In addition,
during 1998 the Company began marketing its products to Menards, the fourth
largest retail home center operator in the United States with 133 retail
locations. The Company believes that this customer segment exhibits
significant growth potential through (i) expansion by existing customers, as
illustrated by The Home Depot's intention to open 125 new stores during 1998,
(ii) recent increases in the number of Congoleum products carried by existing
customers and (iii) the addition of new mass-market merchandiser and retail
home center customer accounts, such as the establishment of the Menards
account during 1998.
REINFORCE LEADERSHIP POSITION IN MANUFACTURED HOUSING MARKET. Congoleum
maintains the leading position in the manufactured housing market with an
estimated market share of 66%, and intends to continue working closely with
manufacturers in this market to design and develop new products. Congoleum is
the only manufacturer currently capable of producing the extra-wide, sheet
vinyl flooring preferred for oversize manufactured homes, which represent an
increasing portion of total manufactured housing sales. In addition, the
Company has established a track record of successful product innovations
designed specifically for the manufactured housing market which provide high
levels of quality and in-plant durability during the construction process.
Congoleum is the exclusive resilient flooring supplier to the largest
wholesale flooring products distributor in the manufactured housing industry,
a relationship the Company has maintained for over 30 years.
MAINTAIN EXISTING DISTRIBUTOR NETWORK. Congoleum currently sells its
products through 35 wholesale distributors providing approximately 100
distribution points throughout the United States and
27
<PAGE>
Canada. The Company is the exclusive resilient flooring supplier to nearly all
of its wholesale distributors, and has maintained consistent relationships
with its distributors averaging 20 years in duration. The Company currently
has well over 10,000 displays in place in specialty retail flooring stores,
representing substantial floor space and significant investment. Congoleum
believes its established distributor network and extensive retail presence
provide a competitive advantage and represent a major barrier to entry by new
competitors.
ENHANCE MANUFACTURING EFFICIENCY. Since the beginning of 1993, Congoleum has
invested over $60 million in capital expenditures in order to expand capacity
and product capabilities, improve operating efficiency and reduce
manufacturing costs. During 1997, the Company completed a major capital
improvement initiative which involved the rebuilding of the Company's main
production line in Marcus Hook, Pennsylvania. The rebuilding program
substantially increased the speed and capacity of the Company's largest
production facility and enhanced the Company's position as the only
manufacturer capable of producing extra-wide, sheet vinyl products in the
flooring industry. The Company intends to pursue specific investment
initiatives during the next several years which are designed to further
increase efficiency and reduce operating costs.
PRODUCTS AND END-USERS
GENERAL
Sheet vinyl and vinyl tile products manufactured by the Company are marketed
in a wide variety of product features, designs and colors. Sheet vinyl, in its
predominant construction, is produced by applying a vinyl gel to a flexible
felt backing, printing a design on the gel, applying a wearlayer, heating the
gel layer sufficiently to cause it to expand into a cushioned foam and, in
some products, adding a urethane coating. The Company also produces through-
chip inlaid sheet products for both the residential and commercial markets.
These products are produced by applying an adhesive coat and solid vinyl
colored chips to a felt backing and laminating the sheet under pressure with a
heated drum. Vinyl tile is manufactured by creating a base stock consisting
primarily of limestone and vinyl resin, which is less flexible than the
backings for sheet vinyl, and transferring or laminating to it preprinted
colors and designs followed by a wearlayer and a urethane coating in some
cases. Commercial vinyl tile is manufactured by including colored vinyl chips
in the pigmented base stock. For do-it-yourself tile, an adhesive is applied
to the back of the tile. The differences between products within each of the
two product lines consist primarily of content and thickness of wearlayers and
coatings, the use of embossing to impart a texture, the complexity of designs
and the number of colors.
CONSUMER SEGMENTS
The Company's sales of resilient flooring can be divided into two basic
segments: (i) residential--which can be subdivided into remodeling and
replacement and new residential construction and, in the case of sheet vinyl,
manufactured housing, and (ii) commercial.
Despite obvious similarities, vinyl tile and sheet vinyl have differences
which account to some extent for their popularity with different types of
consumers. A substantial amount of the Company's vinyl tile is currently sold
through retail home centers and mass-market merchandisers. The majority of
these tiles have an adhesive backing intended to facilitate do-it-yourself
installation. The remainder are sold "dry back" and are generally installed by
professionals in commercial and, to a lesser extent, residential settings.
Vinyl tile with an adhesive backing is primarily a remodeling and replacement
product. Because vinyl tiles are 12 inches square and can be installed in
various pattern combinations, they offer to consumers ease of installation and
the ability to create distinctive design patterns. Heavier gauge vinyl tile
has a backing which is more rigid than sheet vinyl backing and can mask
cracks, seams, knot holes and other minor imperfections in subflooring to a
greater extent than sheet vinyl. Sheet vinyl is produced primarily in 12-foot
wide rolls, and although it requires more subflooring
28
<PAGE>
preparation, it can be installed in most residential settings with a seamless
appearance. Most sheet vinyl is installed by professional installers, although
sales to do-it-yourself customers have increased in recent years.
The Company's sheet vinyl sales are comprised almost exclusively of products
intended for residential use, with commercial products accounting for less
than 5% of sales. Of the sheet vinyl products sold for residential use, the
Company estimates approximately 50% were intended for remodeling, slightly
more than 30% were intended for use in manufactured housing, and slightly less
than 20% were intended for use in new residential construction.
The Company's vinyl tile sales are more evenly split between products
intended for residential use, comprising approximately 65% of sales, and
products intended for commercial use, comprising approximately 35% of sales.
Of the sales of products intended for residential use, nearly all is intended
for remodeling and replacement.
Based on the above estimated categories of sales and the Company's estimates
of overall end-user segment demand, the Company approximates its market share
by end-user segment. Based upon the most recently available estimate of the
Company's and its competitors' sales, the Company believes that its sheet
vinyl products have an approximate 20-25% share of the remodeling and new
residential segments of the resilient sheet vinyl portion of the flooring
market, an approximate 66% share of the manufactured housing segment and an
approximate 5% share of the commercial segment. Based upon such information,
the Company estimates that it has an approximate 20% share of total industry
sheet vinyl sales.
Based upon the most recently available estimate of sales for the Company and
its competitors, the Company estimates that its vinyl tile products have an
approximate 14% share of the remodeling and new residential end-user segment
and an approximate 7% share of the commercial end-user segment. Based upon
such information, the Company estimates that it has an approximate 10% share
of total industry vinyl tile sales.
RESIDENTIAL
REMODELING AND REPLACEMENT. Within this segment, the Company's sheet vinyl
and vinyl tile products are sold to two types of end-users; first, the
customer who chooses from a retail display, normally at a specialty retail
flooring store, and hires a professional, usually with the advice of the sales
person, to install the product; and second, the customer who purchases from a
mass-market merchandiser or retail home center for do-it-yourself
installation. Products sold to both types of customers in this segment are,
for the most part, similar in design and color and are differentiated
primarily by price and value-added features.
The Company currently has 23 sheet vinyl products available in over 500
design and color combinations which are sampled in displays primarily in the
retail specialty stores. The retail price points of these displayed items
currently range from $10 to $45 per square yard, depending on sheet vinyl
thickness, type of wearlayer and the decorative texture and pattern. Several
other lower priced product lines, in addition to those noted above, are not
displayed but rather are sold as roll inventory to retailers and to mass-
market merchandisers and retail home centers. The Company's vinyl tile line
sampled in retail displays consists of 20 products with over 250 design and
color combinations. Approximately half of these products are sold to the do-
it-yourself market through mass-market merchandisers and retail home centers,
a market segment which the Company believes exhibits significant growth
potential. The retail price of these displayed items ranges from $0.39 to
$2.29 per square foot. Like sheet vinyl, thickness, type of wearlayer and the
decorative texture and pattern differentiates the price points and individual
product lines. The luxury vinyl tile category, which retails for $2.49 per
square foot and above, is sampled in displays in specialty retail flooring
stores.
29
<PAGE>
NEW RESIDENTIAL. Sheet vinyl comprises the majority of resilient flooring
sales to the new residential segment reflecting its installation advantages
with respect to new home construction. Available in 12-foot wide rolls, sheet
vinyl is easy to install and for most applications requires no seaming.
Purchasers of the Company's products are primarily large-scale builders who
generally prefer products in the low-to-medium price point range, without
high-end features.
MANUFACTURED HOUSING. Nearly all sales of resilient flooring to the
manufactured housing segment consist of sheet vinyl, reflecting the production
process for manufactured houses, which are built from the frame up on top of
the vinyl sheet. Sheet vinyl also withstands the stress caused by
transportation better than vinyl tile. The Company's significant market share
in this segment, which is a reflection of it being the first manufacturer to
produce sheet vinyl in up to 15q 6p widths, should be further supported by the
introduction in 1998 of ArmorBright, the first extra-wide, urethane-coated
product marketed to the manufactured housing segment. The Company has also
maintained a consistent relationship with its distributor of these products,
which is the nation's largest wholesaler of flooring products to the
manufactured housing industry, for over 30 years.
COMMERCIAL
Vinyl tile, which has a more rigid base and reputation for durability, is
used far more extensively than sheet vinyl in commercial applications such as
offices, educational facilities, healthcare facilities, hotels, stores and
factories. The Company offers two basic product lines for commercial
applications.
Exceptional durability is the key selling characteristic in the sheet vinyl
commercial segment. The Company has marketed basic products within this
segment which are designed to be highly resistant to cuts, gouges and
indentations in areas of heavy traffic. Primarily as a result of the Company's
strategic emphasis on the residential sales of sheet vinyl, the Company has
not had a significant presence in the sheet vinyl commercial segment.
DISTRIBUTION, SALES AND MARKETING
DISTRIBUTION
The Company currently sells sheet vinyl and vinyl tile through 35
distributors providing 100 distribution points in the United States and
Canada. The sales pattern is seasonal, with peaks in retail sales during
March/April/May and September/October. For the fiscal year of the Company
ended December 31, 1997, 19% of the Company's total net sales were to its
distributor in the Southwest and on the West Coast, L.D.Brinkman & Co., and
23% of the Company's total net sales were to its distributor to the
manufactured housing market, LaSalle Bristol Corporation, which were the only
distributors to account for more than 10% of such sales. The Company has been
selling to L.D.Brinkman & Co. and LaSalle Bristol Corporation for 38 and 30
years, respectively.
A critical factor in achieving success in the sheet vinyl and vinyl tile
business is access to an established, nationwide distribution system. The need
for a strong, independent distribution organization is a direct consequence of
the fragmented structure of the retail market with its more than 20,000
establishments. Sales by manufacturers directly to major retail chains are
still serviced, at least in the case of sheet vinyl, by local distributors.
Distributors provide key services to retailers that manufacturers have not
been able to provide directly in a cost-effective way, such as local
inventory, credit and next day delivery. The need to establish an extensive
distributor network and invest significant capital in retail displays are
significant barriers to entry into the resilient flooring industry by new
competitors.
The Company believes there are approximately 125 distributors nationwide of
sufficient size to market sheet vinyl and vinyl tile product lines, most of
which have exclusive relationships with one of the major resilient
manufacturers. Distributors rarely switch manufacturer relationships since
competing resilient flooring brands are carried by another local distributor
and the switching distributor faces a substantial loss of investment in
displays and marketing support. Most distributors carry several types of floor
coverings including carpet, sheet vinyl, vinyl tile and wood flooring.
30
<PAGE>
RETAILERS
Among retail outlets, the Company believes that flooring specialty stores
account for approximately 60% of aggregate purchases of sheet vinyl and 30% of
aggregate purchases of vinyl tile. The consumers who patronize these stores
typically utilize professional installation services. As a result, the
majority of sales through flooring specialty stores is comprised of the more
profitable mid- and high-end products.
The Company has strengthened its representation at the retail level through
expanded placement of in-store displays. Currently, the Company has in place
nearly 1,100 "Design Studio" display units at the largest retail locations as
well as over 10,000 smaller display units at other retail locations and
specialized displays in builders' model homes and sales offices. The Design
Studio display unit is a large, modular page frame display complemented by an
enhanced merchandising system complete with priority sample service,
advertising, promotional and educational programming. In 1997, the Company
introduced a display that allows for efficient use of space, provides a number
of setup configurations, is easily updated with new products and designs and
permits the customer to see how a floor product looks in a furnished room. The
Company placed twice as many new displays as originally expected, which
increased its penetration of the larger specialty retailers by 35%.
The Company's market research indicates that the Company brand name is
widely recognized by consumers. Although the Company believes the consumer
purchase decision is strongly influenced by color and design, retailers have
significant influence over the consumer's buying decision with respect to the
brand of vinyl flooring used and the price point selected.
PRODUCT WARRANTIES
The Company offers a limited warranty on all of its products against
manufacturing defects. In addition, as a part of efforts to differentiate mid-
and high-end products through color, design and other attributes, the Company
offers enhanced warranties with respect to wear, moisture discoloration and
other performance characteristics which increase with the price points of such
products.
STYLING, DESIGN AND NEW PRODUCTS
The Company believes it is an industry leader in product styling. Color and
design are two important factors in the consumer buying decision. For example,
the Company led the industry with bold geometries and shiny florals in the
1960's, emulations of painted Italian tiles in the 1970's, the introduction of
gray as a neutral color and pearlescent effects in the 1980's and realistic
reproductions of natural looks in the 1990's. The Company was among the first
manufacturers to utilize computer-aided design equipment to replicate many
difficult and innovative patterns such as marble and brick. The Company
believes its luxury vinyl tile line is also regarded as a leader in design and
color styling. Utilizing transfer print technology, this line offers rich,
authentic-looking designs and colors that cannot be matched with traditional
printing processes. The Company plans new style introductions several times a
year and currently offers a broad range of designs and colors.
The Company is typically able to transition product designs from the concept
stage to full production in less than 11 months, facilitating rapid response
to consumer purchasing trends and design preferences. The Company usually
seeks to patent any new production processes. While competitors have generally
been able to engineer around new processes without patent infringement, the
Company believes that being the first to introduce new product features
represents a significant competitive sales advantage because it generally
takes two to three years for a competitor to successfully introduce a similar
product. The Company's marketing department actively manages the product line
through the addition and discontinuation of product features, designs and
colors as needed.
31
<PAGE>
MARKETING AND SELLING
The Company's 62-person field sales force works closely with both
distributors and retailers to attempt to increase the Company product sales.
Historically, the Company has spent most of its annual advertising
expenditures on cooperative advertising. Qualified retailers can earn a credit
based on annual purchases to spend on local advertising. Expenditures are also
made for trade and consumer advertising. Trade advertising is targeted at
flooring distributors, retailers, new residential builders and manufactured
home manufacturers through industry magazines and other publications.
FACILITIES
The Company owns four manufacturing facilities located in Maryland,
Pennsylvania and New Jersey and leases corporate and marketing offices in
Mercerville, New Jersey, where it has a lease expiring in 2000 (subject to
renewal options), which are described below:
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED PRODUCT SQUARE FEET
-------- ------------ ----------------- -----------
<S> <C> <C> <C>
Finksburg, MD........................ Owned Felt 107,000
Marcus Hook, PA...................... Owned Sheet Vinyl 1,000,000
Trenton, NJ.......................... Owned Sheet Vinyl 1,050,000
Trenton, NJ.......................... Owned Vinyl Tile 282,000
Mercerville, NJ...................... Leased Corporate Offices 33,600
</TABLE>
The Finksburg facility consists primarily of a 16-foot wide felt production
line, which was built in 1973. The Company knows of no other production
facility capable of producing extra-wide felt, an important component of the
Company's significant market position in the manufactured housing segment.
The Marcus Hook facility is capable of manufacturing rotogravure printed
sheet flooring in widths of up to 16 feet. Major production lines at this
facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide
printing press and a 16-foot wide printing press, which were built in 1967,
1973 (rebuilt 1997), 1994, 1960 and 1973, respectively. During a period of
four months in 1997, Congoleum rebuilt a main production line at the Marcus
Hook facility in a program designed to increase the capacity, efficiency and
quality of the only production line capable of producing extra-wide, sheet
vinyl products in the flooring industry.
The Trenton sheet vinyl facility is capable of manufacturing rotogravure
printed and through-chip inlaid sheet vinyl in widths up to six feet. Major
production lines, all six-foot wide, include an oven, a rotary laminating line
and a printing press, which were built in 1968, 1970 and 1968, respectively.
The examination, packing and warehousing of all sheet vinyl (except products
for the manufactured housing segment) occur at the Trenton plant distribution
center, which was built in 1984.
The Trenton vinyl tile facility consists of three major production lines, a
four-foot wide commercial tile line, a two-foot wide residential tile line and
a one-foot wide residential tile line. These were built in 1962, 1985 and
1978, respectively.
The Company's major production lines were operated an average of 75% of the
hours available on a 5-day, 3-shift basis in 1997, with the corresponding
figure for individual production lines ranging from 25% to 115%.
Although each of the Company's manufacturing facilities has been
substantially depreciated, the Company has maintained and improved the
productive capacity of these facilities over time through a program of regular
capital expenditures. Accordingly, the Company considers its manufacturing
facilities to be adequate for its present and anticipated near-term production
needs.
32
<PAGE>
MANUFACTURING PROCESS
The Company produces felt which serves as a flexible backing for its sheet
vinyl products or is sold to third parties. The finishing process for
rotogravure printed sheet vinyl involves several primary processes--the
application of a vinyl backing for perimeter installed floors, the application
of vinyl gel, the creation of a design on the vinyl gel, wearlayer application
and the fusion of the product. Fusion is the heating of the wearlayer, vinyl
gel and felt, resulting in the formation of a composite sheet. The Company
also produces through-chip inlaid products for the commercial market. These
products are produced by applying an adhesive coat and solid vinyl colored
chips to a felt backing and laminating the sheet under pressure with a heated
drum.
Resilient vinyl tile is produced by dry blending raw materials, mixing them
thoroughly, forming them into a continuous sheet and die cutting the sheet
into individual tiles. The residential products are made utilizing a
continuous mixing process and are decorated through a patented transfer print
process where the decoration and a vinyl wearlayer are applied in a single
process. The tiles are then cut for packaging or, in the case of urethane-
coated products, are coated and then packaged. Essentially, tile design
capability is unlimited--whatever can be photographed can be applied as design
or decoration on the tile. Commercial products are made in a semi-continuous
process and decorated by the addition of in-house produced, colored chips as
the mixed materials are formed into a sheet and finally cut into individual
tiles.
RAW MATERIALS
The Company's business is affected by fluctuations in the price levels of
certain raw materials including vinyl resins, plasticizers, latex, limestone,
stabilizers, cellulose paper fibers, urethane and transfer print paper, which
are utilized in the Company's manufacturing process. The Company has had no
difficulty in obtaining its requirements for these materials, although
significant price increases in certain materials have been experienced at
times. See "Management's Discussion and Analysis of Financial Condition and
Result of Operations". The Company obtains the majority of its supply of raw
materials pursuant to supply contracts with terms of one to five years,
although availability and pricing may be dependent on market conditions.
However, the Company does not have readily available alternative sources of
supply for specific designs of transfer print paper, which are produced
utilizing print cylinders engraved to the Company's specifications. Although
no loss of this source of supply is anticipated, replacement could take a
considerable period of time and interrupt production of certain products. The
Company maintains a raw material inventory and has an ongoing program to
develop new sources which will provide continuity of supply for its raw
material requirements. However, supply interruptions or significant increases
in the costs incurred by the Company to purchase these materials could have a
material adverse affect on the Company's business.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are headquartered at the
Trenton sheet vinyl plant. There are 35 employees in this department, many of
whom have advanced engineering or chemistry backgrounds. This department works
closely with sales and marketing personnel regarding new products and
concentrates research efforts on new product development, increasing product
durability and improving the efficiency of the manufacturing process. Annual
expenditures for research and development were $3.7 million, $4.6 million and
$3.7 million, for the three years ended December 31, 1997, 1996 and 1995,
respectively.
EMPLOYEES
At December 31, 1997, the Company employed a total of 1,234 personnel. The
Company has entered into collective bargaining agreements with hourly
employees at three of its plants and with the drivers of the trucks that
provide inter-plant transportation. The agreements cover approximately 685 of
the Company's employees in the aggregate and expire in November 1998, February
2001 and February 2003. While the Company believes that its relationship with
its employees is satisfactory, a prolonged labor dispute could have a material
adverse effect on the Company's business.
33
<PAGE>
COMPETITION
The market for the Company's products is highly competitive. The Company
encounters competition from domestic, and to a much lesser extent, foreign
manufacturers. Armstrong World Industries, Inc., which is the largest
competitor in the resilient flooring market in the United States, is a
publicly held manufacturer of building and consumer durable products including
various flooring products. Other competitors include Mannington Mills and
Tarkett AG. The Company believes it has a favorable competitive position as a
result of its leading brand name, broad selection of colors and styles, its
extensive distribution network and its unique, wide-width manufacturing
capabilities for manufactured housing products. However, certain of the
Company's competitors have substantially greater financial and other resources
than the Company.
During 1997, several transactions were completed which resulted in
consolidation among certain competitors in the floor covering industry. In
October, Tarkett AG completed its purchase of Sommer Allibert S.A., which owns
a controlling interest in Domco Inc. As a result of the transaction, the
parent companies of Tarkett AG and Domco Inc., two of the primary competitors
in the domestic resilient flooring industry, have been consolidated. However,
as of March 31, 1998 the combined company maintained separate marketing and
distribution networks for each of the Tarkett AG and Domco Inc. brands. In
addition to the consolidation of Tarkett AG and Domco Inc., during 1998
Armstrong World Industries, Inc. acquired Triangle Pacific Corp., a
manufacturer of hardwood flooring, and DLW AG, a European vinyl flooring
manufacturer. The acquisitions represent product line extensions for Armstrong
World Industries, Inc. While the Company does not expect any of the
transactions which occurred in 1997 or 1998 to have a material adverse effect
on the Company's sales volume or profitability, there can be no assurance that
recent or future consolidation will not adversely affect the Company's
business.
ENVIRONMENTAL REGULATION
Due to the nature of the Company's business and certain of the substances
which are or have been used, produced or discharged by the Company, the
Company's operations are subject to extensive federal, state and local laws
and regulations relating to the generation, disposal, storage, handling,
emission, transportation and discharge into the environment of hazardous
materials. The Company, pursuant to administrative consent orders signed in
the 1980's in connection with prior business transactions, is in the process
of implementing clean-up measures at its Trenton sheet vinyl facility under
New Jersey's Environmental Clean-up Responsibility Act, as amended by the New
Jersey Industrial Site Recovery Act. The Company does not anticipate that the
additional costs of these measures will be material. In 1993, American
Biltrite signed a similar consent order with respect to the Trenton resilient
tile facility, and the Company agreed to be financially responsible for any
clean-up measures required. In 1997, the Company incurred capital expenditures
of $1.1 million for environmental compliance and control facilities.
The Company has historically expended substantial amounts for compliance
with existing environmental laws and regulations, including those matters
described above. The Company will continue to be required to expend amounts in
the future, due to the nature of historic activities at its facilities, to
comply with existing environmental laws and those amounts may be substantial
but should not, in the Company's judgment, have a material adverse effect on
its results of operations or financial condition. Because environmental
requirements have grown increasingly strict, however, the Company is unable to
determine the ultimate cost of compliance with environmental laws and
enforcement policies.
LEGAL PROCEEDINGS
As of December 31, 1997, the Company was named as defendant, together in
most cases with numerous other companies, in approximately 654 currently
pending lawsuits (including worker's compensation cases) involving
approximately 6,455 individuals alleging personal injury from exposure
34
<PAGE>
to asbestos or asbestos-containing products. The plaintiffs in these cases, as
well as similar cases in the past which have been settled or dismissed, allege
that they or the individuals they represent have contracted asbestosis,
pleural thickenings, mesothelioma, cancer or other lung disease as a result of
exposure to asbestos in the course of their activities as plumbers,
carpenters, floor installers, machinists, or in other capacities, either as
independent contractors or as employees of shipyards or other industries
utilizing asbestos-containing products (or, in the worker's compensation
cases, as employees of the Company or the tile division of American Biltrite
which was acquired by the Company in 1993 (the "Tile Division")) and that
included among such products which caused their diseases were sheet vinyl
products provided by the Company or resilient tile provided by the Tile
Division, or both. The Company discontinued the manufacture of asbestos-
containing sheet vinyl products in 1983 and the Tile Division ceased
manufacturing asbestos-containing tile products in 1984. In general, asbestos-
containing products have not been found to pose a health risk unless the
asbestos is not bonded or encapsulated in the product and is able to become
airborne. All of the asbestos in asbestos-containing sheet vinyl and tile
products sold by the Company or the Tile Division was fully-bonded or
encapsulated during the manufacturing process. The Company has issued warnings
not to remove asbestos-containing flooring by sanding or other methods that
allow the asbestos fibers to become airborne. Although there can be no
assurance, the Company believes, based upon the nature of its asbestos-
containing products and its experience with cases to date, that any potential
liability from pending personal injury claims relating to the Company's
asbestos-containing resilient products will not have a material adverse effect
in the aggregate on the financial position of the Company. In one of these
cases tried before a jury in Superior Court of California in Los Angeles held
in May and June 1997, the Company and another defendant were found liable for
$3.3 million in damages, subject to proportional liability under California
law. The jury found that the Company was liable for only 25% of the
plaintiffs' non-economic damages but as a result of post-verdict motions the
trial judge purportedly granted plaintiffs' motion for judgment
notwithstanding the verdict and held that California Proposition 51
(establishing proportionate liability for non-economic damages) did not apply
in this case. The Company and the other defendant have appealed this decision.
The Company's insurance carrier has paid for the defense costs incurred and
had indicated that it would be responsible for paying the ultimate judgment in
the case, subject to certain limitations.
Together with a large number (in most cases, hundreds) of other companies,
the Company is named as a "Potentially Responsible Party" ("PRP") in pending
proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), and similar state laws.
In four instances, although not named as a PRP, the Company has received a
"Request for Information". These pending proceedings currently relate to
thirteen waste disposal sites. Although there can be no assurances, the
Company anticipates that these proceedings will be resolved over a period of
years for amounts (including legal fees and other defense costs) which the
Company believes based on current estimates of liability and, in part, on
insurance coverage agreements, will not have a material adverse effect on the
financial position of the Company.
On July 15, 1994, Kentile, a debtor-in-possession pursuant to Chapter 11 of
the United States Bankruptcy Code, commenced an adversary proceeding against
the Company in the Bankruptcy Court of the Southern District of New York. The
complaint asserts that the Company tortiously interfered with certain of
Kentile's contracts with its distributors when those distributors terminated
their agreements with Kentile to become distributors of the Company's floor
tile. Kentile seeks $15.0 million in damages on account of the alleged
interference. Although the Company's motion to have the proceeding dismissed
on the pleadings was denied, the Company believes that Kentile's claim is
without merit and intends to contest vigorously the lawsuit.
The Company is also involved in workers compensation claims and other
routine legal proceedings relating to its business and operations. The Company
does not believe that these will have a material adverse effect in the
aggregate on the Company's results of operations or financial condition.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages as of June
30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Roger S. Marcus.................... 52 Director, Chairman, President and Chief
Executive Officer
Richard G. Marcus.................. 50 Director, Vice Chairman
Robert N. Agate.................... 53 Executive Vice President
David W. Bushar.................... 51 Senior Vice President--Manufacturing
Howard N. Feist III................ 41 Senior Vice President--Finance, Chief
Financial Officer and Secretary
Dennis P. Jarosz................... 53 Senior Vice President--Marketing
James K. Morando................... 34 Senior Vice President--Sales
Peter J. Rohrbacher................ 47 Senior Vice President--Research and
Engineering
Thomas A. Sciortino................ 51 Senior Vice President--Administration
Merrill M. Smith................... 72 Senior Vice President--Technology
Cyril C. Baldwin, Jr. ............. 70 Director
David N. Hurwitz................... 62 Director
John N. Irwin III.................. 44 Director
Mark N. Kaplan..................... 68 Director
William M. Marcus.................. 60 Director
C. Barnwell Straut................. 72 Director
</TABLE>
ROGER S. MARCUS has been a Director and President and Chief Executive
Officer of the Company since March 1993, and Chairman since December 1994. Mr.
Marcus is also a Director (since 1981), Chairman of the Board (since 1992) and
Chief Executive Officer (since 1983) of American Biltrite. From 1983 to 1992,
Mr. Marcus served as Vice Chairman of the Board of American Biltrite.
RICHARD G. MARCUS has been Vice Chairman of the Company since December 1994,
and a Director since March 1993. Mr. Marcus is also a Director (since 1982)
and President (since 1983) and Chief Operating Officer (since 1992) of
American Biltrite. In February 1996, Mr. Marcus entered into a settlement in
the form of a consent decree with the Commission in connection with the
Commission's investigation covering trading in American Biltrite's common
stock by an acquaintance of Mr. Marcus. Mr. Marcus, without admitting or
denying the Commission's allegations of securities laws violations, agreed,
among other things, to the entry of a permanent injunction against future
violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of
1934.
ROBERT N. AGATE has been Executive Vice President of the Company since
August 1998. Prior thereto he was Senior Vice President--Manufacturing of the
Company since March 1993. Prior thereto, he was Vice President of
Manufacturing of the Tile Division of American Biltrite (since 1981).
DAVID W. BUSHAR has been Senior Vice President--Manufacturing of the Company
since August 1998. Prior thereto, he was Manager, Technical Services since May
1997 and as Plant Manager of the Company's Trenton, New Jersey sheet vinyl
manufacturing facility since October 1993.
HOWARD N. FEIST III has been Senior Vice President--Finance and Secretary of
the Company since March 1993. Prior thereto, he had served as Vice President--
Finance and Secretary of the Company since 1988.
DENNIS P. JAROSZ has been Senior Vice President--Marketing since July 1995.
Prior thereto, he had served as Vice President--Marketing since March 1993 and
Vice President--Sales & Marketing of the Tile Division of American Biltrite
(since 1986).
36
<PAGE>
JAMES K. MORANDO has been Senior Vice President--Sales of the Company since
April 1998. Prior thereto, he had served as National Sales Manager (since
1995) and Regional Sales Manager (since 1991).
PETER J. ROHRBACHER has been Senior Vice President--Research and Engineering
of the Company since May 1997. Prior thereto, he had served as Senior Vice
President--Engineering (since September 1993), Vice President--Coatings of the
Company (since March 1993), and Vice President--Research & Development of the
Tile Division of American Biltrite (since 1988).
THOMAS A. SCIORTINO has been Senior Vice President--Administration of the
Company since March 1993. Prior thereto, he was Vice President--Finance of the
Tile Division of American Biltrite (since 1982).
MERRILL M. SMITH has been Senior Vice President--Technology of the Company
since March 1993. Prior thereto, he was Vice President--Technology of American
Biltrite (since 1985).
CYRIL C. BALDWIN, JR. has been a director of the Company since 1995. He is
Chairman of the Board of Cambrex Corporation. He is also a director of Church
& Dwight.
DAVID N. HURWITZ has been a director of the Company since 1995. He is
President and Chief Executive Officer of Goodson Newspaper Group.
JOHN N. IRWIN III has been a director of the Company since 1986. He is also
a Managing Director of Hillside Capital Incorporated.
MARK N. KAPLAN has been a director of the Company since 1995. He has been a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP since
1979. He is also a director of American Biltrite, Grey Advertising Inc., DRS
Technologies, Inc., REFAC Technology Development Corporation, Volt Information
Sciences, Inc. and Movie Fone, Inc.
WILLIAM M. MARCUS has been a director of the Company since 1993. He is
Executive Vice President (since 1984) and Treasurer (since 1979) of American
Biltrite.
C. BARNWELL STRAUT has been a director of the Company since 1986. He is also
a Managing Director of Hillside Capital Incorporated.
Roger Marcus and Richard Marcus are brothers and William Marcus is their
cousin. There are no other family relationships among the directors or
executive officers.
DIRECTOR COMPENSATION
The Company pays each director who is not an officer and employee of the
Company or American Biltrite an annual director's fee of $10,000 and $1,250
for each Board meeting and each Audit Committee meeting attended. Directors
who are officers and employees of the Company or American Biltrite do not
receive such fees. Directors may elect to defer the receipt of all or a part
of their fees. Amounts so deferred earn interest, compounded quarterly, at a
rate equal to the Bank of Boston base rate at the end of each quarter.
PERSONAL SERVICES AGREEMENT
Pursuant to the terms of a Personal Services Agreement between American
Biltrite and the Company, American Biltrite agreed that Roger Marcus would
devote substantially all of his business time to serving as Chief Executive
Officer of the Company and Richard Marcus would serve as Vice Chairman of the
Company. In consideration of this agreement, the Company agreed to pay
American Biltrite a personal services fee and a contingent incentive fee,
conditioned upon the attainment of financial and business objectives as
determined by the Board of Directors of the Company. The Company paid
$1,030,000, $1,265,000 and $980,060 in personal services and incentive fees
for the years ended December 31, 1997, 1996 and 1995, respectively.
37
<PAGE>
EXECUTIVE COMPENSATION
The table that follows sets forth information concerning the compensation
earned by or paid to the Company's Chairman of the Board and Chief Executive
Officer and the Company's four other most highly compensated executive
officers for services rendered to the Company in all capacities during each of
the last three years. The table also identifies the principal capacity in
which each of the named executives served the Company during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (SHARES) ($)(2)
- --------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Marcus 1997 * * -- *
Chairman, President and 1996 * * -- *
Chief Executive Officer 1995 * * 150,000 *
Howard N. Feist III 1997 148,393 30,000 5,000 8,933
Senior Vice President - 1996 142,833 60,000 -- 7,710
Finance and 1995 136,167 50,000 10,000 8,197
Chief Financial Officer
Robert N. Agate 1997 148,074 30,000 5,000 8,913
Senior Vice President - 1996 142,083 60,000 -- 7,132
Manufacturing 1995 136,875 50,000 10,000 8,240
Dennis P. Jarosz 1997 142,966 30,000 5,000 8,606
Senior Vice President - 1996 137,500 60,000 6,500 6,858
Marketing 1995 125,792 50,000 3,500 7,573
Anthony C. Prestipino 1997 141,300 30,000 5,000 8,285
Senior Vice President - 1996 135,625 60,000 130,801 10,000 5,461
Sales 1995 21,028 15,000 -- --
</TABLE>
- --------
(1)Amount shown represents relocation expenses.
(2) Amounts shown for each officer consist of amounts contributed by the
Company to the Company's 401(k) Plan for the designated fiscal year that
are allocated to such officer.
(*) Pursuant to the terms of a Personal Services Agreement between American
Biltrite and the Company, American Biltrite agreed that Roger S. Marcus
would devote substantially all of his business time to serving as Chief
Executive Officer of the Company and Richard G. Marcus would serve as Vice
Chairman of the Company. In consideration of this agreement, the Company
agreed to pay American Biltrite a personal services fee and a contingent
incentive fee, conditioned upon the attainment of financial and business
objectives as determined by the Board of Directors of the Company. The
Company paid $980,060, $1,265,000, and $1,030,000 in personal services and
incentive fees for the years ended December 31, 1995, 1996 and 1997,
respectively.
38
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
-------------------------------------- ------------------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE OR
OPTIONS GRANTED IN BASE PRICE EXPIRATION
NAME GRANTED#(1) FISCAL YEAR(1) (PER SHARE) DATE 5% 10%
---- ----------- -------------- ----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dennis P. Jarosz 5,000 8.9% $14.25 02/02/07 $ 44,809 $ 113,554
Anthony C. Prestipino 5,000 8.9% 14.25 02/02/07 44,809 113,554
Howard N. Feist III 5,000 8.9% 14.25 02/02/07 44,809 113,554
Robert N. Agate 5,000 8.9% 14.25 02/02/07 44,809 113,554
</TABLE>
- --------
(1) All options granted in fiscal year 1997 were granted pursuant to the 1995
Stock Option Plan. All options granted to the named executive officers
vest over five years at the rate of 20% per year beginning on the first
anniversary of the date of the grant, subject to acceleration as the
Compensation Committee, in its sole discretion, deems appropriate.
(2) These amounts represent certain assumed rates of appreciation which are
provided for illustrative purposes only. Actual gains, if any, on stock
option exercises and Class A common stock holdings are dependent on the
future performance of the Class A common stock and overall stock market
conditions. There is no assurance that the amounts reflected will be
realized.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN THE MONEY OPTIONS
OPTIONS AT 12/31/97 AT 12/31/97
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Marcus -- -- 60,000 90,000 $-- $ --
Howard N. Feist III -- -- 4,000 11,000 -- --
Robert N. Agate -- -- 4,000 11,000 -- --
Dennis P. Jarosz -- -- 2,700 12,300 488 1,950
Anthony C. Prestipino -- -- 2,000 13,000 750 3,000
</TABLE>
DEFINED BENEFIT PENSION PLAN
In addition to the remuneration set forth above, the Company maintains a
tax-qualified defined benefit pension plan (the "Pension Plan") for all
salaried (non-hourly) employees. The Pension Plan provides non-contributory
benefits based upon years of service and average annual earnings for the 60
consecutive calendar months in which the participating employee had the
highest level of earnings during the 120 consecutive calendar months preceding
retirement.
39
<PAGE>
The table below sets forth certain information relating to the Pension Plan
with respect to the five most highly compensated executive officers of the
Company at December 31, 1997. Roger S. Marcus is not eligible to participate in
the Pension Plan because he is an employee of American Biltrite.
<TABLE>
<CAPTION>
1997 CREDITED
REMUNERATION YEARS
NAME COVERED BY PLAN OF SERVICE
---- --------------- ----------
<S> <C> <C>
Roger S. Marcus -- --
Howard N. Feist III $160,000 16
Robert N. Agate 160,000 16
Dennis P. Jarosz 160,000 25
Anthony C. Prestipino 160,000 2
</TABLE>
The following table is based on the present Pension Plan formula. Actual
benefits will differ depending on the employee's years of service and whether
the employee was previously employed by the Company or the Tile Division of
American Biltrite.
The compensation used to determine a person's benefits under the Pension Plan
includes such person's salary (including amounts deferred as salary reduction
contributions to any applicable tax-qualified plans maintained under Sections
401(k) or 125 of the Code) and annual bonuses. The Internal Revenue Service has
limited the maximum compensation for benefit purposes to $160,000. The
following table shows, for various income and service levels, the annual
benefits payable under the Pension Plan, commencing at normal retirement at age
65. These benefits are presented on a five years certain and life thereafter
basis.
APPROXIMATE ANNUAL PENSION AT AGE 65
<TABLE>
<CAPTION>
FINAL TOTAL YEARS OF SERVICE AS A PLAN MEMBER
AVERAGE ---------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000 $11,700 $15,700 $19,600 $23,500 $27,400
125,000 15,100 20,200 25,200 30,200 35,300
150,000 18,500 24,700 30,800 37,000 43,100
175,000 19,800 26,500 33,100 39,700 46,300
200,000 19,800 26,500 33,100 39,700 46,300
225,000 19,800 26,500 33,100 39,700 46,300
250,000 19,800 26,500 33,100 39,700 46,300
</TABLE>
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Class A common stock
and Class B common stock beneficially owned by (a) each person who owns of
record, or is known by the Company to own beneficially, more than 5% of the
Company's Class A common stock and/or Class B common stock, (b) the Company's
Chief Executive Officer and certain other executive officers and (c) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF
STOCK OWNED PERCENT OF
NAME AND ADDRESS OF TITLE BENEFICIALLY PERCENT COMBINED
BENEFICIAL OWNERS OF CLASS AS OF AUGUST 31, 1998 OF CLASS VOTING POWER
------------------- -------- --------------------- -------- ------------
<S> <C> <C> <C> <C>
American Biltrite Inc..... Class B 4,395,605(1) 92.4% 63.7%
57 River Street
Wellesley Hills, MA 02181
Hillside Capital Incorpo- Class B 213,340(2) 4.5% 3.1%
rated....................
405 Park Avenue
New York, NY 10022
David L. Babson & Co., Class A 998,500(3)(4) 23.3% 7.2%
Inc......................
One Memorial Drive
Cambridge, MA 02142
The TCW Group, Inc........ Class A 546,400(3)(5) 12.8% 4.0%
865 South Figueroa Street
Los Angeles, CA 90017
Franklin Resources, Inc... Class A 365,700(3)(6) 8.5% 2.6%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 99403
Clark Estates, Inc........ Class A 404,000(3)(7) 9.4% 2.9%
30 Wall Street
New York, NY 10005
Goldman, Sachs & Co....... Class A 276,500(3)(8) 6.5% 2.0%
85 Broad Street
New York, NY 10004
U.S. Bancorp.............. Class A 274,500(3)(9) 6.4% 2.0%
United States National
Bank of Oregon
111 S.W. Fifth Avenue
Portland, OR 97204
Babson Enterprise Fund, Class A 283,800(3)(10) 6.6% 2.0%
Inc......................
BMA Tower, 12th Floor
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Kestrel Investment Manage- Class A 287,600(3)(11) 6.7% 2.1%
ment Corporation.........
411 Borel Avenue
Suite 403
San Mateo, California
94402
Marvin Schwartz........... Class A 375,000(12) 8.7% 2.7%
c/o Neuberger & Berman
LLC
605 Third Avenue
New York, New York 10158-
3698
Roger S. Marcus(13)....... Class A 90,000(14) 2.1% *
Class B 4,395,605(1) 92.4% 63.7%
Robert N. Agate(13)....... Class A 8,850(15) * *
Howard N. Feist III(13)... Class A 8,177(15) * *
Dennis P. Jarosz(13)...... Class A 8,200(16) * *
All directors and
executive officers as a
group
(16 persons)............. Class A 239,227(17) 5.7% 2.7%
Class B 4,608,945 96.9% 66.8%
</TABLE>
41
<PAGE>
- --------
* Less than one percent.
(1) Represents shares of Class B common stock held of record by American
Biltrite. Refers to the shares of Class B common stock shown as owned of
record by American Biltrite with respect to which Roger S. Marcus,
Richard G. Marcus and William M. Marcus may be deemed to be the
beneficial owner. Each of the named individuals is a director of the
Company and a director, officer and stockholder of American Biltrite.
Each of the named individuals disclaims beneficial ownership of such
shares. The address of Roger S. Marcus is 3705 Quakerbridge Road, P.O.
Box 3127, Mercerville, New Jersey. The address of Richard G. Marcus and
William M. Marcus is c/o American Biltrite Inc., 57 River Street,
Wellesley Hills, MA 02181.
(2) Refers to the shares of Class B common stock shown as owned of record by
Hillside Capital Incorporated ("Hillside Capital") with respect to which
John N. Irwin III may be deemed the beneficial owner. Mr. Irwin is a
director of the Company and a director and officer of Hillside Capital
and indirectly owns a majority of its issued and outstanding shares of
capital stock. Mr. Irwin disclaims beneficial ownership of such shares.
The address of Mr. Irwin is c/o Hillside Capital Incorporated, 405 Park
Avenue, New York, NY 10022.
(3) Based on information contained in a Schedule 13G filed with the
Commission which indicates that such shares were acquired solely for
investment purposes as of December 31, 1997.
(4) David L. Babson & Co., Inc. is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, and is considered
"beneficial owner" in the aggregate of 998,500 shares of Class A common
stock.
(5) The TCW Group, Inc. (through certain wholly owned subsidiaries TCW Asset
Management company and The Trust Company of the West) is considered the
"beneficial owner" in the aggregate of 546,400 shares of Class A common
stock. TCW Asset Management Company is an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940 and The Trust
Company of the West is a bank as defined in Section 3(A)(6) of the
Securities Exchange Act of 1934. Mr. Robert Day is an individual who may
be deemed to control the TCW Group, Inc. The address of Mr. Day is 200
Park Avenue, Suite 2200, New York, New York 10166.
(6) Franklin Resources, Inc. is a parent holding company with direct and
indirect investment advisory subsidiaries which may be deemed to be, for
purposes of Rule 13d-3 under the Securities Exchange Act of 1934, the
"beneficial owner" in the aggregate of 365,700 shares of Class A common
stock. Mr. Charles B. Johnson and Mr. Rupert H. Johnson, Jr. are
individuals who may be deemed to control Franklin Resources, Inc. Their
address is 777 Mariners Island Boulevard, San Mateo, California 94404.
(7) Clark Estates, Inc. is a New York corporation which provides management
and administrative services relating primarily to financial matters for
several individual members of the Clark family and to certain
institutional and trust accounts affiliated with the Clark family, and is
considered "beneficial owner" in the aggregate of 404,000 shares of Class
A common stock.
(8) Goldman, Sachs & Co. is a broker/dealer registered under Section 15 of
the Securities Exchange Act of 1934 and an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, and is
considered "beneficial owner" in the aggregate of 276,500 shares of Class
A common stock.
(9) U.S. Bancorp (together with certain wholly owned subsidiaries, Qualivest
Capital Management and United States National Bank of Oregon) is
considered "beneficial owner" in the aggregate of 274,500 shares of Class
A common stock. U.S. Bancorp is a national bank as defined in Section
3(A)(6) of the Securities Exchange Act of 1934.
(10) Babson Enterprise Fund, in its capacity as an investment company, may be
deemed the beneficial owner of 283,800 shares of common stock of the
Company, the shares of which are owned by shareholders of the Fund.
(11) Kestrel Investment Management Corporation is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, and
is considered the "beneficial owner" in the aggregate of 287,600 shares
of Class A common stock.
(12) Marvin Schwartz is the "beneficial owner" in the aggregate of 375,000
shares of Class A common stock.
(13) The address of each of the Chief Executive Officer and certain other
executive officers is c/o Congoleum Corporation, 3705 Quakerbridge Road,
P.O. Box 3127, Mercerville, New Jersey 08619.
(14) Includes 90,000 shares of Class A common stock issuable upon the exercise
of options which are currently exercisable or exercisable within 60 days
of August 31, 1998.
(15) Includes 7,000 shares of Class A common stock issuable upon the exercise
of options which are currently exercisable or exercisable within 60 days
of August 31, 1998.
(16) Includes 5,700 shares of Class A common stock issuable upon the exercise
of options which are currently exercisable or exercisable within 60 days
of August 31, 1998.
(17) Includes an aggregate of 225,700 shares issuable upon the exercise of
options which are currently exercisable or exercisable within 60 days of
August 31, 1998.
42
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of a Business Relations Agreement between the Company
and American Biltrite originally entered into on March 11, 1993, as amended,
(i) the Company granted American Biltrite the right to purchase the Company's
vinyl and vinyl composition tile at a price equal to the lower of 120% of the
Company's fully-absorbed manufacturing costs for such tile and the lowest
price paid by any of the Company's other customers and the exclusive right and
license (including the right to sublicense) to distribute such tile in Canada,
(ii) American Biltrite granted the Company the non-exclusive right to purchase
floor tile and urethane from American Biltrite at a price equal to the lower
of 120% of American Biltrite's fully-absorbed manufacturing costs for such
products and the lowest price paid by any of American Biltrite's other
customers, (iii) the Company agreed to provide American Biltrite with data
processing services for a period of 18 months following the acquisition of the
Tile Division at a cost equal to American Biltrite's internally allocated
costs for such data processing services immediately prior to such
consummation, (iv) the Company agreed to reimburse American Biltrite for any
insurance premiums retroactively imposed relating to claims against American
Biltrite in connection with the business or preparation of the Tile Division
(other than certain specified claims) and (v) American Biltrite agreed to have
its tape division supply paper slitting services to the Company at a cost
equal to American Biltrite's internally allocated costs for providing such
services immediately prior to the consummation of the transactions
contemplated by the Acquisition. The agreements referred to clauses (i) and
(ii) above terminate on the fifteenth anniversary of the date of the Business
Relations Agreement, subject to renewal for successive one-year periods if the
parties so elect. The agreement referred to in clause (v) above is terminable
at any time by the Board of Directors of the Company or American Biltrite. The
Business Relations Agreement has an initial term of fifteen years and may be
extended for successive one-year periods if the parties so elect. For the
twelve months ended December 31, 1997 the Company had purchases of $5.3
million from American Biltrite and sales of $1.0 million pursuant to this
Business Relations Agreement.
In connection with its program to repurchase shares of the Company's Class A
common stock and Class B common stock, the Company purchased an aggregate of
500,000 shares of Class B common stock from Hillside Capital Incorporated in a
private transaction on December 22, 1997 at a purchase price of $9.25 per
share, or $4,625,000 in the aggregate. John N. Irwin III, a director of the
Company, is a director of and the indirect, majority stockholder of Hillside
Capital Incorporated. C. Barnwell Straut, a director of the Company, is a
director of, and an indirect, minority stockholder of, Hillside Capital
Incorporated.
43
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued under an Indenture between the Company and
First Union National Bank, as trustee (the "Trustee"). The terms of the
Exchange Notes will include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended,
as in effect on the date of the Indenture (the "TIA"). The Exchange Notes will
be subject to all such terms, and holders of the Exchange Notes are referred
to the Indenture and the TIA for a statement of such terms. The following
summary of the material provisions of the Exchange Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all provisions of the Indenture, including the definitions therein of
certain terms capitalized but not defined herein and all terms made a part of
the Indenture by reference to the TIA. The Indenture is filed as an exhibit to
the Exchange Offer Registration Statement of which this Prospectus forms a
part. Copies of the Indenture are available as set forth above under
"Additional Information". Certain definitions of terms used in the following
summary are set forth under "--Certain Definitions" below.
The Exchange Notes will be senior, unsecured obligations of the Company,
will rank pari passu with all senior unsecured debt of the Company and will be
senior in right of payment to all existing and future subordinated debt of the
Company, if any. As of October 2, 1998, the Company had no outstanding
Indebtedness other than the Original Notes.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will mature on August 1, 2008 (the "Maturity Date"), and
will be limited to an aggregate principal amount of $100,000,000. The Exchange
Notes will accrue interest at the rate of 8 5/8% per annum from the date of
original issuance or from the most recent interest payment date to which
interest has been paid or duly provided for, and accrued and unpaid interest
will be payable semi-annually in arrears on February 1 and August 1 of each
year beginning February 1, 1999. Interest will be paid to the Person in whose
name the Note is registered at the close of business on the January 15 or July
15 immediately preceding the relevant interest payment date. Interest will be
computed on the basis of a 360-day year of twelve full 30-day months.
Principal and premium, if any, on the Exchange Notes will be payable at the
office or agency of the Company maintained for such purpose within the State
of New Jersey or, at the option of the Company, payment of interest may be
made by check mailed to the Holders at their respective addresses set forth in
the register of the Exchange Notes; provided that all payments of principal,
interest and premium with respect to Exchange Notes the holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the respective accounts
specified by the holders thereof. Until otherwise designated by the Company,
the Company's office or agency in New Jersey will be the office of the Paying
Agent and registrar of the Exchange Notes. Initially, the Trustee will act as
Paying Agent and registrar of the Exchange Notes. The Company may change any
paying agent and registrar without notice. The Exchange Notes will be issued
in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after August 1,
2003, and prior to maturity at the option of the Company, in whole or in part,
on not less than 30 nor more than 60 days' notice, mailed by first class mail
to each holder's last address as it appears in the register of the Notes,
44
<PAGE>
at the following redemption prices (expressed as percentages of the principal
amount), plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning August 1 of each
year indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.......................................................... 104.313%
2004.......................................................... 102.875%
2005.......................................................... 101.438%
2006.......................................................... 100.000%
</TABLE>
In addition, at any time prior to August 1, 2001, the Company may redeem up
to $30 million in aggregate principal amount of the Notes with the proceeds of
one or more Public Equity Offerings at a redemption price (expressed as a
percentage of principal amount) of 108.625%, plus accrued and unpaid interest
to the redemption date, provided that following such redemption at least $70
million of the aggregate principal amount of Notes remains outstanding; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such Public Equity Offerings.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed by lot or pro rata or by a method that complies with
the requirements of any exchange on which the Notes are listed or by such
method as the Trustee considers fair and appropriate. The Trustee may select
for redemption portions of the principal of Notes that have a denomination
larger than $1,000. Notes and portions thereof will be redeemed in the amount
of $1,000 or integral amounts of $1,000. The Trustee will make the selection
from Notes outstanding and not previously called for redemption. Notices of
redemption shall be mailed by first class mail at least 30 days but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. Notices of redemption may not be conditional. Notes
called for redemption become due on the date fixed for redemption.
Provisions of the Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. If any Note is to be
redeemed in part, the notice of redemption will state the portion of the
principal amount to be redeemed. Upon surrender of a Note that is redeemed in
part only, the Company will execute and the Trustee will authenticate and
deliver to the holder, a new Note equal in principal amount to the unredeemed
portion of the Note surrendered. On and after the redemption date, unless the
Company shall default in the payment of the redemption price, interest will
cease to accrue on the principal amount of the Notes or portions thereof
called for redemption. Notes that are optionally redeemed by the Company or
that are purchased by the Company pursuant to a Change of Control Offer or an
Asset Sale Offer or that are otherwise acquired by the Company will be
surrendered to the Trustee for cancellation.
MANDATORY REDEMPTION
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (the date of each such occurrence
being the "Change of Control Date"), the Company will notify the holders in
writing of such occurrence and will make an offer to purchase (the "Change of
Control Offer"), on a Business Day (the "Change of Control Payment Date"), not
earlier than 30 nor later than 60 days following the date notification of the
Change
45
<PAGE>
of Control is first given, all or any part (equal to $1,000 or an integral
multiple thereof) of the Notes then outstanding at a purchase price equal to
101.0% of the principal amount thereof, plus accrued and unpaid interest to
such Change of Control Payment Date. Notice of a Change of Control and a
description of the transaction or transactions that constitute a Change of
Control will be mailed by the Company to the holders not more than 30 days
after any Change of Control Date. The Change of Control Offer is required to
remain open for not less than 30 days, nor more than 60 days, and until the
close of business on any such Change of Control Payment Date. In addition, in
the event of any Change of Control, the Company will not, and will not permit
any of its Subsidiaries to, purchase, redeem or otherwise acquire any
Indebtedness ranking subordinate or junior to the Notes pursuant to any
analogous provisions relating to such Indebtedness on or prior to the Change
of Control Payment Date.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to
the Trustee the Exchange Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Exchange Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each holder of Notes so tendered the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. The Change of Control provisions described above will be
applicable whether or not any other provisions of the Indenture are
applicable.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity (other than
any Permitted Holder) or group of Persons or other entities (excluding
Permitted Holders) acting in concert as determined in accordance with Section
13(d) of the Exchange Act, whether or not applicable (a "Group of Persons"),
together with its or their Affiliates and Associates shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated
purchases, merger or otherwise (including pursuant to receipt of revocable
proxies) (A) be or become, directly or indirectly, the beneficial owner (with
the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether nor
not applicable, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) of more than 50.0% of the combined voting power of the then outstanding
Voting Stock of the Company or (B) otherwise has the ability, directly or
indirectly, to elect, directly or indirectly, a majority of the members of the
Board of Directors of the Company or other equivalent governing body thereof,
(b) individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors of the Company (together with any new
directors (i) elected by the Permitted Holders or (ii) whose election to the
Board of Directors of the Company or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
members of the Board of Directors of the Company then still in office who
either were members of the Board of Directors of the Company at the beginning
46
<PAGE>
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of the
Board of Directors of the Company then in office or (c) the Company
consolidates with or merges with or into another Person or the Company or any
of its Subsidiaries, directly or indirectly, sells, assigns, conveys,
transfers, leases or otherwise disposes of, in one transaction or a series of
related transactions, all or substantially all of the property or assets of
the Company and its Subsidiaries to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Capital Stock) of the surviving or transferee
corporation representing more than 50.0% of the combined voting power of the
then outstanding Voting Stock of the surviving or transferee corporation and
immediately after such transaction no "person" or "group" (as such terms are
used in Section 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have beneficial
ownership of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50.0% of the combined voting power of the
then outstanding Voting Stock of the surviving or transferee corporation.
An "Associate" of, or a person "associated" with, any person, means (i) any
trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity and (ii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person.
With respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the Indenture (including as set forth under "--
Merger, Consolidation, Etc." below) varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which governs the Indenture) and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the property or assets of a
Person and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Holders are entitled to a Change of Control Offer.
None of the provisions relating to a redemption upon a Change of Control are
waivable by the Board of Directors of the Company. The Company could, in the
future, enter into certain transactions, including certain recapitalizations
of the Company, that would not constitute a Change of Control with respect to
the Change of Control redemption feature of the Notes, but would increase the
amount of Indebtedness outstanding at such time. If a Change of Control were
to occur, there can be no assurance that the Company would have sufficient
funds to pay the redemption price for all Notes that the Company is required
to redeem. In the event that the Company were required to purchase outstanding
Notes pursuant to a Change of Control Offer, the Company expects that it would
need to seek third-party financing to the extent it did not have available
funds to meet its purchase obligations. However, there can be no assurance
that the Company would be able to obtain such financing. The Company would be
required to obtain a consent from the lenders under the present terms of the
Credit Facility to incur any Indebtedness (other than Indebtedness under the
Credit Facility) to repurchase outstanding Notes pursuant to a Change of
Control Offer and to make payments to the Holders pursuant to such Change of
Control Offer. In addition, the Company's ability to redeem Notes may be
limited by other then-existing borrowing agreements. Certain of the events
constituting a Change of Control would constitute an event of default under
the Credit Facility and permit the holders of the Indebtedness of the Company
thereunder to declare all amounts outstanding thereunder to be immediately due
and payable. See "--Events of Default".
47
<PAGE>
Failure by the Company to purchase the Notes when required will result in an
Event of Default with respect to the Notes. See "--Events of Default".
If an offer is made to redeem the Notes as a result of a Change of Control,
the Company will comply with all tender offer rules under state and Federal
securities laws, including, but not limited to, Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such
offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS
(a) the Company will not, and will not cause or permit any of its
Subsidiaries to, Incur any Indebtedness (including, without limitation,
Acquired Indebtedness): provided that the Company may Incur Indebtedness
(including, without limitation, Acquired Indebtedness) if (i) no Default or
Event of Default shall have occurred and be continuing at the time of the
proposed incurrence thereof or shall occur as a result of such proposed
incurrence and (ii) after giving effect to such proposed incurrence the
Company's Consolidated Fixed Charge Coverage Ratio would be greater than 2.25
to 1.00.
(b) Notwithstanding paragraph (a) above, the Company and its Subsidiaries
may incur each and all of the following:
(1) Indebtedness of the Company pursuant to the Credit Facility in an
aggregate principal amount at any time outstanding not to exceed $30
million less the aggregate amount of all Excess Proceeds of Asset Sales
applied to repay Indebtedness under the Credit Facility pursuant to the
covenant described under the caption "--Limitation on Sale of Assets";
(2) Indebtedness of the Company evidenced by the Notes;
(3) Indebtedness of the Company under Interest Rate Protection Agreements
covering Indebtedness (which Indebtedness (i) bears interest at fluctuating
interest rates and (ii) is incurred in accordance with the Consolidated
Fixed Charge Coverage Ratio test of clause (a) or in accordance with
clauses (b)(1), (b)(9) or (b)(10) of this covenant) to the extent the
notional principal amount of such Interest Rate Protection Agreements does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Agreements relate;
(4) Indebtedness of a Wholly Owned Subsidiary of the Company to the
Company for so long as such Indebtedness is held by the Company or another
Wholly Owned Subsidiary of the Company, provided that such Indebtedness is
not subordinated to any other Indebtedness or other obligation of such
Subsidiary;
(5) Indebtedness of the Company or of a Wholly Owned Subsidiary of the
Company (an "Obligor Subsidiary") to a Wholly Owned Subsidiary of the
Company (an "Obligee Subsidiary"), provided that (i) any Indebtedness of
the Company to any Obligee Subsidiary is unsecured and subordinate with
respect to the payment in full in cash of all obligations under the Notes
and (ii) any subsequent issuance of Capital Stock of an Obligee Subsidiary
that results in such Obligee Subsidiary ceasing to be a Wholly Owned
Subsidiary of the Company or any transfer of such Indebtedness owing by the
Company or an Obligor Subsidiary to such Obligee Subsidiary (other than to
the Company or another Wholly Owned Subsidiary of the Company) shall in
each case be deemed the incurrence of Indebtedness not permitted by this
clause (5) by the Company and each Obligor Subsidiary of such Obligee
Subsidiary to the extent indebted to such Obligee Subsidiary that is no
longer a Wholly Owned Subsidiary of the Company or that has transferred
such Indebtedness;
(6) The guarantee by the Company of Indebtedness of a Subsidiary of the
Company that was permitted to be incurred by another provision of this
covenant;
48
<PAGE>
(7) Indebtedness under Currency Agreements related to payment obligations
in respect of Indebtedness of the Company or of its Subsidiaries incurred
in accordance with the Indenture and Indebtedness in respect of Currency
Agreements entered into with respect to payables and receivables of the
Company and its Subsidiaries, provided that in the case of Currency
Agreements that relate to Indebtedness, such Currency Agreements do not
increase the Indebtedness of the Company or of its Subsidiaries outstanding
at any time other than as a result of fluctuations in foreign currency or
exchange rates;
(8) Indebtedness incurred in respect of performance bonds, bankers'
acceptances or letters of credit of the Company and of any Subsidiary of
the Company and surety bonds provided by the Company or any Subsidiary of
the Company in the ordinary course of business, the Indebtedness incurred
under this clause (8) not to exceed $5 million in the aggregate;
(9) Indebtedness of the Company and of its Subsidiaries outstanding on
the Issue Date (as in effect on the Issue Date) and listed on a schedule in
the Indenture after giving effect to the consummation of the Initial
Offering and the application of the net proceeds therefrom as set forth
under "Use of Proceeds" above;
(10) Indebtedness incurred under Acquired Indebtedness, Capitalized Lease
Obligations, purchase money obligations or other construction financing not
to exceed $12.5 million at any time outstanding;
(11) Indebtedness in an amount not to exceed $7.5 million at any time
outstanding; and
(12) Permitted Refinancing Indebtedness incurred by the Company or by any
Subsidiary of the Company to Refinance any Indebtedness incurred in
accordance with the Consolidated Fixed Charge Coverage Ratio test of clause
(a) above or to Refinance any Indebtedness incurred under subclauses (2)
and (8) of this clause (b).
The Indenture provides that the Company will not incur any Indebtedness that
is contractually subordinated in right of payment to any other Indebtedness of
the Company unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; provided,
however, that no Indebtedness of the Company shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of
the Company solely by virtue of being unsecured.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, nor will the Company permit or cause any of its
Subsidiaries to, directly or indirectly, make any Restricted Payment (other
than to the Company) unless, at the time of such proposed Restricted Payment
(including Investments which are then outstanding), and on a pro forma basis
immediately after giving effect thereto:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof;
(b) the aggregate amount expended for all Restricted Payments (other than
to the Company) subsequent to the Issue Date would not exceed the sum of:
(1) 50% of aggregate Consolidated Net Income of the Company (or if
such Consolidated Net Income is a loss, minus 100% of such loss) earned
on a cumulative basis during the period (treated as one accounting
period) beginning on the first date of the Company's fiscal quarter
commencing after the Issue Date, and ending on the last date of the
Company's fiscal quarter immediately preceding such proposed Restricted
Payment; plus
(2) 100% of the aggregate Net Equity Proceeds received by the Company
from any Person (other than from a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (excluding (x) any Qualified Capital Stock of the
Company paid as a dividend on any Capital Stock of the Company or of
any of its Subsidiaries, (y) the issuance of Qualified Capital Stock
upon the
49
<PAGE>
conversion of, or in exchange for, any Capital Stock of the Company or
of any of its Subsidiaries and (z) any Qualified Capital Stock of the
Company with respect to which the purchase price thereof has been
financed directly or indirectly using funds (i) borrowed from the
Company or from any of its Subsidiaries, unless and until and to the
extent such borrowing is repaid or (ii) contributed, extended,
guaranteed or advanced by the Company or by any of its Subsidiaries
(including, without limitation, in respect of any employee stock
ownership or benefit plan)); provided that there shall be excluded from
this clause (2) any Net Equity Proceeds from the issuance and sale of
Capital Stock the Company used to redeem the Notes pursuant to the
second paragraph of "--Optional Redemption"; and
(c) The Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been able to
incur $1.00 of additional Indebtedness under paragraph (a) of "--Limitation
on Indebtedness" above under the Consolidated Fixed Charge Ratio Test.
The foregoing provisions of clauses (b) and (c) of this covenant will not
prevent any of the following (to the extent they may otherwise constitute
Restricted Payments): (a) the payment of any dividend within 60 days after the
date of its declaration if at such date of declaration the payment of such
dividend would comply with the provisions set forth above, provided that such
dividend will be deemed to have been paid as of its date of declaration for
the purposes of this covenant, (b)(i) the purchase, redemption, retirement or
acquisition of any shares of Capital Stock of the Company or of any Subsidiary
or any Indebtedness of the Company that is subordinated to the Notes solely
with or out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company and neither such purchase, redemption, retirement or
acquisition nor the proceeds of any such sale will be included in any
computation made under clause (b)(2) above, (ii) the payment of any dividend
by a Subsidiary of the Company to the holders of its common Equity Interests
on a pro rata basis; (iii) the prepayment, acquisition, retirement or decrease
of Indebtedness of the Company that is subordinated (whether pursuant to its
terms or by operation of law) to the Notes that is prepaid, acquired,
decreased or retired (x) by conversion into or in exchange for Qualified
Capital Stock of the Company or (y) in exchange for or with or out of the net
cash proceeds of the substantially concurrent sale (other than by the Company
to a Subsidiary of the Company) of Permitted Refinancing Indebtedness, (iv)
the purchase, redemption, acquisition, cancellation or other retirement for
value of shares of Capital Stock of the Company or of any Subsidiary of the
Company, provided that the aggregate amount paid for all such purchases,
redemptions, acquisitions, cancellations or other retirements for value of
such shares of Capital Stock after the Issue Date does not exceed $5 million
in the aggregate and no Event of Default shall have occurred and be continuing
immediately after such transaction, (v) any transaction with an officer or
director of the Company entered into in the ordinary course of business
(including compensation and employee benefit arrangements with any officer or
director of the Company), (vi) the payment and expense by the Company of a
consulting or management fee to American Biltrite, provided that (x) the
aggregate of all such payments in any fiscal year does not exceed $500,000
plus (y) an additional amount, not to exceed $250,000 per fiscal year, to the
extent that such amount was not payable in the prior year, and provided
further, that the obligation of the Company to pay such consulting or
management fee will be subordinated to the obligations of the Company under
the Notes, (vii) the payment of amounts due in lieu of compensation under the
Personal Services Agreement, provided that any incentive fees payable shall be
approved by a majority of the disinterested directors of the Company and
(viii) the payment of amounts in lieu of federal and state taxes in connection
with a consolidated tax return if and to the extent that the amount paid by
the Company for any taxable period exceed the aggregate tax liability, if any,
of the Company and its Subsidiaries for such period (calculated as if the
Company and its Subsidiaries had been filing on a consolidated return basis as
a separate affiliated group during such period). The amounts expended pursuant
to clauses (a), (b)(iv) and (b)(vi) of this paragraph will be included in
computing the amounts available for Restricted Payments for purposes of the
immediately preceding paragraph.
50
<PAGE>
LIMITATION ON SALE OF ASSETS
The Company will not make, and will not permit any of its Subsidiaries to
make, any Asset Sale unless (i) the Company, or such Subsidiary, as the case
may be, receives consideration at the time of each such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of, and (ii) not less than 75.0% of the consideration received by the
Company, or such Subsidiary, as the case may be, is in the form of cash,
provided that the amount of (a) any liabilities (as shown on the Company's or
any such Subsidiary's most recent balance sheet or in the notes thereto) of
the Company or any such Subsidiary that are assumed by the transferee (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Notes) in respect of any Asset Sale and (b) any non-cash
consideration received by the Company or any such Subsidiary from such
transferee in respect of an Asset Sale that is converted into or sold or
otherwise disposed of for cash within 30 days of the receipt thereof shall be
included as cash. Within 360 days from the date of any such Asset Sale that
causes Net Cash Proceeds to exceed $5 million in any twelve-month period, the
Net Cash Proceeds thereof shall be used by the Company or its Subsidiary to
invest in its existing lines of business, provided that the Company commits to
make such investment no later than 180 days from the Asset Sale. To the extent
that Net Cash Proceeds from such disposition are not so applied (hereinafter
referred to as "Excess Proceeds"), the Company, or such Subsidiary, as the
case may be, shall use the Excess Proceeds to (a) permanently reduce the
Credit Facility, or (b) make an offer to purchase the Notes (an "Asset Sale
Offer") for cash at a price of not less than 100.0% of the principal amount
thereof plus accrued and unpaid interest thereon. The provisions of this
paragraph shall not be deemed to apply to any Asset Sale or series of Asset
Sales having aggregate Net Cash Proceeds of $5 million or less in any twelve-
month period, provided that to the extent such aggregate Net Cash Proceeds
exceed $5 million in any twelve-month period, the provisions of this paragraph
shall apply to the entire amount.
The Company will accept Notes tendered pursuant to an Asset Sale Offer on a
pro rata basis based upon the aggregate principal amount of Notes submitted by
holders accepting such Asset Sale Offer. An Asset Sale Offer shall be
consummated on a date not less than 40 nor more than 70 days following the
date of mailing of such Asset Sale Offer but in any event within 360 days of
the date of such Asset Sale (the "Proceeds Purchase Date"). The Asset Sale
Offer shall be made for the maximum amount of Notes that can be purchased with
such Excess Proceeds at a price equal to 100% of the aggregate principal
amount of the Notes to be repurchased, plus accrued and unpaid interest to the
Proceeds Purchase Date.
Notwithstanding the foregoing, the Company will not be required to make an
Asset Sale Offer if the Excess Proceeds available therefor are less than $5
million, in which case such Excess Proceeds shall be carried forward to
determine whether an Asset Sale Offer is required after any subsequent Asset
Sale. To the extent any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes tendered in such Asset Sale Offer surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
If an offer is made to repurchase the Notes pursuant to an Asset Sale Offer,
the Company will and will cause its Subsidiaries to comply with all tender
offer rules under state and Federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
LIMITATION ON LIENS
The Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any Liens upon any of their
respective properties or assets whether owned on the Issue Date or acquired
after the Issue Date, or on any income or profits therefrom, or assign or
otherwise convey any right to receive income or profits thereon, other than
(i) Liens granted by the Company on
51
<PAGE>
receivables and inventory securing Indebtedness under the Credit Facility;
(ii) Liens granted by the Company on property or assets of the Company
securing Indebtedness of the Company incurred in accordance with the Indenture
that is pari passu with the Notes, provided that the Notes are secured on an
equal and ratable basis with such Liens; (iii) Liens granted by the Company on
property or assets of the Company securing Indebtedness of the Company
incurred in accordance with the Indenture that is subordinated to the Notes,
provided that the Notes are secured by Liens ranking prior to such Liens; (iv)
Liens existing on the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date; (v) Permitted Liens; (vi) Liens in respect of
Acquired Indebtedness incurred in accordance with "--Limitation on
Indebtedness" above, provided that the Lien in respect of such Acquired
Indebtedness secured such Acquired Indebtedness at the time of the incurrence
of such Acquired Indebtedness by the Company or by one of its Subsidiaries and
such Lien was not incurred by the Company or any of its Subsidiaries or by the
Person being acquired or from whom the assets were acquired in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or by one of its Subsidiaries and provided further that such Liens
in respect of such Acquired Indebtedness do not extend to or cover any
property or assets of the Company or of any of its Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of the Company or of one of its
Subsidiaries; and (vii) Liens in respect of Permitted Refinancing Indebtedness
incurred in accordance with the Indenture to Refinance any of the Indebtedness
set forth in clauses (i), (ii), (iii), (iv) and (vi) above, provided that such
Liens in respect of such Permitted Refinancing Indebtedness are no less
favorable to the Company or its Subsidiaries and the holders than the Liens in
respect of the Indebtedness being Refinanced and such Liens in respect of such
Indebtedness do not extend to or cover any property or assets of the Company
or of any of the Company's Subsidiaries other than the property or assets that
secured the Indebtedness being Refinanced.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or suffer to exist or allow to become effective
any consensual encumbrance or restriction of any kind on the ability of any
such Subsidiary to (a) pay dividends, in cash or otherwise, or make other
payments or distributions on its Capital Stock or any other equity interest or
participation in, or measured by, its profits, owned by the Company or by any
of its Subsidiaries, or make payments on any Indebtedness owed to the Company
or to any of its Subsidiaries, (b) make loans or advances to the Company or to
any of its Subsidiaries, (c) transfer any of their respective property or
assets to the Company or to any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (A) applicable
law, (B) customary provisions restricting subletting or assignment of any
lease governing a leasehold interest of any of the Company's Subsidiaries, (C)
Acquired Indebtedness incurred in accordance with the Indenture, provided that
such encumbrance or restriction in respect of such Acquired Indebtedness is
not applicable to any Person, or the property or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired and that
such Acquired Indebtedness was not incurred by the Company or by any of its
Subsidiaries or by the Person being acquired in connection with or
anticipation of such acquisition, (D) with respect to clause (c) above,
purchase money obligations for property acquired in the ordinary course of
business, (E) Indebtedness outstanding immediately after the Issue Date (as in
effect on the Issue Date) after giving effect to the consummation of the
transactions described under "Use of Proceeds" above, (F) the Credit Facility,
or (G) any Permitted Refinancing Indebtedness incurred in accordance with the
Indenture to Refinance any of the Indebtedness set forth in clauses (C), (E)
and (F) above to the extent such encumbrance or restriction in respect of such
Permitted Refinancing Indebtedness is no less favorable to the Company and its
Subsidiaries and the Holders and no more restrictive than such encumbrances or
restrictions contained in the Indebtedness being refinanced as of the date of
such Refinancing and does not extend to or cover any other Person or the
property of any other Person other than the Person in respect of whom such
encumbrance or restriction relating to the Indebtedness being Refinanced
applied.
52
<PAGE>
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, nor will the Company permit any of its Subsidiaries
to, (a) sell, lease, transfer or otherwise dispose of any of its property or
assets to, (b) purchase any property or assets from, (c) make any Investment
in, or (d) enter into or amend any contract, agreement or understanding with
or for the benefit of, any Affiliate of the Company or of any Subsidiary of
the Company (an "Affiliate Transaction"), other than Affiliate Transactions
that are reasonably necessary and desirable for the Company or such Subsidiary
in the conduct of its business and are on terms (which terms are in writing)
that are fair and reasonable to the Company or the Subsidiary and that are no
less favorable to the Company or such Subsidiary than those that could be
obtained in a comparable arm's length transaction by the Company or such
Subsidiary from an unaffiliated party, as determined reasonably and in good
faith by the Board of Directors of the Company, provided that if the Company
or any Subsidiary of the Company enters into an Affiliate Transaction or
series of Affiliate Transactions involving or having an aggregate value of
more than $2 million such affiliate Transaction shall, prior to the
consummation thereof, have been approved by a majority of the disinterested
directors of the Company, and provided further that with respect to any such
transaction or series of related transactions that involves an aggregate value
of more than $5 million, the Company or such Subsidiary shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to itself or its Subsidiary from
a financial point of view from an Independent Financial Advisor and file the
same with the Trustee. The foregoing restrictions shall not apply to (a) any
transaction between Wholly Owned Subsidiaries of the Company, or between the
Company and any Wholly Owned Subsidiary of the Company if such transaction is
not otherwise prohibited by the terms of the Indenture, (b) any Restricted
Payment made in accordance with "--Limitation on Restricted Payments" above
and (c) any transaction contemplated by the Business Relations Agreement and
the Personal Services Agreement as in effect on the Issue Date.
LIMITATION ON LINES OF BUSINESS
For as long as the Notes are outstanding, the Company will engage
principally in the business of producing, distributing and marketing flooring
products as well as the reasonable expansion or extension thereof.
MERGER, CONSOLIDATION, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its and its
Subsidiaries' assets (determined on a consolidated basis) to, any Person or
adopt a Plan of Liquidation, whether or not the Company shall be the surviving
or continuing corporation, unless: (i) the Person formed by such consolidation
or into which the Company is merged or the Person which acquires by
conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety or in the case of a Plan of Liquidation, or
Person to which assets of the Company have been transferred, (x) shall be a
corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly
assume, by supplemental indenture, executed and delivered to the Trustee's
reasonable satisfaction, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the performance of every
obligation of the Company under the Notes and the Indenture on the part of the
Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction), such Person (a) shall have a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments relating to such transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (b) shall be able to incur at least $1.00 of additional Indebtedness under
paragraph
53
<PAGE>
(a) of "--Limitation on Indebtedness" above, provided that in determining the
"Consolidated Fixed Charge Coverage Ratio" of the resulting, transferee or
surviving Person, such ratio shall be calculated as if the transaction
(including the incurrence of any Indebtedness or Acquired Indebtedness) took
place on the first day of the Reference Period; (iii) immediately before and
after giving effect to such transaction and the assumption contemplated by
clause (i)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of the transaction) no Default and no Event of Default shall have
occurred or be continuing; (iv) the Company or such Person shall have
delivered to the Trustee (A) an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer or
lease or Plan of Liquidation and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
provision of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied and (B) a certificate from
the Company's independent certified public accountants stating that the
Company has made the calculations required by clause (ii) above in accordance
with the terms of the Indenture; (v) neither the Company nor any Subsidiary of
the Company nor such Person, as the case may be, would thereupon become
obligated with respect to any Indebtedness (including Acquired Indebtedness),
nor any of its property or assets subject to any Lien, unless the Company or
such Subsidiary or such Person, as the case may be, could incur such
Indebtedness (including Acquired Indebtedness) or create such Lien under the
Indenture (giving effect to such Person being bound by all the terms of the
Indenture). A Wholly Owned Subsidiary of the Company may consolidate with, or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to the Company without
complying with clause (ii)(b) above.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the
same effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved
of all further obligations and covenants under the Indenture and the Notes.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the holders of Notes (i) quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (iii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
the Company has agreed
54
<PAGE>
that, for so long as any Notes remain outstanding, it will furnish to the
holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. Any materials required to be furnished to holders of
Notes by this covenant shall discuss, in reasonable detail, either on the face
of the financial statements included therein or in the footnotes thereto and
in any Management's Discussion and Analysis of Financial Condition and Results
of Operations, the financial condition and results of operations of the
Company.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(a) default in the payment of principal of, or premium, if any, on, the
Notes when due at maturity, upon repurchase, upon acceleration or
otherwise, including, without limitation, failure of the Company to
repurchase the Notes on the date required pursuant to "--Certain
Covenants--Limitation on Sale of Assets" above or following a Change of
Control and failure to make any optional redemption payment when due; or
(b) default in the payment of any installment of interest on the Notes
when due (including any interest payable in connection with any optional
redemption payment) and continuance of such Default for more than 30 days;
or
(c) the Company fails to observe, perform or comply with any of the
provisions described under "--Change of Control," "--Certain Covenants--
Limitation on Liens" and "--Merger, Consolidation, Etc." above; or
(d) default (other than a default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company in the Indenture or the Notes and failure to remedy such
default or breach within a period of 30 days after written notice from the
Trustee or the holders of at least 25% in aggregate principal amount of the
then outstanding Notes; or
(e) (x) a failure to pay at maturity or a default in the obligation to
pay the principal of, interest on, or any other payment obligation when due
on one or more classes of Indebtedness (other than the Notes) of the
Company or of any Subsidiary of the Company, whether such Indebtedness
exists on the Issue Date or shall be incurred after the Issue Date, having,
individually or in the aggregate, an outstanding principal amount in excess
of $7.5 million which permits the acceleration of the maturity of such
Indebtedness or (y) in the case of a default other than a payment default
referred to in clause (x), when one or more classes of Indebtedness (other
than the Notes) of the Company or of any Subsidiary of the Company, whether
such Indebtedness exists on the Issue Date or shall be incurred after the
Issue Date, having, individually or in the aggregate, an outstanding
principal amount in excess of $7.5 million is payable prior to its stated
maturity by or on behalf of the holders thereof, or
(f) the entry by a court of competent jurisdiction of one or more
judgments or orders against the Company or any Subsidiary of the Company or
any of their respective property or assets in an aggregate amount in excess
of $5 million and that are not covered by insurance written by third
parties, which judgments or orders have not been vacated, discharged,
satisfied or stayed pending appeal within 60 days from the entry thereof;
or
(g) certain events of bankruptcy, insolvency or reorganization involving
the Company or any Material Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee or the holders of not less than 25% in aggregate
principal amount of the then outstanding Notes may, and the Trustee shall upon
the request of holders of at least 25% in aggregate principal amount of Notes
then outstanding,
55
<PAGE>
declare the unpaid principal of, premium, if any, and accrued and unpaid
interest on, all the Notes then outstanding to be due and payable, by a notice
in writing to the Company (and to the Trustee, if given by Holders) and upon
such declaration such principal amount, premium, if any, and accrued and
unpaid interest will become immediately due and payable, notwithstanding
anything contained in the Indenture or the Notes to the contrary. If an Event
of Default specified in clause (g) above occurs with respect to the Company,
all unpaid principal of, and premium, if any, and accrued and unpaid interest
on, the Notes then outstanding will ipso facto become due and payable without
any declaration or other act on the part of the Trustee or any holder.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request, order or
direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable indemnity. Subject to all provisions of the Indenture and
applicable law, the holders of a majority in aggregate principal amount of the
then outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee may
withhold from holders notice of any continuing Default or Event of Default
(except a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes or that resulted from the failure of
the Company to comply with the provisions of "--Change of Control" or "--
Merger, Consolidation, Etc." above) if it determines that withholding notice
is in their interest. The holders of a majority in aggregate principal amount
of the Notes then outstanding by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other
than the nonpayment of principal of and premium, if any, and interest and
Liquidated Damages, if any, on the Notes) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
August 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to August 1, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the holders of all the Notes, waive any past
Default or Event of Default under the Indenture and its consequences, except
Default in the payment of principal of or premium, if any, or interest on the
Notes or in respect of a covenant or provision of the Indenture which cannot
be modified or amended without the consent of all Holders.
Under the Indenture, two officers of the Company are required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
56
<PAGE>
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, except for (i)
the rights of holders of outstanding Notes to receive payment in respect of
the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect
of the Notes, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate its obligations
with respect to certain covenants that are set forth in the Indenture, some of
which are described under "--Certain Covenants" above, and any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in United States dollars, United States
Government Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes to redemption or maturity; (ii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that the holders
of the outstanding Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance or covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable Federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit;
(iv) such defeasance or covenant defeasance shall not cause the Trustee to
have a conflicting interest with respect to any securities of the Company; (v)
such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any material agreement or
instrument to which the Company is a party or by which it is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of holders
of any other Indebtedness of the Company, and (B) after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vii) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Company is not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee, may, without the consent of the holders, amend,
waive or supplement the Indenture or
57
<PAGE>
the Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the TIA or making any change that does
not adversely affect the rights of any holder, provided that the Company has
delivered to the Trustee an Opinion of Counsel stating that such change does
not adversely affect the rights of any holder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, and
the Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes then outstanding, provided that no
such supplemental indenture may without the consent of the holder of each
outstanding Note affected thereby: (i) reduce the amount of Notes whose
holders must consent to an amendment or waiver; (ii) reduce the rate of, or
extend the time for payment of, interest, including defaulted interest on any
Note; (iii) reduce the principal of or premium on or change the fixed maturity
of any Note or alter the redemption provisions with respect thereto; (iv) make
the principal of, or interest on any Note payable in money other than as
provided for in the Indenture and the Notes; (v) make any change in provisions
relating to waivers of defaults, the ability of holders to enforce their right
under the Indenture or in the matters discussed in these clauses (i) through
(viii); (vi) waive a default in the payment of principal of or interest on, or
redemption or repurchase payment with respect to, any Notes, including,
without limitation, a default to make a payment when required upon a Change of
Control or after an Asset Sale; (vii) affect the ranking of the Notes or
(viii) after the Company's obligation to purchase the Notes arises thereunder,
amend, modify or change the obligation of the Company to make and consummate a
Change of Control Offer or an Asset Sale Offer or waive any default in the
performance thereof or modify any of the provisions or definitions with
respect to any such offers.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and
58
<PAGE>
use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or of
any other obligor on the Notes, to obtain payments of claims in certain cases
or to realize on certain property received in respect of any such claim as
security or otherwise. Subject to the TIA, the Trustee will be permitted to
engage in other transactions, provided that if the Trustee acquires any
conflicting interest as described in the TIA, it must eliminate such conflict
or resign.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form, without coupons. Except as described below, the Exchange
Notes will be deposited with, or on behalf of, The Depository Trust Company,
New York, New York (the "Depository"), and registered in the name of Cede &
Co., as the Depository's nominee (such nominee being referred to herein as the
"Global Note Holder") in the form of a global Exchange Note certificate (the
"Global Note") or will remain in the custody of the Trustee pursuant to a FAST
Balance Certificate Agreement between the Depository and the Trustee.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only by the Depository to its nominee or by its nominee to such
Depository or another nominee of the Depository or by the Depository or its
nominee to a successor of the Depository or a nominee of such successor.
The Depository is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depository's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depository's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the Trustee with portions of the
principal amount of the Global Note and (ii) ownership of the Exchange Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the interests
of the Depository's Participants). The laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes will be limited
to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or holder of
such Exchange Notes outstanding under the Indenture. Except as provided below,
beneficial owners of Exchange Notes will not be entitled to have Exchange
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Exchange Notes in definitive form, and will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a Person
having a beneficial interest
59
<PAGE>
in Exchange Notes represented by the Global Note to pledge such interest to
Persons or entities that do not participate in the Depository's system or to
otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Exchange Notes by the Depository, or for
maintaining, supervising or reviewing any records of the Depository relating
to such Exchange Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Exchange Notes registered in the name of a Global Note Holder on the
applicable record date will be made by the Company through a paying agent to
or at the direction of such Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the Persons in whose names the Exchange
Notes, including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Trustee nor any paying agent has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Exchange Notes.
The Company believes, however, that it is currently the policy of the
Depository to immediately credit the accounts of the relevant Participants
with such payment, in accounts proportionate to their respective holdings in
principal amount of beneficial interest in the relevant security as shown on
the records of the Depository. Payments by the Depository's Participants and
the Depository's Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depository's Participants or the
Depository's Indirect Participants.
CERTIFICATED SECURITIES
The Global Note is exchangeable for definitive Exchange Notes in registered
certificated form ("Certificated Notes"), if (i) the Depository notifies the
Company in writing that the Depository is no longer willing or able to act as
a depository of the Global Note and the Company thereupon fails to appoint a
successor depository, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or Event of Default with
respect to the Notes. In addition, beneficial interests in the Global Note may
be exchanged for Certificated Notes upon request but only upon prior written
notice given the Trustee by or on behalf of the Depository in accordance with
the Indenture. In all cases, Certificated Notes delivered in exchange for the
Global Note or beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on behalf of the
Depository (in accordance with its customary procedures).
Neither the Company nor the Trustee shall be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
the Exchange Notes and each such Person may conclusively rely on, and shall be
protected in relying on, instructions from such Global Note Holder or of the
Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Exchange Notes to be
issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Global Note
(including principal, premium, if any, and interest, if any) be made by wire
transfer of immediately available funds to the account specified by the Global
Note Holder. The Exchange Notes are expected to be eligible to trade in the
PORTAL Market and to trade in the Depository's Next-Day Funds Settlement
System, and any
60
<PAGE>
permitted secondary market trading activity in the Exchange Notes will,
therefore, be required by the Depository to be settled in immediately
available funds. The Company expects that secondary trading in any
Certificated Exchange Notes also will be settled in immediately available
funds.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Subsidiaries existing at the time such other Person
merged with or into or became a Subsidiary of such specified Person or assumed
by the specified Person in connection with the acquisition of assets from such
other Person, including, without limitation, Indebtedness of such other Person
and its Subsidiaries incurred by the specified Person in connection with or in
anticipation of (a) such other Person and its Subsidiaries being merged with
or into or becoming a Subsidiary of such specified Person or (b) such
acquisition by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of management or policies of the referent
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; provided that beneficial ownership of
10% or more of the Voting Stock of a person shall be deemed to be control, and
the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
(or series of related sales, leases, transfers, exchanges or dispositions),
including, without limitation, dispositions pursuant to merger, consolidation
or sale and leaseback transactions, of (a) shares of Capital Stock of a
Subsidiary of the Company, whether by such Subsidiary or another Person, (b)
all or substantially all of the properties and assets of any division or line
of business of the Company or any Subsidiary of the Company or (c) any other
property or assets of the Company or of any Subsidiary of the Company outside
the ordinary course of business of the Company or such Subsidiary (each
referred to for purposes of this definition as a "disposition") by the Company
or by any of its Subsidiaries (other than (a) dispositions by a Subsidiary of
the Company to the Company or to a Wholly Owned Subsidiary of the Company, (b)
sales or other dispositions in the ordinary course of business of inventory
determined in accordance with GAAP, and (c) any disposition of properties or
assets that is governed by the provisions of "--Merger, Consolidation, Etc."
above).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or security, the quotient obtained by dividing (a) the sum of the
product of (i) the number of years from such date to the date of each
successive scheduled principal or redemption payment of such Indebtedness or
security multiplied by (ii) the amount of such principal or redemption payment
by (b) the sum of all such principal or redemption payments.
"Business Relations Agreement" means the Business Relations Agreement dated
as of March 11, 1993 between the Company and American Biltrite, as amended
through the Issue Date and as thereafter amended from time to time.
"Capitalized Lease Obligation" means an obligation under a lease that is
required to be classified and accounted for as a capital lease obligation
under GAAP and, for purposes of the Indenture, the amount of such obligation
at any date shall be the capitalized amount of such obligation at such date,
determined in accordance with such principles. The Stated Maturity of such
obligation shall be the date of the last payment of rent or any other amount
due under such lease prior to the first date upon which such lease may be
terminated by the lessee without penalty.
61
<PAGE>
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof,
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of
at least A-1 from Standard & Poor's Ratings Group or at least P-1 from Moody's
Investors Service, Inc., (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $500 million, (v) repurchase obligations with a term
of not more than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the qualifications
specified in clause (iv) above, and (vi) investments in money market funds
which invest substantially all their assets in securities of the types
described in clauses (i) through (v) above.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" for any Person means for any period for which it is to
be determined the sum of, without duplication, the amounts for such period,
taken as a single accounting period, of (i) Consolidated Net Income; plus (ii)
only to the extent Consolidated Net Income has been reduced thereby during
such period, (A) Consolidated Tax Expense of such Person and its Consolidated
Subsidiaries paid or accrued; (B) Consolidated Interest Expense of such Person
and its Consolidated Subsidiaries; (C) depreciation and amortization expenses
(including, without limitation, amortization of capitalized debt issuance
costs); and (D) non-recurring, non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period); less (iii) without duplication, the amounts for
such period, taken as a single accounting period, consolidated non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
in conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of (a) the aggregate amount of Consolidated EBITDA of such
Person for the four full fiscal quarters ending on or immediately prior to the
date of the transaction (the "Transaction Date") giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal
quarter period being referred to herein as the "Four Quarter Period") to (b)
the aggregate Consolidated Fixed Charges of such Person for such Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes
of this definition, Consolidated EBITDA and Consolidated Fixed Charges shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence or retirement, as the case may be, of any
Indebtedness (including Acquired Indebtedness) or preferred stock of such
Person or of any of its Subsidiaries, or one third of cash rental expense
attributable to operating leases paid or accrued by such Person and its
Consolidated Subsidiaries, but excluding all
62
<PAGE>
amortization of debt issuance costs, in each case during the period commencing
on the first day of the Four Quarter Period to and including the Transaction
Date (the "Reference Period"), including, without limitation, the incurrence
of the Indebtedness giving rise to the need to make such calculation, as if
such incurrence or retirement, as the case may be, occurred on the first day
of the Reference Period, provided that any Indebtedness repaid under a
revolving credit or similar credit facility shall not be deemed repaid during
such period other than to the extent the commitment thereunder has been
permanently reduced, and (ii) the Consolidated EBITDA during the Reference
Period attributable to any acquired or divested Person, business, property or
asset, provided that with respect to any such acquisition, only to the extent
the Consolidated EBITDA of such Person is otherwise includible in the referent
Person's Consolidated EBITDA, as if such transaction occurred on the first day
of the Reference Period. If the Person for whom this ratio is being calculated
or any of its Subsidiaries directly or indirectly guarantees Indebtedness of a
third person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed Indebtedness
as of the first day of the Reference Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may be
optionally determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (3) notwithstanding the foregoing,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to interest swap agreements, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (i) Consolidated Interest Expense: and (ii) the
product of (x) the amount of all dividend requirements (whether or not
declared) on Preferred Stock of such Person and its Consolidated Subsidiaries,
whether in cash or otherwise (except dividends payable in shares of Common
Stock) paid, accrued or scheduled to be paid or accrued during such period
times (y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated Federal, state,
local and foreign tax rate (expressed as a decimal number between 1 and 0) of
such Person (as reflected in the audited consolidated financial statements of
such Person for the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, including (a) all
amortization of original issue discount, (b) the interest component of
Capitalized Lease Obligations paid or accrued by such Person and its
Consolidated Subsidiaries during such period, (c) net cash costs under all
Interest Rate Protection Agreements (including amortization of fees), (d) all
capitalized interest, (e) the interest portion of any deferred payment
obligations for such period, (f) cash contributions to any employee stock
ownership plan to the extent such contributions are used by such employee
stock ownership plan to pay interest or fees to any Person (other than the
referent Person or one of its Wholly Owned Subsidiaries) in connection with
loans incurred by such employee stock ownership plan to purchase Capital Stock
of the referent Person and (g) one third of cash rental expense attributable
to operating leases paid or accrued by such Person and its Consolidated
Subsidiaries during such period, determined on a consolidated basis, for such
Person and its Consolidated Subsidiaries but excluding all amortization of
debt issuance costs.
63
<PAGE>
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP consistently applied, provided that the net income of any
other Person (other than a Subsidiary) in which the referent Person or any
Subsidiary of the referent Person has a joint interest with a third party
(which interest does not cause the net income of such other Person to be
consolidated into the net income of the referent Person in accordance with
GAAP) shall be included only to the extent of the amount that has been
actually received by the referent Person or a Wholly Owned Subsidiary of the
referent Person in the form of cash dividends or similar cash distributions
(subject to, in the case of a dividend or other distribution to a Wholly Owned
Subsidiary of the referent Person, the limitations set forth in clause (i) or
the next proviso hereof), provided further that there shall be excluded the
net income (but not loss) of any Subsidiary of the referent Person to the
extent that the declaration or payment of dividends or similar distributions
by such Subsidiary is not permitted by operation of the terms of its charter
or any agreements, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary: (ii) the net income of
any Person acquired in a pooling of interests transaction accrued prior to the
date it became a Subsidiary of the referent Person or is merged into or
consolidated with the referent Person or any Subsidiary of the referent
Person; (iii) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of Consolidated Net
Income earned at any time following the Issue Date; (iv) any gain (but not
loss), together with any related provisions for taxes, realized upon the sale
or other disposition (including, without limitation, dispositions pursuant to
sale and leaseback transactions) of any property or assets which are not sold
or otherwise disposed of in the ordinary course of business and upon the sale
or other disposition of any Capital Stock of any Subsidiary of the referent
Person; (v) any gain arising from the acquisition of any securities, or the
extinguishment, under GAAP, of any Indebtedness of the referent Person; (vi)
any extraordinary gain (but not extraordinary loss) together with any related
provision for taxes on any such extraordinary gain and any one time gains or
losses (including, without limitation, those related to the adoption of new
accounting standards), realized by the referent Person or any of its
Subsidiaries during the period for which such determination is made; and (vii)
except for calculations made pursuant to clause (b)(ii) of "--Merger,
Consolidations, Etc.," in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation, merger
or transfer of assets and the net income of any Subsidiary shall be calculated
after deducting preferred stock dividends payable by such Subsidiary to
Persons other than the Company and its other Subsidiaries.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person plus (a) the respective amounts reported
on such Person's balance sheet as of such date with respect to any series of
Preferred Stock (other than Disqualified Stock) that by its terms is not
entitled to the payment of dividends unless such dividends may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such Preferred Stock, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets
of a going concern business made within 12 months after the acquisition of
such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a Consolidated Subsidiary of such Person and
(y) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Subsidiaries (except, in each case, Permitted
Investments).
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and of its Subsidiaries
on a consolidated basis exceed the sum of (a) the total liabilities of such
Person and of its Subsidiaries on a consolidated basis, plus (b) any
redeemable Preferred Stock of such Person or any redeemable Preferred Stock of
any Subsidiary of such Person.
64
<PAGE>
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated Subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any period,
the aggregate of the United States federal, state and local tax expense
attributable to taxes based on income and foreign income tax expenses of such
Person and its Consolidated Subsidiaries for such period (net of any income
tax benefit), determined in accordance with GAAP.
"Credit Facility" means the Financing Agreement dated as of April 19, 1991,
as amended, among the Company and the Lenders (as therein defined) party
thereto, and any Refinancing, extension, renewal, modification, restatement or
replacement thereof (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions), as the same may be
amended, supplemented or otherwise modified from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in the Indenture).
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased, in whole or in part, or has, or upon the happening of an event
or the passage of time would have, a redemption or similar payment due on or
prior to August 1, 2009, or is convertible into or exchangeable for debt
securities at the option of the holder thereof at any time prior to August 1,
2009.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Debt" has the meaning set forth in the definition of Permitted
Refinancing Indebtedness.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. The Fair Market Value of any non-cash
Restricted Payment shall be determined by the Board of Directors of the
Company acting reasonably and in good faith and shall be evidenced by a
resolution of the Board of Directors (certified by the Secretary or an
Assistant Secretary of the Company) delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an investment
bank of national standing if such fair market value exceeds $5.0 million.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
65
<PAGE>
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term "guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "guarantee" used as a verb has a corresponding
meaning.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable, contingently or otherwise, in
respect of such Indebtedness or other obligation or the recording, as required
pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on
the balance sheet of such Person (and "incurrence," "incurred," and
"incurring" shall have meanings correlative to the foregoing), provided that
the accrual of interest (whether such interest is payable in cash or in kind)
and the accretion of original issue discount shall not be deemed an incurrence
of Indebtedness, provided further that (A) any Indebtedness of a Person
existing at the time such Person becomes (after the Issue Date) a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) of the Company
shall be deemed to be incurred by such Subsidiary at the time it becomes a
Subsidiary of the Company and (B) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously incurred shall be
deemed to be an incurrence of Indebtedness unless such amendment, modification
or waiver does not increase the principal or premium thereof or interest rate
thereon (including by way of original issue discount).
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (i) any liability, contingent or otherwise, of
such Person (A) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(B) evidenced by a note, bond, debenture or similar instrument or letters of
credit (including a purchase money obligation) or (C) for the payment of money
relating to a Capitalized Lease Obligation or other obligation (whether issued
or assumed) relating to the deferred purchase price of property; (ii) all
conditional sale obligations and all obligations under any title retention
agreement (even if the rights and remedies of the seller under such agreement
in the event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business that are not overdue by 90 days or more or are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted; (iii) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction entered
into in the ordinary course of business; (iv) all Indebtedness of others
secured by (or for which
the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on any asset or property (including,
without limitation, leasehold interests and any other tangible or intangible
property) of such Person, whether or not such Indebtedness is assumed by such
Person or is not otherwise such Person's legal liability, provided that if the
obligations so secured have not been assumed in full by such Person or are
otherwise not such Person's legal liability in full, the amount of such
Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount such Indebtedness secured by such Lien or the Fair Market
Value of the assets or property securing such Lien; (v) all Indebtedness of
others (including all dividends of other Persons the payment of which is)
guaranteed, directly or indirectly, by such Person or that is otherwise its
legal liability or which such Person has agreed to purchase or repurchase or
in respect of which such Person has agreed contingently to supply or advance
funds; (vi) all Disqualified Capital Stock issued by such Person and all
Preferred Stock issued by Subsidiaries of such Person, with the amount of
66
<PAGE>
Indebtedness represented by such Disqualified Capital Stock or Preferred Stock
being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends if any; and (vii) all obligations under Currency Agreements and
Interest Rate Protection Agreements. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock or Preferred Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock or Preferred Stock, as the case
may be, as if such Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the Fair Market Value of such
Disqualified Capital Stock or Preferred Stock, such Fair Market Value shall be
determined reasonably and in good faith by the board of directors of the
issuer of such Disqualified Capital Stock or Preferred Stock, as the case may
be. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date, provided
that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the full amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and is disinterested and
independent with respect to the Company and its Affiliates.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party
or a beneficiary thereafter.
"Investment" by any Person means any direct or indirect (i) loan, advance or
other extension of credit or capital contribution (by means of transfers of
cash or other property (valued at the Fair Market Value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise), (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by any other Person (whether by merger, consolidation, amalgamation or
otherwise and whether or not purchased directly from the issuer of such
securities or evidences of Indebtedness), (iii) guarantee or assumption of the
Indebtedness of any other Person; and (iv) all other items that would be
classified as investments (including, without limitation, purchases of assets
outside the ordinary course of business) on a balance sheet of such Person
prepared in accordance with GAAP. Investments shall exclude extensions of
trade credit and advances to customers and suppliers to the extent made in the
ordinary course of business and made in accordance with customary industry
practice. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issue Date" means the date on which the Notes were originally issued under
the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant. right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to
sell, in each case securing obligations of such
67
<PAGE>
Person and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statute or statutes) of any
jurisdiction other than to reflect ownership by a third party of property
leased to the referent Person or any of its Subsidiaries under a lease that is
not in the nature of a conditional sale or title retention agreement).
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 10% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company, all as set
forth on the most recently available consolidated financial statements of the
Company and its consolidated Subsidiaries for such fiscal year prepared in
conformity with GAAP.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (i) reasonable third party brokerage commissions
and other reasonable third party fees and expenses (including fees and
expenses of counsel and investment bankers) related so such Asset Sale, (ii)
provisions for all taxes as a result of such Asset Sale, (iii) payments made
to repay Indebtedness or another obligation outstanding at the time of such
Asset Sale that was incurred in accordance with the Indenture and that either
(a) is secured by a Lien incurred in accordance with the Indenture on the
property or assets sold or (b) is required to be paid as a result of such sale
in each case to the extent actually repaid in cash and (iv) appropriate
amounts to be provided by the Company or any Subsidiary of the Company as a
reserve against liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP. For purposes of this Definition and "--Certain
Covenants--Limitation on Sale of Assets" "cash" means United States dollars or
such money as is freely and readily convertible into United States dollars.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate cash net proceeds
received by the Company, after payment of expenses, commissions and the like
incurred in connection therewith, and (b) in the case of any exchange,
exercise, conversion or surrender of any outstanding Indebtedness of the
Company or any Subsidiary for or into shares of Qualified Capital Stock of the
Company, the amount of such Indebtedness (or, if such Indebtedness was issued
at an amount less than the stated principal amount thereof, the accrued amount
thereof as determined in accordance with GAAP) as reflected in the
consolidated financial statements of the Company prepared in accordance with
GAAP as of the most recent date next preceding the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder of such Indebtedness to the Company or to any Wholly Owned
Subsidiary of the Company upon such exchange, exercise, conversion or
surrender and less any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the Company in connection
therewith), in each case (a) and (b) to the extent consummated after the Issue
Date, provided that the exchange, exercise, conversion or surrender of any
Indebtedness outstanding on the Issue Date which is subordinated (whether
pursuant to its terms or by operation of law) to the Notes shall not be or be
deemed to be included in Net Equity Proceeds.
"New Debt" has the meaning set forth in the definition of Permitted
Refinancing Indebtedness.
"Permitted Holders" means American Biltrite or its Subsidiaries.
68
<PAGE>
"Permitted Investments" means (a) Investments in cash and Cash Equivalents;
(b) Investments in any Wholly Owned Subsidiary of the Company by the Company
or by any other Wholly Owned Subsidiary of the Company, provided that such
Investment shall only be a Permitted Investment so long as any such Wholly
Owned Subsidiary in which the Investment has been made or which has made such
Investment remains a Wholly Owned Subsidiary of the Company; (c) Investments,
not exceeding $5 million at any one time in the aggregate, in joint ventures,
partnerships or Persons that are not Wholly Owned Subsidiaries of the Company
that are made solely for the purpose of acquiring a business related to the
Company's business; (d) Investments of the Company and its Subsidiaries
arising as a result of any Asset Sale otherwise complying with the terms of
the Indenture, provided that for each Asset Sale the maximum aggregate amount
of Investments permitted under this clause (d) shall not exceed 25% of the
total consideration received for such Asset Sale by the Company or any
Subsidiary of the Company; and (e) Investments in the Company by any
Subsidiary of the Company, provided that any Indebtedness evidencing such
Investment is subordinated to the Notes.
"Permitted Liens" means (a) Liens for taxes, assessments and governmental
charges (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974, as amended) that are not yet delinquent or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which adequate reserves have been established or
other provisions have been made in accordance with GAAP; (b) statutory
mechanics', workmen's, materialmen's, operators' or similar Liens imposed by
law and arising in the ordinary course of business for sums which are not yet
due or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and for which adequate reserves have been
established or other provisions have been made in accordance with GAAP; (c)
imperfections of, or encumbrances on, title that do not impair the value of
property for its intended use; (d) Liens (other than any Lien under the
Employee Retirement Income Security Act of 1974, as amended) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (e)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return of money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (f)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or of any of its
Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real
or tangible personal property acquired after the Issue Date, provided that (I)
such Lien is created solely for the purpose of securing Indebtedness (1) that
is incurred in accordance with paragraph (b)(9) of "Certain Covenants--
Limitation on Indebtedness" above to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 120 days after the
later of the acquisition, the completion of construction or the commencement
of full operation of such property or (2) that is Permitted Refinancing
Indebtedness to Refinance any Indebtedness previously so secured, (II) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (III) any such Lien shall not extend to or cover any property
or assets of the Company or of any of its Subsidiaries other than such item of
property or assets and any improvements on such item; (h) Liens incurred in
the ordinary course of business of the Company or any of its Subsidiaries with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by the Company or such Subsidiary; (i) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or of any of its Subsidiaries
relating to such property or assets; (j) any interest or title of a lessor in
the property subject to any Capitalized Lease Obligation, provided that such
sale-leaseback transaction related thereto otherwise complies
69
<PAGE>
with the Indenture; (k) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (l) Liens in favor of the Company (but
only so long as such Lien is held by the Company); (m) Liens arising from the
rendering of a final judgment or order against the Company or any Subsidiary
of the Company that does not give rise to an Event of Default; (n) Liens
securing reimbursement obligations with respect to letters of credit incurred
in the ordinary course of business and in accordance with the Indenture that
encumber documents and other property relating to such letters of credit and
the products and proceeds thereof; and (o) Liens in favor of the Trustee
arising under the Indenture.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or of
any of the Company's Subsidiaries the net proceeds of which are used to
Refinance outstanding Indebtedness of the Company or of any of the Company's
Subsidiaries that was incurred in accordance with the Indenture, provided that
(a) if the Indebtedness (including the Notes) being Refinanced (the "Existing
Debt") is pari passu with or subordinated to the Notes then such Indebtedness
Refinancing the Existing Debt (the "New Debt") shall be pari passu with or
subordinated to, as the case may be, the Notes at least to the same extent and
in the same manner as the Existing Debt is to the Notes; (b) such New Debt has
a Stated Maturity no earlier than the Stated Maturity of the Existing Debt;
(c) such New Debt has an Average Life at the time such New Debt is proposed to
be incurred that is greater than the Average Life of the Existing Debt as of
the date of such proposed Refinancing; (d) such New Debt is in an aggregate
principal amount (or, if such New Debt is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount and accrued interest
outstanding under the Existing Debt on the date of the proposed Refinancing
thereof (or if the Existing Debt was issued at a price less than the principal
amount thereof, then not in excess of the amount of liability in respect
thereof determined in accordance with GAAP as of the date of such proposed
Refinancing); and (e) if such Existing Debt is Indebtedness of the Company,
such New Debt is Indebtedness solely of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Personal Services Agreement" means the Personal Services Agreement dated as
of March 11, 1993 between the Company and American Biltrite, as amended
through the Issue Date and as thereafter amended from time to time.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the referent Person otherwise than as an entirety or substantially
as an entirety and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and all or
substantially all of the remaining assets of the referent Person to holders of
Capital Stock of the referent Person.
"Preferred Stock" means, as applied to the Capital Stock of any Person, the
Capital Stock of such Person (other than the Common Stock of such Person) of
any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of such Person, to shares
of Capital Stock of any other class of such Person.
"Pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
70
<PAGE>
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible
into or exchangeable or exercisable for Disqualified Capital Stock.
"Reference Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, and to issue
a security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Restricted Payment" means with respect to any Person, (i) the declaration
or payment of any dividend or the making of any other distribution (whether in
any such case is cash, securities or other property or assets of such Person
or of any of its Subsidiaries) on such Person's or any of its Subsidiaries'
Capital Stock, or to the holders (as such) of such Person's or any of its
Subsidiaries' Capital Stock, whether outstanding on the Issue Date or
thereafter (other than dividends or distributions payable solely in Qualified
Capital Stock of such Person or of such Subsidiary and other than any dividend
or distribution declared or paid by any Subsidiary of such Person to such
Person or one of its Wholly Owned Subsidiaries); (ii) the making of any
Investment by such Person or any of its Subsidiaries in any Person other than
Permitted Investments; (iii) any purchase, redemption, retirement or other
acquisition for value of (including, without limitation, in connection with
any merger or consolidation involving the Company or its Subsidiaries) any
Capital Stock of such Person or of any of its Subsidiaries or of any Affiliate
of such Person, whether outstanding on the Issue Date or thereafter, or any
warrants. rights or options to purchase or acquire shares of the Capital Stock
of such Person or of any of its Subsidiaries or of any Affiliate of such
Person, whether outstanding on the Issue Date or thereafter, held by any
Person other than such Person or one of its Wholly Owned Subsidiaries, other
than through the issuance in exchange therefor solely of Qualified Capital
Stock of such Person or of such Subsidiary; or (iv) the prepayment,
acquisition, decrease or retirement for value prior to maturity, (including
any contingent obligation to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof)
scheduled repayment or scheduled sinking fund payment of any Indebtedness of
such Person that is subordinated (whether pursuant to its terms or by
operation of law) to the Notes (other than any such Indebtedness owing to a
Wholly Owned Subsidiary of such Person). The dollar amount of any non-cash
dividend or distribution by such Person or any of its Subsidiaries on such
Person's or any Subsidiary's Capital Stock shall be equal to the Fair Market
Value of such dividend or distribution at the time of such dividend or
distribution.
"Stated Maturity" means, with respect to any security or Indebtedness of a
Person, the date specified therein as the fixed date on which any principal of
such security or Indebtedness is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase thereof at the option of the holder thereof).
A "Subsidiary" of any Person means (a) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person or (b) any other Person (other than a corporation)
in which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, have at least a majority ownership interest.
71
<PAGE>
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any subsidiary
of such Person all the outstanding shares of Capital Stock (other than
directors' qualifying shares, if applicable) of which are owned directly by
such Person or another Wholly Owned Subsidiary of such Person.
72
<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS
At the closing of the Initial Offering, the Company entered into the
Registration Rights Agreement with the Initial Purchasers pursuant to which
the Company agreed, at its cost, (i) within 90 days after the date of the
original issue of the Original Notes, to file the Exchange Offer Registration
Statement with the Commission with respect to the Exchange Offer for the
Exchange Notes, (ii) to use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 150 days after the date of original issuance of the Original Notes and
(iii) unless the Exchange Offer is not then permitted by a policy of the
Commission, to use its best efforts to issue within 30 days of the effective
date (the "Effective Date") of the Exchange Offer Registration Statement,
Exchange Notes in exchange for surrender of Original Notes. The Company agreed
to keep its Exchange Offer open for not less than 20 business days (or longer
if required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the Holders of the Original Notes. The Registration Rights
Agreement also provides an agreement to include in the prospectus for the
Exchange Offer certain information necessary to allow broker-dealers who hold
Original Notes (other than Original Notes acquired directly from the Company)
to exchange such Original Notes pursuant to the Exchange Offer and to satisfy
the prospectus delivery requirements in connection with resales of Exchange
Notes received by such broker-dealers in the Exchange Offer.
This Prospectus covers the offer and sale of the Exchange Notes pursuant to
the Exchange Offer made hereby and the resale of Exchange Notes received in
the Exchange Offer by any Participating Broker-Dealer who held Original Notes
(other than Original Notes acquired directly from the Company or one of its
affiliates).
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Original
Notes who is an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Original Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Original Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each Holder of the Original Notes (other than certain specified Holders) who
wishes to exchange Original Notes for Exchange Notes in the Exchange Offer
will be required to make certain representations, including that (i) it is not
an affiliate of the Company (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. If the Holder is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Original Notes that were acquired as a result of market-making activities
or other trading activities, it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect its
Exchange Offer, (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 business days following the consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this Prospectus is not appropriate or available
for such resales by such Holder or (C) such Holder is a broker-dealer and
holds Original Notes acquired directly from the Company or one of its
affiliates, the Company will, at its cost, (a) use its best efforts to file,
within 30 days after such filing obligation arises, a Shelf Registration
Statement
73
<PAGE>
(which may be an amendment of the Exchange Offer Registration Statement of
which this Prospectus is a part) covering resales of the Original Notes, (b)
use its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act within 90 days after such filing obligation
arises and (c) use its best efforts to keep effective the Shelf Registration
Statement for at least two years after its effective date or such shorter
period that will terminate when all securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each Holder of the Original Notes eligible
to participate in such Shelf Registration Statement copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such Holder
when the Shelf Registration Statement for the Original Notes has become
effective and take certain other actions as are required to permit resales of
the Original Notes. A Holder of Original Notes that sells such Original Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a Holder (including certain indemnification obligations).
In addition, each such Holder will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have its Original Notes
included in the Shelf Registration Statement and to benefit from the
provisions regarding liquidated damages set forth in the following paragraph.
If (i) the Company fails to consummate the Exchange Offer within 30 days of
the effectiveness of the Exchange Offer Registration Statement, or (ii) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities without being
succeeded immediately by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to above a "Registration Default"), then
the Company will pay liquidated damages to each Holder of Transfer Restricted
Securities, with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to 0.25% per
annum, increasing by 0.25% every 90 days up to a maximum of 1.0% per annum
until such Registration Default has been cured. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
"Transfer Restricted Securities" means each Original Note, until the
earliest to occur of (a) the date on which such Original Note is exchanged in
the Exchange Offer and entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (b) the date on which such Original Note has been disposed of
in accordance with a Shelf Registration Statement, (c) the date on which such
Original Note is disposed of by a broker-dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of this Prospectus) or (d) the date on which such Original
Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
The summary herein of certain provisions of the Registration Rights
Agreement is a description of the material provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement.
Except as set forth herein, after consummation of the Exchange Offer,
Holders of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See "--Consequences of Failure to Exchange,"
and "--Resales of Exchange Notes; Plan of Distribution".
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to
the Exchange Offer and are not included in a resale prospectus will remain
Transfer Restricted Securities. Accordingly,
74
<PAGE>
such Original Notes may be offered, sold or otherwise transferred prior to the
date which is two years after the later of the date of original issue and the
last date that the Company or any affiliate of the Company was the owner of
such securities (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Company (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) for
so long as the Original Notes are eligible for resale pursuant to Rule 144A,
to a person the owner reasonably believes is a qualified institutional buyer
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) to an "accredited investor" within the meaning of
subparagraph (1), (2) (3) or (7) of paragraph (a) of Rule 501 under the
Securities Act that is purchasing for his own account or for the account of
such an "accredited investor" in each case in a minimum of Original Notes with
a purchase price of $500,000 or (e) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of
the foregoing cases to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all times
within its or their control. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Date. If any resale or other
transfer of the Original Notes is proposed to be made pursuant to clause (d)
above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee to the Company and the Trustee, which
shall provide, among other things, that the transferee is an "accredited
investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph
(a) of Rule 501 under the Securities Act and that it is acquiring such
Original Notes for investment purposes and not for distribution in violation
of the Securities Act. Prior to any offer, sale or other transfer of Original
Notes prior to the Resale Restriction Termination Date pursuant to clauses (d)
or (e) above, the Company and the Trustee may require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to
each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the form of which is included as Exhibit
99.1 to the Exchange Offer Registration Statement of which this Prospectus is
a part, the Company will accept any and all Original Notes validly tendered
and not withdrawn prior to the Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of Original Notes accepted in the Exchange Offer. Holders may tender
some or all of their Original Notes pursuant to the Exchange Offer. However,
Original Notes may be tendered only in integral multiples of $1,000 principal
amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes, except that (i) the Exchange Notes have been registered
under the Securities Act and therefore will not bear legends restricting their
transfer pursuant to the Securities Act, and (ii) the holders of Exchange
Notes will not be entitled to rights under the Registration Rights Agreement
(except under certain limited circumstances). The Exchange Notes will evidence
the same debt as the Original Notes (which they replace), and will be issued
under, and be entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on October 2, 1998 as the record date for the
Exchange Offer for purpose of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered
Holder of Original Notes (or such Holder's legal representative or attorney-
in-fact) as reflected on the records of the Trustee under the Indenture may
participate in the Exchange Offer. There will be no fixed record date for
determining registered Holders of the Original Notes entitled to participate
in the Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or under the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirement of the Exchange
Act and the rules and regulations of the Commission thereunder.
75
<PAGE>
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if it has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders of the
Original Notes for the purposes of receiving the Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Fees and Expenses".
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
November 2, 1998, unless the Company extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if the
condition set forth below under "--Conditions to the Exchange" shall not have
been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
it will promptly disclose such amendment by means of a prospectus supplement
that will be distributed to the registered Holders of the Original Notes and
the Exchange Offer will be extended for a period of five to ten business days,
as required by law, depending upon the significance of the amendment and the
manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING ORIGINAL NOTES
Only a registered Holder of Original Notes may tender such Original Notes in
the Exchange Offer. To tender in the Exchange Offer, a Holder must complete,
sign and date the Letter of Transmittal, have the signatures thereon
guaranteed if required by such Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal to the Exchange Agent at the address set
forth below under "--Exchange Agent" for receipt prior to the Expiration Date.
In addition, either (i) certificates for such Original Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Original Notes into the Exchange Agent's account at The Depository Trust
Company (the "Book-Entry Transfer Facility")
76
<PAGE>
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the
Holder must comply with the guaranteed delivery procedures described below. To
be tendered effectively, the Letter of Transmittal and all other required
documents must be received by the Exchange Agent at the address set forth
below under "--Exchange Agent" prior to the Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal applicable to such Exchange
Offer.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Original Notes, either make
appropriate arrangements to register ownership of the Original Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal designated for such Original Notes,
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a participant
in a recognized signature guarantee medallion program within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
Holder of any Original Notes listed therein, such Original Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Original
Notes, with signature guaranteed by an Eligible Institution.
If a Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company, as applicable, of their authority to so act must be submitted with
the Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Original Notes not properly tendered or any Original Notes the acceptance
of which would, in the
77
<PAGE>
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Original Notes. The interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
by the Company will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Original Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Original Notes issued by it, neither the Company, the Exchange Agent nor
any other person shall incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived, or if Original
Notes are submitted in a principal amount greater than the principal amount of
Original Notes being tendered by such tendering Holder, such unaccepted or
non-exchanged Original Notes will be returned by the Exchange Agent to the
tendering Holders (or, in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
unaccepted or non-exchanged Original Notes will be credited to an account
maintained with such Book-Entry Transfer Facility), unless otherwise provided
in the Letter of Transmittal designated for such Original Notes, as soon as
practicable following the Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered Holder
will represent to the Company that, among other things, (i) the Exchange Notes
to be acquired by the Holder and any beneficial owner(s) of such Original
Notes ("Beneficial Owner(s)") in connection with the Exchange Offer are being
acquired by the Holder and any Beneficial Owner(s) in the ordinary course of
business of the Holder and any Beneficial Owner(s), (ii) the Holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes, (iii) the Holder and each Beneficial Owner
acknowledge and agree that (x) any person participating in an Exchange Offer
for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction with respect to the Exchange
Notes acquired by such person and cannot rely on the position of the staff of
the Commission set forth in no-action letters that are discussed herein under
"--Resales of the Exchange Notes; Plan of Distribution," and (y) any
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Original Notes pursuant to the Exchange Offer must deliver a
prospectus in connection with any resale of such Exchange Notes, but by so
acknowledging, the Holder shall not be deemed to admit that, by delivering a
prospectus, it is an "underwriter" within the meaning of the Securities Act,
(iv) neither the Holder nor any Beneficial Owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing, and (v) the Holder and each Beneficial
Owner understands that a secondary resale transaction described in clause
(iii) above should be covered by an effective registration statement contain
the selling security holder information required by Item 507 of Regulation S-K
of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offer, within two business days after the date of this Prospectus,
and any financial institution that is a Participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing
the Book-Entry Transfer Facility to transfer such Original Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Original Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with
any required signature guarantees and any other documents, must be transmitted
to and received by the Exchange Agent at the address set forth below under "--
Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with.
78
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available, or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect a tender if:
(1) The tender is made through an Eligible Institution;
(2) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by mail, hand delivery or facsimile transmission)
setting forth the name and address of the Holder, the certificate number(s)
of such Original Notes and the principal amount of the Original Notes being
tendered, stating that the tender is being made thereby and guaranteeing
that, within five business days after the Expiration Date, the Letter of
Transmittal together with the certificate(s) representing the Original
Notes (or a Book-Entry Confirmation) and any other documents required by
the applicable Letter of Transmittal will be delivered by the Eligible
Institution to the Exchange Agent; and
(3) Such properly completed and executed Letter of Transmittal, as well
as the certificate(s) representing all tendered Original Notes in proper
form for transfer (or a Book-Entry Confirmation) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within five business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
the Exchange Offer may be withdraw, unless theretofore accepted for exchange
as provided in the Exchange Offer, at any time prior to the Expiration Date of
the Exchange Offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Original Notes to be withdraw (the
"Depositor"), (ii) identify the Original Notes to be withdrawn (including the
certificate number or numbers and aggregate principal amount of such Original
Notes), and (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Original Notes so withdrawn are retendered.
Properly withdrawn Original Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering Original Notes"
at any time prior to the Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the
prior termination of the Exchange Offer, or which have been validly withdrawn,
will be returned to the Holder thereof (unless otherwise provided in the
Letter of Transmittal), as soon as practicable following the Expiration Date
or if so requested in the notice of withdrawal, promptly after receipt by the
Company of the Original Notes of notice of withdrawal without cost to such
holder.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in Commission policy such that in the reasonable opinion
79
<PAGE>
of counsel to the Company there is a substantial question whether the Exchange
Offer is permitted by applicable federal law, the Company has agreed to seek a
no-action letter or other favorable decision from the Commission allowing the
Company to consummate the Exchange Offer.
If the Company determines that the Exchange Offer is not permitted by
applicable federal law, it may terminate the Exchange Offer. In connection
therewith the Company may (i) refuse to accept any Original Notes and return
any Original Notes that have been tendered by the Holders thereof, (ii) extend
the Exchange Offer and retain all Original Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such Holders
of tendered Original Notes to withdraw their tendered Original Notes, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered Original Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be
distributed to each registered Holder of Original Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Original Notes, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
First Union National Bank has been appointed as "Exchange Agent" for the
Exchange Offer. Questions and request for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and other documents
should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
First Union National Bank
1525 West W.T. Harris Boulevard
Charlotte, North Carolina 28288
Attention: Reorg. Dept. 3C3-NC1153
Facsimile Transmissions: (704) 590-7628
Confirm by Telephone: (704) 590-7408
Delivery to other than the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the Exchange Offer. However, reasonable and customary fees will
be paid to the Exchange Agent for its service and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$150,000. Such expenses include fees and expenses of the Exchange Agent and
the Trustee under the Indenture, accounting and legal fees and printing costs
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Original Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Original Notes
pursuant to the Exchange Offer, then the amount of any transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
Holder.
80
<PAGE>
ACCOUNTING TREATMENT
The carrying values of the Original Notes are not expected to be materially
different form the fair value of the Exchange Notes at the time of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by any Holder thereof (other than (i) a
broker-dealer who purchased such Original Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that the Holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes.
Holders of Original Notes wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met. In the event that the
Company's belief is inaccurate, Holders of Exchange Notes who transfer
Exchange Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability under the Securities Act. The Company does not assume or indemnify
Holders against such liability.
Each affiliate of the Company must acknowledge that such person will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable. Each Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus is connection with any resale of such Exchange
Notes. Although a Participating Broker-Dealer may be an "underwriter" within
the meaning of the Securities Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes.
81
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
associated with the receipt, ownership and disposition of the Exchange Notes
by Holders who exchange Original Notes for Exchange Notes. The following
summary does not discuss all of the aspects of federal income taxation that
may be relevant to a prospective holder of the Exchange Notes in light of its,
his or her particular circumstances, or to certain types of holders (including
dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, S corporations, and, except as
discussed below, foreign corporations, persons who are not citizens or
residents of the United States and persons who hold the Notes as part of a
hedge, straddle, "synthetic security" or other integrated investment) which
are subject to special treatment under the federal income tax laws. This
discussion also does not address the tax consequences to nonresident aliens or
foreign corporations that are subject to United States federal income tax on a
net basis on income with respect to an Exchange Note because such income is
effectively connected with the conduct of a U.S. trade or business. Such
holders generally are taxed in a similar manner to U.S. Holders (as defined
below); however, certain special rules may apply. In addition, this discussion
is limited to holders who hold the Exchange Notes as capital assets within the
meaning of Section 1221 of the Code. This summary also does not describe any
tax consequences under state, local, or foreign tax laws.
The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations (the "Regulations"), Internal Revenue
Service ("IRS") rulings and pronouncements and judicial decisions all in
effect as of the date hereof, all of which are subject to change at any time
by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
Exchange Notes. The Company has not sought and will not seek any rulings or
opinions from the IRS or counsel with respect to the matters discussed below.
There can be no assurance that the IRS will not take positions concerning the
tax consequences of the purchase, ownership or disposition of the Exchange
Notes which are different from those discussed herein.
PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO
THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of the
United States; (ii) treated as a domestic corporation or domestic partnership;
(iii) an estate other than a "foreign estate" as defined in Section
7701(a)(31) of the Code; or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States fiduciaries have the authority to control all
substantial decisions of the trust.
The exchange by a U.S. Holder of an Original Note for an Exchange Note
pursuant to the Exchange Offer will not constitute a taxable exchange of the
Original Note if the economic terms of the Exchange Note (including the
interest rate) are identical to the economic terms of the Original Note. Under
recently promulgated Treasury regulations (the "Section 1001 Regulations")
relating to modifications and exchanges of debt instruments, with certain
exceptions, an alteration of a legal right or obligation that occurs by
operation of the terms of a debt instrument is not a modification of the debt
instrument and thus does not result in a taxable exchange. Therefore, even if
liquidated damages were payable with respect to the Original Notes but not
with respect to the Exchange Notes, the exchange of an Original Note for an
Exchange Note would not be treated as a taxable exchange. Accordingly, the
Company intends to take the position that in the circumstances described in
the preceding sentence, the exchange will not constitute a taxable exchange of
the Original Notes. As a result, there
82
<PAGE>
should be no U.S. federal income tax consequences to Holders exchanging the
Original Notes for the Exchange Notes.
In general, U.S. Holders of the Notes will be required to include interest
received thereon in taxable income as ordinary income at the time it accrues
or is received, in accordance with the Holder's regular method of accounting
for federal income tax purposes.
The sale, exchange, redemption, retirement or other taxable disposition of a
Note will result in the recognition of gain or loss to a U.S. Holder in an
amount equal to the difference between (a) the amount of cash and fair market
value of property received in exchange therefor (except to the extent
attributable to the payment of accrued but unpaid interest) and (b) the
holder's adjusted tax basis in such Note. A holder's initial tax basis in a
Note purchased by such holder will be equal to the price paid for the Note.
Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss and will be long-term capital gain or
loss if the Note had been held for more than one year. If the Note has been
held for one year or less, the gain or loss will be short-term capital gain or
loss. Payments on such disposition for accrued interest not previously
included in income will be treated as ordinary interest income.
The backup withholding rules require a payor to deduct and withhold a tax if
(i) the payee fails to furnish a taxpayer identification number ("TIN") in the
prescribed manner, (ii) the IRS notifies the payor that the TIN furnished by
the payee is incorrect; (iii) the payee has failed to report properly the
receipt of "reportable payments" and the IRS has notified the payor that
withholding is required; or (iv) the payee fails to certify under the penalty
of perjury that such payee is not subject to backup withholding. If any one of
the events discussed above occurs with respect to a holder of Notes, the
Company, its paying agent or other withholding agent will be required to
withhold a tax equal to 31% of any interest and, in certain circumstances,
cash received upon the disposition of a Note. Any amounts withheld from a
payment to a U.S. Holder under the backup withholding rules will be allowed as
a refund or credit against such holder's U.S. federal income tax, provided
that the U.S. Holder furnished the required information to the IRS. Certain
holders (including, among others, corporations and certain tax-exempt
organizations) are not subject to the backup withholding requirements.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Notes. For purposes hereof, a "Non-U.S. Holder" is any person who is not a
U.S. Holder and is not subject to U.S. federal income tax on a net basis on
income with respect to a Note because such income is effectively connected
with the conduct of a U.S. trade or business.
Payments of interest to a Non-U.S. Holder that do not qualify for the
portfolio interest exception discussed below will be subject to withholding of
U.S. federal income tax at a rate of 30% unless a U.S. income tax treaty
applies to reduce the rate of withholding. To claim a reduced treaty rate, the
Non-U.S. Holder must provide a properly executed Form 1001 (or successor
form).
Interest that is paid to a Non-U.S. Holder on a Note will not be subject to
U.S. income or withholding tax if the interest qualifies as "portfolio
interest." Generally, interest on the Notes that is paid by the Company will
qualify as portfolio interest if (i) the Non-U.S. Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote; (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership for U.S. federal income tax
purposes; (iii) the Non-U.S. Holder is not a bank receiving interest on a loan
entered into in the
83
<PAGE>
ordinary course of business; and (iv) either (x) the beneficial owner of the
Note provides the Company or its paying agent, a properly executed
certification on IRS Form W-8 (or a suitable substitute form) signed under
penalties of perjury that the beneficial owner is not a "U.S. person" for U.S.
federal
income tax purposes and that provides the beneficial owner's name and address,
or (y) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its business holds
the Note and certifies to the Company or its agent under penalties of perjury
that the IRS Form W-8 (or a suitable substitute) has been received by it from
the beneficial owner of the Note or a qualifying intermediary and furnishes
the payor a copy thereof.
Any gain realized by a Non-U.S. Holder on the sale, exchange or retirement
of the Notes, will generally not be subject to U.S. federal income tax or
withholding unless (i) the Non-U.S. Holder is an individual who was present in
the U.S. for 183 days or more in the taxable year of the disposition and meets
certain other requirements; or (ii) the Non-U.S. Holder is an individual who
is a former citizen of the United States who lost such citizenship within the
preceding ten-year period (or former long-term permanent resident of the
United States who relinquished residency on or after February 6, 1995) whose
loss of citizenship or permanent residency had as one of its principal
purposes the avoidance of U.S. tax. If a Non-U.S. Holder falls under (ii)
above, the holder will be taxed on the net gain derived from the sale under
the graduated U.S. federal income tax rates that are applicable to U.S.
citizens and resident aliens, and may be subject to withholding under certain
circumstances. If a Non-U.S. Holder falls under (i) above, the holder
generally will be subject to U.S. federal income tax at a rate of 30% (or
reduced treaty rate) on the gain derived from the sale and may be subject to
withholding in certain circumstances.
Back-up withholding and information reporting generally will not apply to a
Note issued in registered form that is beneficially owned by a Non-U.S. Holder
if the certification of Non-U.S. Holder status is provided to the Company or
its agent as described above in "Certain Federal income Tax Consequences to
Non-U.S. Holders", provided that the payor does not have actual knowledge that
the holder is a U.S. person. The Company may be required to report annually to
the IRS and to each Non-U.S. Holder the amount of interest paid to, and the
tax withheld, if any, with respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a foreign custodian, foreign nominee
or other foreign agent of such beneficial owner, or if the proceeds of the
sale of Notes are paid to the beneficial owner of a Note through a foreign
office of a foreign "broker" (as defined in the pertinent Regulations), the
proceeds will not be subject to backup withholding or information reporting
(absent actual knowledge that the payee is a U.S. person). Information
reporting (but not backup withholding) will apply, however, to a payment by a
foreign office of a custodian, nominee, agent or broker that is (i) a U.S.
person, (ii) a controlled foreign corporation for U.S. federal income tax
purposes, or (iii) derives 50% or more of its gross income from the conduct of
a U.S. trade or business for a specified three-year period; unless the broker
has in its records documentary evidence that the holder is a Non-U.S. Holder
and certain conditions are met (including that the broker has no actual
knowledge that the holder is a U.S. Holder) or the holder otherwise
establishes an entitlement to an exemption. Payment through the U.S. office of
a custodian, nominee, agent or broker is subject to both backup withholding at
a rate of 31% and information reporting, unless the holder certifies that it
is a Non-U.S. Holder under penalties of perjury or otherwise establishes an
entitlement to exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain information
is provided by the holder to the IRS.
On October 6, 1997, the IRS released Treasury Regulations that revise the
procedures for withholding tax, and the associated backup withholding and
information reporting rules described
84
<PAGE>
above for payments of interest and gross proceeds made after December 31,
1999. The regulations modify the requirements imposed on a Non-U.S. Holder or
certain intermediaries for establishing the
recipient's status as a Non-U.S. Holder eligible for exemption from
withholding and backup withholding. In particular, the final regulations
impose more stringent conditions on the ability of financial intermediaries
acting for a Non-U.S. Holder to provide certifications on behalf of the Non-
U.S. Holder, which may include entering into an agreement with the IRS to
audit certain documentation with respect to such certifications. Non-U.S.
Holders should consult their tax advisors to determine how the regulations
will affect their particular circumstances.
85
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
the purchaser or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any Exchange Notes. Any Participating Broker-
Dealer that resells the Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by Patterson, Belknap, Webb & Tyler LLP.
EXPERTS
The financial statements (including the schedule incorporated by reference)
of Congoleum Corporation appearing and incorporated by reference in this
Prospectus and Registration Statement at December 31, 1997 and 1996, and for
each of the two years then ended have been audited by Ernst & Young LLP,
independent auditors, and for the year ended December 31, 1995, by
PriceWaterhouseCoopers LLP, independent auditors, as set forth in their
respective reports thereon appearing and incorporated by reference elsewhere
herein, and are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company have been filed with the Commission
pursuant to the Exchange Act and are incorporated herein by reference into
this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997; and
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
and
(c) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Exchange Offer shall be deemed
to be incorporated herein by reference and to be a part hereof. Any statements
contained in a document incorporated or deemed incorporated by reference
herein
86
<PAGE>
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein (or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part of this Prospectus, except as top
modified.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any or
all of the documents incorporated by reference in this Prospectus. Requests
should be directed to Mr. Howard N. Feist, Senior Vice President--Finance,
Congoleum Corporation, 3705 Quakerbridge Road, Mercerville, New Jersey 08619,
telephone number (609) 584-3586.
87
<PAGE>
CONGOLEUM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Congoleum Corporation
Report of Independent Auditors.......................................... F-2
Report of Independent Auditors.......................................... F-3
Balance Sheets as of December 31, 1997 and December 31, 1996............ F-4
Statements of Operations for each of the three years in the period ended
December 31, 1997...................................................... F-5
Statements of Changes in Stockholders' Equity for each of the three
years in the period ended December 31, 1997............................ F-6
Statements of Cash Flows for each of the three years in the period ended
December 31, 1997...................................................... F-7
Notes to Financial Statements........................................... F-8
Unaudited Quarterly Financial Statements of Congoleum Corporation
Balance Sheets as of June 30, 1998 and December 31, 1997................ F-21
Statements of Operations for the six months ended June 30, 1998 and
1997................................................................... F-22
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1997 and the six months ended June 30, 1998............... F-23
Statements of Cash Flows for the six months ended June 30, 1998 and
1997................................................................... F-24
Notes to Unaudited Financial Statements................................. F-25
</TABLE>
F-1
<PAGE>
CONGOLEUM CORPORATION
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Congoleum Corporation:
We have audited the accompanying balance sheets of Congoleum Corporation as
of December 31, 1997 and 1996, and the related statements of operations,
changes in stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. The statements of operations, changes in stockholders'
equity, and cash flows for the year ended December 31, 1995 were audited by
other auditors whose report dated February 20, 1996, expressed an unqualified
opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1997 and 1996 financial statements present fairly, in
all material respects, the financial position of Congoleum Corporation at
December 31, 1997, and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 18, 1998
F-2
<PAGE>
CONGOLEUM CORPORATION
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Congoleum Corporation:
In our opinion, the accompanying statements of operations, changes in
stockholders' equity and cash flows present fairly, in all material respects,
Congoleum Corporation's results of operations, stockholders' equity and cash
flows for the year ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audit 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 audit provides a reasonable basis for the opinion expressed above.
PriceWaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 20, 1996
F-3
<PAGE>
CONGOLEUM CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 11,069 $ 30,629
Short-term investments............................. 7,900 17,500
Accounts and notes receivable, less allowance for
doubtful accounts and cash discounts of $3,294 and
$3,406 as of December 31, 1997 and 1996,
respectively...................................... 14,512 17,728
Inventories........................................ 44,434 47,450
Prepaid expenses and other current assets.......... 2,965 2,172
Deferred income taxes.............................. 3,041 2,874
-------- --------
Total current assets............................. 83,921 118,353
Property, plant, and equipment, net.................. 88,401 78,313
Goodwill, net........................................ 12,251 12,683
Deferred income taxes................................ 2,636 3,068
Other noncurrent assets.............................. 9,372 7,381
-------- --------
Total assets..................................... $196,581 $219,798
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 13,440 $ 19,935
Accrued liabilities................................ 28,793 32,828
Accrued income taxes............................... 918 1,663
Deferred income taxes.............................. 1,752 1,924
-------- --------
Total current liabilities........................ 44,903 56,350
Long-term debt....................................... 76,594 87,750
Other liabilities.................................... 22,305 19,401
Noncurrent pension liability......................... 11,038 12,381
Accrued postretirement benefit obligation............ 9,958 10,249
-------- --------
Total liabilities................................ 164,798 186,131
-------- --------
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01; 20,000,000
shares authorized; 4,650,000 shares issued;
4,282,800 and 4,645,500 outstanding as of December
31, 1997 and 1996, respectively..................... 47 47
Class B common stock, par value $0.01; 4,755,000 and
5,350,000 shares authorized, issued and outstanding
as of December 31, 1997 and 1996, respectively...... 47 53
Additional paid-in capital........................... 49,574 55,172
Retained deficit..................................... (12,820) (19,561)
Minimum pension liability adjustment................. (1,122) (1,995)
Common stock held in treasury, at cost; 375,200
shares and 4,500 shares at December 31, 1997 and
1996, respectively.................................. (3,943) (49)
-------- --------
Total stockholders' equity....................... 31,783 33,667
-------- --------
Total liabilities and stockholders' equity....... $196,581 $219,798
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................... $252,526 $269,451 $263,147
Cost of sales................................ 180,093 182,585 186,382
Selling, general and administrative
expenses.................................... 57,094 61,597 55,228
-------- -------- --------
Income from operations................... 15,339 25,269 21,537
Other income (expense):
Interest income............................ 1,539 1,784 1,479
Interest expense........................... (6,797) (8,153) (8,187)
Other income............................... 1,287 1,436 1,407
Other expense.............................. (313) (341) (272)
-------- -------- --------
Income before income taxes and
extraordinary item...................... 11,055 19,995 15,964
Provision for income taxes................. 4,035 7,898 6,529
-------- -------- --------
Income before extraordinary item......... 7,020 12,097 9,435
Extraordinary item--early retirement of
debt, net of income tax benefit......... (279) -- --
-------- -------- --------
Net income............................... $ 6,741 $ 12,097 $ 9,435
======== ======== ========
Net income per common share before
extraordinary item...................... $ 0.72 $ 1.21 $ 0.94
Extraordinary item....................... (0.03) -- --
-------- -------- --------
Net income per common share, basic and
diluted................................. $ 0.69 $ 1.21 $ 0.94
======== ======== ======== ===
Weighted average number of common and
equivalent shares outstanding........... 9,839 10,007 10,022
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
PAR VALUE $0.01 ADDITIONAL COMPREHENSIVE
--------------- PAID-IN RETAINED INCOME/(LOSS) TREASURY
CLASS A CLASS B CAPITAL DEFICIT ADJUSTMENT* STOCK TOTAL
------- ------- ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... $ -- $100 $55,570 $(36,260) $ -- $ -- $19,410
Initial public offering
of 4,650,000 shares of
Class A common stock... 47 55,172 55,219
Repurchase and
retirement of 4,650,000
shares of Class B
common stock........... (47) (55,570) (4,833) (60,450)
Minimum pension
liability adjustment,
net of tax benefit..... (1,012) (1,012)
Net income.............. 9,435 9,435
----- ---- ------- -------- ------- ------- -------
Balance, December 31,
1995................... 47 53 55,172 (31,658) (1,012) 22,602
Purchase of treasury
stock.................. (49) (49)
Minimum pension
liability adjustment,
net of tax benefit..... (983) (983)
Net income.............. 12,097 12,097
----- ---- ------- -------- ------- ------- -------
Balance, December 31,
1996................... 47 53 55,172 (19,561) (1,995) (49) 33,667
Purchase of treasury
stock.................. (3,894) (3,894)
Purchase and retirement
of Class B stock....... (6) (5,624) (5,630)
Exercise of stock
options................ 26 26
Minimum pension
liability adjustment,
net of tax............. 873 873
Net income.............. 6,741 6,741
----- ---- ------- -------- ------- ------- -------
Balance, December 31,
1997................... $ 47 $ 47 $49,574 $(12,820) $(1,122) $(3,943) $31,783
===== ==== ======= ======== ======= ======= =======
</TABLE>
- --------
*Entire amount relates to minimum pension liability adjustment.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 6,741 $ 12,097 $ 9,435
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation................................. 9,102 8,696 7,593
Amortization and writeoff of deferred
refinancing fees............................ 1,244 1,087 1,025
Provision for doubtful accounts.............. -- 600 2,800
Deferred income taxes........................ 93 994 1,107
Loss on disposition of assets................ 331 16 94
Changes in certain assets and liabilities:
Accounts and notes receivable.............. 3,216 (3,897) (1,362)
Inventories................................ 3,016 568 (1,124)
Prepaid expenses and other current assets.. (1,294) 1,026 (506)
Accounts payable........................... (6,495) (1,151) (350)
Accrued liabilities........................ (4,781) 4,200 (1,422)
Other liabilities.......................... (156) (1,094) (596)
-------- -------- --------
Net cash provided by operating
activities.............................. 11,017 23,142 16,694
-------- -------- --------
Cash flows from investing activities:
Proceed from sale of property, plant and equip-
ment.......................................... 244 -- --
Capital expenditures........................... (19,767) (12,817) (10,178)
Purchase of short-term investments............. (40,200) (45,000) (12,500)
Maturities of short-term investments........... 49,800 27,500 36,500
-------- -------- --------
Net cash provided (used) by investing
activities.............................. (9,923) (30,317) 13,822
-------- -------- --------
Cash flows from financing activities:
Exercise of stock options...................... 26 -- --
Payments to reduce long-term debt.............. (11,156) (2,250) --
Equity offering cost........................... -- -- (1,000)
Proceeds from equity offering.................. -- -- 56,219
Purchase and retirement of Class B stock....... (5,630) -- (60,450)
Purchase of treasury stock..................... (3,894) (49) --
-------- -------- --------
Net cash used by financing activities.... (20,654) (2,299) (5,231)
-------- -------- --------
Net increase (decrease) in cash.................. (19,560) (9,474) 25,285
Cash and cash equivalents:
Beginning of year.............................. 30,629 40,103 14,818
-------- -------- --------
End of year.................................... $ 11,069 $ 30,629 $ 40,103
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND BASIS OF PRESENTATION--Congoleum Corporation (the
"Company" or "Congoleum") manufactures and sells resilient sheet and tile
flooring products primarily to wholesale distributors and major retailers in
the United States and Canada. Prior to the closing of a public offering in
February 1995 (the "Offering"--Note 17), the Company was an indirect
subsidiary of Congoleum Holdings Incorporated ("Holdings"), which was
controlled jointly by Hillside Industries Incorporated ("Hillside") and
American Biltrite Inc. ("ABI").
Upon completion of the Offering, the Company implemented a Plan of
Repurchase pursuant to which its two-tiered holding company ownership
structure was eliminated through the merger of Congoleum Holdings with and
into the Company, with the Company as the surviving corporation.
USE OF ESTIMATES--Some of the information presented in this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
REVENUE RECOGNITION--Revenue is recognized when products are shipped. Net
sales are comprised of the total sales billed during the period less the sales
value of goods returned, trade discounts and customers' allowances.
CASH AND CASH EQUIVALENTS--All highly liquid debt instruments with a
maturity of three months or less at the time of purchase are considered to be
cash equivalents.
SHORT-TERM INVESTMENTS--Investments in A1/P1 Commercial Paper with a
maturity greater than three months, but less than six months at the time of
purchase are considered to be short-term investments. The carrying amount of
the Commercial Paper approximates fair value due to its short maturity.
INVENTORIES--Inventories are stated at the lower of cost or market. The LIFO
(last-in, first-out) method of determining cost is used for substantially all
inventories.
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment are recorded
at cost and are depreciated over their estimated useful lives (30 years for
buildings and building improvements, 15 years for production equipment and
heavy duty vehicles, 4 to 10 years for light duty vehicles and office
furnishings and equipment) on the straight-line method for financial reporting
and accelerated methods for income tax purposes. Costs of major additions and
betterments are capitalized; maintenance and repairs which do not improve or
extend the life of the respective assets are charged to operations as
incurred. When an asset is sold, retired or otherwise disposed of, the cost of
the asset and the related accumulated depreciation are removed from the
respective accounts and any resulting gain or loss is reflected in operations.
DEBT ISSUE COSTS--Costs incurred in connection with the issuance of long-
term debt have been capitalized and are being amortized over the life of the
related debt agreements. Such costs, net of accumulated amortization, amounted
to $1,547 and $2,359 at December 31, 1997 and 1996, respectively, and are
included in other noncurrent assets.
F-8
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GOODWILL--The excess of purchase cost over the fair value of net assets
acquired (goodwill) is being amortized on a straight-line basis over 40 years.
At each balance sheet date, the Company evaluates the recoverability of its
goodwill using certain financial indicators, such as historical and future
ability to generate income from operations. Accumulated amortization amounted
to $4,841 and $4,409 at December 31, 1997 and 1996, respectively.
INCOME TAXES--The provision for income taxes is based on earnings reported
in the financial statements under an asset and liability approach in
accordance with SFAS No. 109, "Accounting for Income Taxes," that requires the
recognition of deferred tax assets and liabilities for the difference between
the tax basis of assets and liabilities and their reported amounts for
financial statement purposes.
RECLASSIFICATIONS--For comparative purposes, certain amounts have been
reclassfied to conform to the current year presention.
INCOME PER SHARE--Effective October 1, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share. Earnings per share data for prior periods have been restated to conform
to SFAS 128. The effect of the restatement on prior periods was immaterial.
Due to the immaterial effect of common stock equivalents there is no
difference between basic and fully diluted earnings per share for any period
presented.
CHANGES IN ACCOUNTING PRINCIPLES--Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." This statement establishes new rules for the
reporting and display of comprehensive income. The adoption of this standard
had no impact on the Company's financial position, income or liquidity.
In June 1997, the Financial Accounting Standards Board issued ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This statement establishes standards for the way that companies report
information about operating segments and is effective for financial statements
for the year ended December 31, 1998 for the Company. The Company believes
that it operates in one segment, resilient flooring products. The adoption of
SFAS No. 131 is expected to have no effect on the Company's financial
position, income or liquidity.
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") SOP 96-1, "Environmental Remediation
Liabilities," which provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
The adoption of this standard did not have a material effect on the Company's
financial position, income or liquidity.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." SFAS 123 requires the recognition of, or disclosure of,
compensation expense for grants of stock options or other equity instruments
issued to employees based on their fair value at the date of grant. As
permitted by SFAS No 123, the Company elected the disclosure requirements
instead of recognition of compensation expense and therefore will continue to
apply existing rules under APB Opinion 25. The adoption of this standard had
no effect on the Company's financial position, income or liquidity.
F-9
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. INVENTORIES:
A summary of the major components of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Finished goods..................................... $34,914 $34,920
Work-in-process.................................... 3,160 2,089
Raw materials and supplies......................... 6,360 10,441
------- -------
Total inventories.................................. $44,434 $47,450
======= =======
</TABLE>
If the FIFO (first-in, first-out) method of inventory accounting (which
approximates current cost) had been used, inventories would have been
approximately $340 and $2,027 lower than reported at December 31, 1997 and
1996, respectively. The carrying value of certain LIFO inventories was reduced
by market valuation reserves of $229 and $650 at December 31, 1997 and 1996,
respectively.
3. PROPERTY, PLANT, AND EQUIPMENT:
A summary of the major components of property, plant, and equipment is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land............................................... $ 2,930 $ 2,960
Buildings and improvements......................... 33,259 27,706
Machinery and equipment............................ 132,414 113,352
Construction-in-progress........................... 3,819 11,844
------- -------
172,422 155,862
Less accumulated depreciation...................... (84,021) (77,549)
------- -------
Total property, plant, and equipment, net.......... $88,401 $78,313
======= =======
</TABLE>
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 1997,
$823 of interest cost was capitalized. The impact of capitalized interest in
1996 and 1995 was not material.
The amount of approved but unexpended capital appropriations at December 31,
1997 was $3,795, substantially all of which is planned to be expended during
1998.
4. ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accrued marketing and sales promotion............ $17,244 $16,565
Employee compensation and related benefits....... 5,766 8,709
Interest......................................... 2,935 3,362
Environmental remediation and product-related
liabilities..................................... 1,035 957
Other............................................ 1,813 3,235
------- -------
Total accrued liabilities...................... $28,793 $32,828
======= =======
</TABLE>
F-10
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
9% Senior Notes due 2001........................... $76,594 $87,750
======= =======
</TABLE>
On February 1, 1994, the Company completed a public offering for $90,000 of
Senior Notes (the "Senior Notes") due 2001. The Senior Notes, issued at par,
bear interest at 9.0%. The Indenture under which the notes were issued
includes certain restrictions on additional indebtedness and dividend
payments.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 1998 at a predetermined redemption
price (ranging from 103% to 100%), plus accrued and unpaid interest to the
date of redemption.
The fair value of the Senior Notes, estimated based on the quoted market
price, was approximately $77,743 at December 31, 1997.
In 1996, the Company's Board of Directors had approved a program to
repurchase up to $10,000 of its outstanding Senior Notes either in the open
market or in privately negotiated transactions. During 1997, the Board of
Directors increased the repurchase program to $20,000. During 1996 and 1997,
the Company had repurchased $2,250 and $11,156, respectively, of its Senior
Notes. In connection with the repurchases in 1997, the Company recorded an
extraordinary charge of $279, net of $160 of income tax benefits, or $0.03 per
common share, to write off the portion of the debt issuance cost and premiums
associated with the repurchased Senior Notes. Such writeoffs were immaterial
to the financial statements for 1996 and were included in other expense.
The Company has a revolving credit facility which expires in 2000 that
provides for borrowings up to $30,000 with interest at 1% over prime, or 2
3/4% over LIBOR, at the Company's option. This agreement provides for a
commitment fee based on the average daily unused portion of the commitment
equal to one quarter of one percent per annum. This financing agreement
contains certain covenants which include the maintenance of minimum net worth
and restrictions on the incurrence of additional debt. Borrowings under this
facility are collateralized by inventory and receivables. There were no
borrowings outstanding under this facility at December 31, 1997, however, the
facility provides for standby letters of credit which total $3,380 at December
31, 1997.
6. COMPREHENSIVE INCOME:
Comprehensive income for the three years ended December 31, 1997 includes
the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Net income........................................... $6,741 $12,097 $9,435
Other comprehensive income (loss):
Minimum pension liability adjustment............... 873 (983) (1,012)
------ ------- ------
Comprehensive income................................. $7,614 $11,114 $8,423
====== ======= ======
</TABLE>
F-11
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. OTHER LIABILITIES:
Other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Environmental remediation and product-related
liabilities.................................... $13,981 $10,926
Accrued workers' compensation claims............ 4,425 4,871
Other........................................... 3,899 3,604
------- -------
Total other liabilities....................... $22,305 $19,401
======= =======
</TABLE>
8. RESEARCH AND DEVELOPMENT COSTS:
Total research and development costs charged to operations amounted to
$3,718, $4,552 and $3,683 for the years ended December 31, 1997, 1996 and
1995, respectively.
9. OPERATING LEASE COMMITMENTS AND RENT EXPENSE:
The Company leases certain office facilities and equipment under leases with
varying terms.
Future minimum lease payments of significant, noncancelable operating leases
having initial or remaining lease terms in excess of one year as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
------------
<S> <C>
1998................................................................. $1,486
1999................................................................. 1,178
2000................................................................. 843
2001................................................................. 42
2002................................................................. 5
Thereafter........................................................... --
------
Total minimum lease payments....................................... $3,554
======
</TABLE>
Rent expense was $1,902, $1,772 and $1,791 for the years ended December 31,
1997, 1996 and 1995, respectively.
10. RETIREMENT PLANS:
Retirement benefits are provided for substantially all employees under
Company-sponsored defined benefit pension plans. The plans are noncontributory
and generally provide monthly lifetime payments, normally commencing at age
65. Benefits under the plans are based upon the provisions of negotiated labor
contracts and years of service. It is the Company's policy to make
contributions to these plans sufficient to meet the minimum funding
requirements of applicable laws and regulations plus such additional amounts,
if any, as the Company's actuarial consultants advise to be appropriate. The
projected unit credit and unit credit methods were utilized for determination
of the actuarial cost.
F-12
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Benefits earned during the year (service cost).......... $1,144 $1,113 $ 919
Interest cost on projected benefit obligation........... 3,863 3,743 3,797
Return on plan assets................................... (7,130) (2,515) (6,088)
Net amortization and deferral........................... 3,640 (1,088) 2,745
------ ------ ------
Net periodic pension cost............................... $1,517 $1,253 $1,373
====== ====== ======
</TABLE>
The following tables present a reconciliation of the Plans' status at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
PLAN WHOSE PLAN(S) WHOSE
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
December 31, 1997:
Actuarial present value of benefit obligations:
Vested benefit obligations....................... $29,941 $ 25,790
------- --------
Accumulated benefit obligations.................. $30,527 $ 26,758
------- --------
Projected benefit obligations.................... $31,242 $ 26,758
Plan assets at fair market value................. 31,336 15,069
------- --------
Projected benefit obligations in excess of plan
assets.......................................... 94 (11,689)
Unrecognized net loss............................ 3,070 1,339
Unrecognized net obligation...................... 434 (349)
Unrecognized prior service cost.................. (3,404) 1,183
Adjustment required to recognize minimum
liability....................................... -- (2,604)
------- --------
Prepaid (accrued) pension liability ($1,082
included in accrued liabilities)................ $ 194 $(12,120)
======= ========
December 31, 1996:
Actuarial present value of benefit obligations:
Vested benefit obligations....................... $ -- $ 54,168
------- --------
Accumulated benefit
obligations...................................... $ -- $ 55,678
------- --------
Projected benefit obligations.................... $ -- $ 56,182
Plan assets at fair market value................. -- 41,010
------- --------
Projected benefit obligations in excess of plan
assets.......................................... -- (15,172)
Unrecognized net loss............................ -- 7,108
Unrecognized net obligation...................... -- 161
Unrecognized prior service cost.................. -- (2,463)
Adjustment required to recognize minimum
liability....................................... -- (4,302)
------- --------
Accrued pension liability ($2,287 included in
accrued liabilities)............................ $ -- $(14,668)
======= ========
</TABLE>
F-13
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Plan assets which are deposited with a trustee consist principally of fixed
income, equity and short-term investments and cash equivalents.
The provisions of FASB Statement No. 87, "Employers' Accounting for
Pensions," require the recognition of an additional minimum liability for
plans whose accumulated benefits exceed assets. These amounts have been
recorded as a long-term liability with an offsetting intangible asset included
in other noncurrent assets amounting to $837 and $1,005 at December 31, 1997
and 1996, respectively. Because the asset recognized may not exceed the amount
of unrecognized prior service cost, the difference of $1,122, net of tax
benefits of $645, is reported as a separate reduction of stockholders' equity
at December 31, 1997.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations are 7.0% and 5.5% as of December 31, 1997 and
1996, respectively. The expected long-term rate of return on plan assets is
9.0% for all years presented.
The Company also has two 401(k) defined contribution retirement plans that
cover substantially all employees. Eligible employees may contribute up to 15%
of compensation with partially matching Company contributions. Defined
contribution pension expense for the Company was $1,316, $1,363 and $1,128 for
the years ended December 31, 1997, 1996 and 1995, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and life insurance benefits for
certain retirees. The determination of benefit cost for postretirement plans
is based on plan provisions. These benefits are provided through insurance
companies whose premiums are based on benefits paid or claims experience.
Net periodic postretirement benefits cost, calculated in accordance with
SFAS No. 106, is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year...... $ 139 $ 141 $ 137
Interest cost on postretirement benefit
obligations....................................... 505 484 480
Amortization of prior service cost................. (409) (447) (524)
Amortization of losses............................. 99 90 47
------ ------ ------
Net periodic postretirement benefits cost.......... $ 334 $ 268 $ 140
====== ====== ======
</TABLE>
F-14
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1997 and 1996, the actuarial and recorded liabilities for
these postretirement benefits, none of which have been funded, were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated present value of postretirement
benefit obligations:
Retirees and dependents....................... $ (4,106) $ (4,136)
Fully eligible active plan participants....... (1,191) (999)
Other active plan participants................ (2,255) (2,355)
Unrecognized prior service cost............... (3,224) (3,633)
Unrecognized net loss......................... 220 303
-------- --------
Accrued postretirement benefit obligation..... (10,556) (10,820)
Less current portion.......................... 598 571
-------- --------
Noncurrent postretirement benefit
obligations.................................. $ (9,958) $(10,249)
======== ========
</TABLE>
A weighted average assumed discount rate of 7.0% was used to measure the
accumulated postretirement benefit obligations as of December 31, 1997 and
1996. The annual rate of increase in the per capita cost of covered health
care benefits was assumed to be 6.1% in 1997; the rate was assumed to decrease
gradually to 5.0% over the next 10 years and remain level thereafter. An
increase of one percentage point in the assumed health care cost trend rates
for each future year would increase the aggregate of the service and interest
cost components of net periodic postretirement benefits cost by $70, for the
year ended December 31, 1997, and would increase the accumulated
postretirement benefit obligations by $706 at December 31, 1997.
12. INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $3,980 $5,591 $4,114
State............................................... 246 711 608
Deferred:
Federal............................................. (213) 1,348 1,272
State............................................... 22 248 535
------ ------ ------
Provision for income taxes............................ $4,035 $7,898 $6,529
====== ====== ======
</TABLE>
F-15
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective tax rate expressed as a percentage of income before
income taxes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.0% 35.0% 35.0%
State income taxes, net of federal benefit........... 1.6 3.5 4.4
Goodwill............................................. 1.4 0.8 1.0
Other................................................ (0.5) 0.2 0.5
------ ------ ------
Effective tax rate................................... 36.5% 39.5% 40.9%
====== ====== ======
</TABLE>
Deferred taxes are recorded using enacted tax rates based upon differences
between financial statement and tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The components of the deferred tax asset and
liability relate to the following temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax asset:
Accounts receivable............................ $ 933 $ 1,021
Unfunded pension liability..................... 4,362 5,264
Environmental remediation and product-related
reserves...................................... 9,050 8,009
Postretirement benefit obligations............. 4,091 4,241
Other accruals................................. 1,071 974
-------- --------
Total deferred tax asset..................... 19,507 19,509
-------- --------
Deferred tax liability:
Depreciation and amortization.................. (11,169) (12,023)
Inventory...................................... (1,752) (1,924)
Other.......................................... (2,661) (1,544)
-------- --------
Total deferred tax liability................. (15,582) (15,491)
-------- --------
Net deferred tax asset........................... $ 3,925 $ 4,018
======== ========
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest were $7,710, $8,168 and $8,102 for the years
ended December 31, 1997, 1996 and 1995, respectively. Cash payments for income
taxes were $4,964, $4,335 and $6,183 for the years ended December 31, 1997,
1996 and 1995, respectively.
F-16
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. RELATED PARTY TRANSACTIONS:
The Company and ABI provide certain goods and services to each other pursuant
to agreements negotiated at arm's length. The Company had the following
transactions with ABI:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Sales.................................................. $ 964 $1,213 $1,409
Raw material transfers to ABI.......................... 2,942 3,115 2,899
Computer service income................................ 145 226 262
Material purchases from ABI............................ 5,269 5,814 3,817
Management fees........................................ 1,221 1,265 993
</TABLE>
Amounts as of December 31, 1997 and 1996 due from an affiliate of ABI
totaled $290 and $620, respectively. Amounts as of December 31, 1997 and 1996
due to ABI and its affiliates totaled $1,094 and $1,586, respectively.
15. MAJOR CUSTOMERS:
Substantially all the Company's sales are to select flooring distributors
and retailers located in the United States. Economic and market conditions, as
well as the individual financial condition of each customer, are considered
when establishing allowances for losses from doubtful accounts.
Two customers accounted for 23% and 19% of the Company's net sales for the
year ended December 31, 1997, 22% and 20% for the year ended December 31,
1996, and 21% and 21% for the year ended December 31, 1995 and accounted for
40% and 41% of accounts receivable at December 31, 1997 and 1996,
respectively.
16. CONTINGENT AND OTHER LIABILITIES:
The Company is subject to federal, state and local environmental laws and
regulations and certain legal and administrative claims are pending or have
been asserted against the Company. Among these claims, the Company is a named
party in several actions associated with waste disposal sites, asbestos-
related claims, and general liability claims. These actions include possible
obligations to remove or mitigate the effects on the environment of wastes
deposited at various sites, including Superfund sites and certain of the
Company's owned and previously owned facilities. The contingencies also
include claims for personal injury and/or property damage. The exact amount of
such future cost and timing of payments are indeterminable due to such unknown
factors as the magnitude of cleanup costs, the timing and extent of the
remedial actions that may be required, the determination of the Company's
liability in proportion to other potentially responsible parties, and the
extent to which costs may be recoverable from insurance.
The Company records a liability for environmental remediation, asbestos-
related claim costs, and general liability claims when a cleanup program or
claim payment becomes probable and the costs can be reasonably estimated. As
assessments and cleanups progress, these liabilities are adjusted based upon
progress in determining the timing and extent of remedial actions and the
related costs and damages. The extent and amounts of the liabilities can
change substantially due to factors such as the nature or extent of
contamination, changes in remedial requirements and technological
F-17
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
improvements. The recorded liabilities (Notes 4 and 7) are not discounted for
delays in future payments and are not reduced by the amount of estimated
insurance recoveries. Such estimated insurance recoveries of $6,918 and $3,939
are reflected in other noncurrent assets at December 31, 1997 and 1996 and are
considered probable of recovery.
Although the outcome of these matters could result in significant expenses
or judgments, management does not believe based on present facts and
circumstances that their disposition will have a material adverse effect on
the financial position of the Company.
17. INITIAL PUBLIC OFFERING:
On February 8, 1995, the Company completed a public offering of 4,650,000
shares of a new series of Class A Common Stock (the Class A shares) for $13
per share (the "Offering") and implemented a Plan of Repurchase (Note 1). The
Company's capital stock outstanding immediately prior to the consummation of
the merger contemplated in the Plan of Repurchase was converted in the merger
into 10,000,000 shares of a new series of Class B Common Stock (the Class B
shares). Hillside and ABI as holders of the Class B shares are entitled to two
votes per share on all matters submitted to a vote of stockholders other than
certain extraordinary matters. The holders of the Class A shares are entitled
to one vote per share on all matters submitted to a vote of stockholders. In
addition, the Stockholders' Agreement among the Company, Holdings, ABI and
Hillside, and certain other agreements were either amended or terminated, and
Hillside made a cash payment of $2,000 to ABI in consideration of ABI's
agreement to enter into the Plan of Repurchase and consummate the transactions
contemplated thereby. The net proceeds of approximately $55,219 after
deducting fees, together with approximately $5,231 of other funds of the
Company, were used to repurchase 4,650,000 Class B shares held by Hillside.
In 1996, the Company's Board of Directors approved a plan to repurchase up
to $5,000 (increased to $10,000 in 1997) of the Company's common stock (Class
A and Class B shares). At December 31, 1997, the Company had repurchased
$9,573 of common stock under this program. Shares of Class B stock repurchased
(totalling 595,000) have been retired. As of December 31, 1997, ABI owned
4,395,605 Class B shares that represented 63.7% of the voting control of the
Company.
18. 1995 STOCK OPTION PLAN:
Effective with the public offering (Note 17), the Company adopted the 1995
stock option plan ("the Plan"). Under the Plan, options to purchase up to
550,000 shares of the Company's Class A Common Stock may be issued to officers
and key employees. The Company amended the plan to increase the number of
shares authorized to be issued from 550,000 to 800,000, an increase of 250,000
shares. These options may be either incentive stock options or nonqualified
stock options, and the options exercise price must be at least equal to the
fair value of the Company's Class A Common Stock on the date of grant. All
options granted have ten-year terms and vest over five years at the rate of
20% per year beginning on the first anniversary of the date of grant.
Effective January 1, 1996, the Company adopted the disclosure-only option
under SFAS No.123, "Accounting for Stock-Based Compensation." The Company
continues to use the accounting method under APB Opinion No. 25 (APB 25) and
related interpretations for its employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
F-18
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro forma disclosure, as required by SFAS No.123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method of the statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: option forfeiture of 15%;
risk-free interest rates of 5.76%, 5.99% and 5.9%; no dividends; volatility
factors of the expected market price of the Company's common stock of .356;
for 1997 and .388 for 1996 and 1995; and a weighted-average expected life of
the options of 7 years.
For purposes of pro forma disclosures, the estimated fair value of the
options ($243 for the 1997 grant, $103 for the 1996 grant, and $2,832 for the
1995 grant) is amortized to expense over the options' vesting period. The
initial impact on pro forma net income may not be representative of
compensation expense in future years, when the effect of the amortization of
multiple awards would be reflected in the pro forma disclosures. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Net income........................................ $6,741 $12,097 $9,435
Estimated pro forma compensation expense from
stock options:
1995 grant...................................... (566) (566) (518)
1996 grant...................................... (21) (19) --
1997 grant...................................... (44) -- --
------ ------- ------
Pro forma net income.............................. $6,110 $11,512 $8,917
====== ======= ======
Pro forma basic and diluted net income per share
data............................................. $ .62 $ 1.15 $ .89
====== ======= ======
</TABLE>
A summary of the Company's stock option activity, and related information is
as follows:
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Options outstanding beginning of year.............. 484,500 --
Options granted.................................... 56,000 $14.25
Options exercised.................................. (2,000) 13.00
Options forfeited.................................. (26,600) 13.53
------- ------
Options outstanding end of year.................... 511,900 $13.01
======= ======
Exercisable at end of year......................... 185,200 $12.95
Stock options available for future issuance........ 286,100 --
======= ======
</TABLE>
F-19
<PAGE>
CONGOLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Options outstanding beginning of year.............. 481,000 --
Options granted.................................... 22,000 $10.63
Options exercised.................................. -- --
Options forfeited.................................. (18,500) 13.00
------- ------
Options outstanding end of year.................... 484,500 $12.89
======= ======
Exercisable at end of year......................... 94,100 $13.00
Stock options available for future issuance........ 65,500 --
======= ======
</TABLE>
December 31, 1995:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Options outstanding beginning of year.............. -- --
Options granted.................................... 498,000 $13.00
Options exercised.................................. -- --
Options forfeited.................................. (17,000) 13.00
------- ------
Options outstanding end of year.................... 481,000 $13.00
======= ======
Exercisable at end of year......................... -- --
Stock options available for future issuance........ 69,000 --
======= ======
</TABLE>
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table sets forth certain unaudited quarterly financial
information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(A)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net sales................................. $61,083 $64,909 $69,526 $57,008
Gross profit.............................. 18,241 19,805 19,676 14,710
Net income................................ 1,013 2,104 2,198 1,426
Net income per common share............... .10 .21 .22 .15
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(B)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $54,118 $74,380 $71,900 $69,053
Gross profit............................ 13,935 25,056 24,373 23,502
Net income (loss)....................... (1,044) 4,850 4,392 3,899
Net income (loss) per common share...... (.10) .48 .44 .39
======= ======= ======= =======
</TABLE>
- --------
(a) Fourth quarter 1997 includes a $0.3 million (after tax) charge ($0.03 per
share) for an extraordinary item. (see Note 5)
(b) Fourth quarter 1996 includes a $0.6 million (after tax) charge for
accelerated depreciation of certain machinery and equipment.
F-20
<PAGE>
CONGOLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 13,135 $ 11,069
Short-term investments............................. 10,100 7,900
Accounts and notes receivable, net................. 25,944 14,512
Inventories........................................ 49,341 44,434
Prepaid expenses and other current assets.......... 1,086 2,965
Deferred income taxes.............................. 3,041 3,041
-------- --------
Total current assets............................. 102,647 83,921
Property, plant and equipment, net................... 87,309 88,401
Goodwill, net........................................ 12,035 12,251
Deferred income taxes................................ 2,636 2,636
Other noncurrent assets.............................. 9,129 9,372
-------- --------
Total assets..................................... $213,756 $196,581
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 17,255 $ 13,440
Accrued expenses................................... 38,225 28,793
Accrued income taxes............................... 2,370 918
Deferred income taxes.............................. 1,752 1,752
-------- --------
Total current liabilities........................ 59,602 44,903
Long-term debt....................................... 76,594 76,594
Other liabilities.................................... 22,132 22,305
Noncurrent pension liability......................... 10,671 11,038
Accrued postretirement benefit obligation............ 9,902 9,958
-------- --------
Total liabilities................................ 178,901 164,798
-------- --------
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01 per share;
20,000,000 shares authorized; 4,652,000 shares
issued; 4,282,800 shares outstanding as of June 30,
1998 and December 31, 1997, respectively............ 47 47
Class B common stock, par value $0.01 per share;
4,755,000 shares authorized, issued and outstanding
as of June 30, 1998 and December 31, 1997,
respectively........................................ 47 47
Additional paid-in capital........................... 49,574 49,574
Retained deficit..................................... (9,748) (12,820)
Minimum pension liability adjustment................. (1,122) (1,122)
Common stock held in Treasury, at cost; 375,200
shares at June 30, 1998 and December 31, 1997,
respectively (3,943) (3,943)
-------- --------
Total stockholders' equity....................... 34,855 31,783
-------- --------
Total liabilities and stockholders' equity....... $213,756 $196,581
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-21
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1998 1997
-------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS)
<S> <C> <C>
Net sales.................................................. $133,625 $125,992
Cost of sales.............................................. 95,267 87,946
Selling, general and administrative expenses............... 31,167 31,060
-------- --------
Income from operations................................. 7,191 6,986
Other income (expense):
Interest income.......................................... 460 959
Interest expense......................................... (3,346) (3,599)
Other income............................................. 668 812
Other expense............................................ (135) (174)
-------- --------
Income before income taxes............................. 4,838 4,984
Provision (benefit) for income taxes....................... 1,766 1,867
-------- --------
Net income............................................... $ 3,072 $ 3,117
======== ========
Net income per common share, basic and diluted........... $ 0.34 $ 0.31
======== ========
Weighted average number of common and equivalent shares
outstanding............................................. 9,038 9,990
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-22
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
PAR VALUE $0.01 ADDITIONAL COMPREHENSIVE
--------------- PAID-IN RETAINED INCOME/(LOSS) TREASURY
CLASS A CLASS B CAPITAL DEFICIT ADJUSTMENT* STOCK TOTAL
------- ------- ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... 47 47 49,574 (12,820) (1,122) (3,943) 31,783
Purchase of treasury
stock..................
Purchase and retirement
of Class B Common
Stock..................
Exercise of stock
options................
Minimum pension
liability Adjustment,
net of tax.............
Net income.............. 3,072 3,072
--- --- ------- ------- ------- ------- -------
Balance, June 30, 1998..
$47 $47 $49,574 $(9,748) $(1,122) $(3,943) $34,855
=== === ======= ======= ======= ======= =======
</TABLE>
- --------
* Entire amount relates to minimum pension liability adjustment.
The accompanying notes are an integral part of the condensed financial
statements.
F-23
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 3,072 $ 3,117
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation............................................. 4,865 4,672
Amortization and write-off of deferred refinancing fees.. 474 527
Gain on disposal of property, plant and equipment........ -- (196)
Changes in certain assets and liabilities:
Accounts and notes receivable.......................... (11,432) (2,510)
Inventories............................................ (4,907) (19,223)
Prepaid expenses and other current assets.............. 1,864 1,188
Accounts payable....................................... 3,815 (4,740)
Accrued expenses....................................... 10,884 7,543
Other liabilities...................................... (596) 681
------- -------
Net cash provided/(used) by operating activities..... 8,039 (8,941)
------- -------
Cash flows from investing activities:
Capital expenditures....................................... (3,773) (10,142)
Proceeds from sale of property, plant and equipment........ -- 244
Purchase of short-term investments......................... (11,700) (28,800)
Maturities of short-term investments....................... 9,500 21,700
------- -------
Net cash used by investing activities................ (5,973) (16,998)
------- -------
Cash flows from financing activities:
Payments to reduce long-term debt.......................... -- (825)
Exercise of stock options.................................. -- 26
Purchase and retirement of Class B stock................... -- (1,005)
Purchase of treasury stock................................. -- (801)
------- -------
Net cash used by financing activities................ -- (2,605)
------- -------
Net increase/(decrease) in cash and cash equivalents......... 2,066 (28,544)
Cash and cash equivalents:
Beginning of period........................................ 11,069 30,629
------- -------
End of period.............................................. $13,135 $ 2,085
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-24
<PAGE>
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Rule 10-01 of Regulation S-X and have not been audited by the Company's
independent accountants. Certain information and note disclosures normally
included in audited financial statements prepared in accordance with generally
accepted accounting principles for complete financial statements have been
condensed or omitted in accordance with the rules and regulations of the
Securities and Exchange Commission. The preparation of condensed financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities and the reported amounts of revenues and expenses
during the reporting period. In the opinion of management, all adjustments
(consisting of normal and recurring adjustments) considered necessary for a
fair presentation of the Company's financial position have been included. The
results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for a full year. These
condensed financial statements should be read in conjunction with the
Company's audited financial statements which appear in the Company's Annual
Report to Stockholders for the period ended December 31, 1997.
2. INVENTORIES
A summary of the major classifications of inventories is as follows:
<TABLE>
<CAPTION>
JUNE
30, DECEMBER 31,
1998 1997
------- ------------
<S> <C> <C>
Finished goods............................................. $37,200 $34,914
Work-in-process............................................ 4,417 3,160
Raw materials and supplies................................. 7,724 6,360
------- -------
$49,341 $44,434
======= =======
</TABLE>
The LIFO (last-in, first-out) method of determining cost is used for
substantially all inventories. If the FIFO (first-in, first-out) method of
inventory accounting (which approximates current cost) had been used,
inventories would have been approximately $1,773 and $340 lower than reported
at June 30, 1998 and December 31, 1997, respectively.
3. INCOME PER SHARE
Income per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. Due to the immaterial
effect of common stock equivalents, there is no difference between basic and
diluted net income per common share for the six month periods ending June 30,
1998 and 1997.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental laws and
regulations and certain legal and administrative claims are pending or have
been asserted against the Company. Among these claims, the Company is a named
party in several actions associated with waste disposal sites, asbestos-
related claims, and general liability claims. These actions include possible
obligations to remove or mitigate the effects on the environment of wastes
deposited at various sites, including
F-25
<PAGE>
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Superfund sites and certain of the Company's owned and previously owned
facilities. The contingencies also include claims for personal injury and/or
property damage. The exact amount of such future cost and timing of payments
are indeterminable due to such unknown factors as the magnitude of clean-up
costs, the timing and extent of the remedial actions that may be required, the
determination of the Company's liability in proportion to other potentially
responsible parties, and the extent to which costs may be recoverable from
insurance.
The Company records a liability for environmental remediation, asbestos-
related claim costs, and general liability claims when a clean-up program or
claim payment becomes probable and the costs can be reasonably estimated. As
assessments and clean-ups progress, these liabilities are adjusted based upon
progress in determining the timing and extent of remedial actions and the
related costs and damages. The extent and amounts of the liabilities can
change substantially due to factors such as the nature or extent of
contamination, changes in remedial requirements and technological
improvements. The recorded liabilities are not discounted for delays in future
payments and are not reduced by the amount of estimated insurance recoveries.
Such estimated insurance recoveries are considered probable of recovery.
Although the outcome of these matters could result in significant expenses
or judgments, management does not believe based on present facts and
circumstances that their disposition will have a material adverse effect on
the financial position of the Company.
5. RECLASSIFICATIONS
For comparative purposes, certain amounts have been reclassified to conform
to the current year presentation.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 13
Use of Proceeds.......................................................... 18
Recent Developments...................................................... 18
Capitalization........................................................... 18
Selected Historical Financial Data....................................... 19
Unaudited Summary Pro Forma Balance Sheet................................ 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 26
Management............................................................... 36
Principal Stockholders................................................... 41
Certain Relationships and Related Transactions........................... 43
Description of the Exchange Notes........................................ 44
The Exchange Offer....................................................... 73
Certain Federal Income Tax Consequences.................................. 82
Plan of Distribution..................................................... 86
Legal Matters............................................................ 86
Experts.................................................................. 86
Documents Incorporated by Reference...................................... 86
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONGOLEUM CORPORATION
EXCHANGE OFFER
$100,000,000
8 5/8% SENIOR NOTES DUE 2008
---------------
Congoleum
---------------
PROSPECTUS
---------------
OCTOBER 2, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware gives
corporations the power to indemnify officers and directors under certain
circumstances. The Company's Bylaws contain provisions that provide for
indemnification of certain persons (including officers and directors).
Article 5 of the Bylaws of the Company contains the following provisions:
"Article 5. Indemnification of Officers and Directors.
"Section 5.1(a). Each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized or permitted by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
excise taxes or penalties and amounts paid or to be paid in settlement)
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of
such person; provided, however, that, except as provided in paragraph (b),
the Corporation shall indemnify any such person seeking indemnification in
connection with an action, suit or proceeding (or part thereof) initiated
by such person only if such action, suit or proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred
in defending any such action, suit or proceeding in advance of its final
disposition; provided, however, that if the General Corporation Law of
Delaware requires, the payment of such expenses incurred by a director or
officer in his capacity as such in advance of the final disposition of any
such action, suit or proceeding shall be made only upon receipt by the
Corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Section or otherwise. The Corporation may, by action of the Board of
Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification
of directors and officers."
"(b) If a claim under paragraph (a) is not paid in full by the
Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit 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 claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending 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 which
make it permissible under the General Corporation Law of Delaware for the
Corporation to indemnify the claimant for the amount claimed, but the
II-1
<PAGE>
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including the Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of Delaware, nor an actual
determination by the Corporation (including the Board of Directors,
independent legal counsel or its stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct."
"(c) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in
this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate
of Incorporation (as it may be amended), these Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise."
"(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of Delaware."
In addition to the foregoing provisions of the Company's Bylaws, the
stockholders of the Company have adopted Article EIGHTH to the Certificate of
Incorporation of the Company, pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware, which has the effect of limiting or
eliminating the potential monetary liability of directors to the Company or
its stockholders for breaches of a director's fiduciary duty of care. The text
of Article EIGHTH adopted pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware by the stockholders of the Company
and which became effective on January 28, 1988 is set out in full below:
"EIGHTH. 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, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit."
The Company currently maintains a policy of directors and officers liability
insurance which provides for the reimbursement of directors and officers of
the Company for certain losses sustained as a result of their negligence or
breach of duty and for the reimbursement of the Company for certain amounts
paid to indemnify the directors and officers, in each case subject to certain
conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**2.1 Plan of Repurchase dated as of February 1, 1995, by and among American
Biltrite Inc., Hillside Industries Incorporated ("Hillside"),
Congoleum Holdings Incorporated ("Congoleum Holdings"), Resilient
Holdings Incorporated ("Resilient Holdings") and the Company.
***3.1 Certificate of Incorporated of the Company, as amended.
***3.2 Amended and Restated Bylaws of the Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<C> <S>
*4.1 Financing Agreement, dated April 19, 1991 (the "CIT Financing
Agreement"), by and among the CIT Group/Business Credit, Inc.
("CIT"), The Bank of New York Commercial Corporation ("BONYCC"),
Chemical Bank ("Chemical") and The Chase Manhattan Bank, N.A.
("Chase") (collectively, the "Senior Lenders") and the Company.
*4.2 First Amendment, dated March 11, 1993, to the CIT Financing
Agreement by and among the Senior Lenders and the Company.
*4.3 Indenture, dated as of February 1, 1994, between the Company and
Chemical Bank, as trustee.
**4.4 Registration Rights Agreement, dated as of February 8, 1995 by
and between the Company and Hillside.
******4.5 Indenture, dated as of August 3, 1998 (the "1998 Indenture"), by
and between the Company and First Union National Bank, as
trustee.
5.1 Opinion of Patterson, Belknap, Webb & Tyler LLP re: legality.
*10.1 The CIT Financing Agreement (see Exhibit 4.1).
*10.2 First Amendment to the CIT Financing Agreement (see Exhibit 4.2).
*10.8 Joint Venture Agreement, dated as of December 16, 1992, by and
among Resilient Holdings, Hillside, the Company (collectively the
"Congoleum Group"), Hillside Capital Incorporated ("Hillside
Capital") and American Biltrite.
*10.9 Closing Agreement, dated as of March 11, 1993, by and among the
Congoleum Group, Hillside Capital and American Biltrite.
*10.12 Stockholders Agreement, dated as of March 11, 1993 (the
"Stockholders Agreement"), by and among the Congoleum Group,
American Biltrite and Congoleum Holdings.
**10.12.1 First Amendment, dated February 8, 1995, to the Stockholders
Agreement, by and among Hillside, American Biltrite and the
Company.
*10.13 Personal Services Agreement, dated as of March 11, 1993 (the
"Personal Services Agreement"), by and between American Biltrite
and the Company.
**10.13.1 First Amendment, dated February 8, 1995, to Personal Services
Agreement, by and between American Biltrite and the Company.
****10.13.2 Second Amendment, dated November 15, 1996, to Personal Services
Agreement, by and between American Biltrite and the Company.
****10.13.3 Third Amendment, dated March 15, 1998, to Personal Services
Agreement, by and between American Biltrite and the Company.
*10.14 Business Relations Agreement, dated as of March 1, 1993, by and
between American Biltrite and the Company.
****10.14.1 First Amendment, dated August 19, 1997, to Business Relations
Agreement, by and between American Biltrite and the Company.
*10.15 Tax Sharing and Indemnification Agreement, dated as of March 11,
1993, by and among Congoleum Holdings, Resilient Holdings,
Hillside Capital and the Company.
****10.15.1 Tax Sharing Agreement, dated as of November 1, 1996, between
American Biltrite and the Company.
*10.19 Commitment Letter, dated January 12, 1994, regarding Financing
Agreement dated April 19, 1991, as amended, by and among CIT,
BONYCC and the Company.
**10.20 Trademark Purchase Agreement, dated November 29, 1993, by and
between the Company and The Amtico Company LTD ("Amtico
Company").
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- -----------
<C> <S>
**10.21 First Right of Refusal, dated November 29, 1993, by and between
American Biltrite (Canada) Limited and Amtico Company.
**10.22 Undertaking Concerning Amtico Trademark, dated November 29,
1993, by and between American Biltrite and Amtico Company.
**10.23 Form of 1995 Stock Option Plan.
*****10.23.1 Form of Amendment to 1995 Stock Option Plan.
*10.24 License Agreement, dated as of September 20, 1995, between
Congoleum Intellectual Properties, Inc. and the Company.
******10.25 Registration Rights Agreement, dated as of August 3, 1998, by
and among the Company, Goldman, Sachs & Co., Credit Suisse First
Boston Corporation and ING Barings Furman Selz LLC.
++11.1 Statement regarding Computation of Earnings per Common Share.
++12.1 Statement regarding computation of ratio of earnings to fixed
charges.
+21.1 Subsidiaries of the Company.
++23.1 Consent of Ernst & Young LLP.
++23.2 Consent of PriceWaterhouseCoopers, LLP.
23.3 Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1).
++24.1 Powers of attorney.
25.1 Statement of Eligibility on Form T-1 of First Union National
Bank as Trustee under the Indenture.
++27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal used in connection with the
Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery used in connection with
the Exchange Offer.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------
*Incorporated by reference to exhibit bearing the same number filed with the
Company's Registration Statement on Form S-1 (File No. 33-71836) declared
effective by the Securities and Exchange Commission on January 25, 1994.
**Incorporated by reference to exhibit bearing the same number filed with the
Company's Registration Statement on Form S-1 (File No. 33-87282) declared
effective by the Securities and Exchange Commission on February 1, 1995.
***Incorporated by reference to exhibit bearing the same number filed with the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996.
****Incorporated by reference to exhibit bearing the same number filed with
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
*****Incorporated by reference to exhibit bearing the same number filed with
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
******Incorporated by reference to exhibit bearing the same number filed with
the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998.
+Incorporated by reference to exhibit bearing the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
++Previously filed.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE.
Schedule II--Valuation of Qualifying Accounts (Incorporated by reference to
Schedule II filed as part of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided, that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is a least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be
II-5
<PAGE>
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mercerville, State of
New Jersey on the 30th day of September, 1998.
CONGOLEUM CORPORATION
/s/ Howard N. Feist III
By: ___________________________________
HOWARD N. FEIST III
SENIOR VICE PRESIDENT--FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ Roger S. Marcus* President, Chief
- ------------------------- Executive Officer and September 30, 1998
ROGER S. MARCUS Director (Principal
Executive Officer)
Senior Vice President--
Finance and Chief September 30, 1998
/s/ Howard N. Feist III Financial Officer
- ------------------------- (Principal Financialand
HOWARD N. FEIST III Accounting Officer)
/s/ Richard G. Marcus* Director
- ------------------------- September 30, 1998
RICHARD G. MARCUS
/s/ William M. Marcus* Director
- ------------------------- September 30, 1998
WILLIAM M. MARCUS
/s/ John N. Irwin III* Director
- ------------------------- September 30, 1998
JOHN N. IRWIN III
/s/ Cyril C. Baldwin, Director
Jr.* September 30, 1998
- -------------------------
CYRIL C. BALDWIN, JR.
II-7
<PAGE>
SIGNATURE TITLE DATE
/s/ David N. Hurwitz* Director
- --------------------------- September 30, 1998
DAVID N. HURWITZ
/s/ Mark N. Kaplan* Director
- --------------------------- September 30, 1998
MARK N. KAPLAN
/s/ C. Barnwell Straut* Director
- --------------------------- September 30, 1998
C. BARNWELL STRAUT
*By /s/ Howard N. Feist III
- ---------------------------
HOWARD N. FEIST III
(AS ATTORNEY-IN-FACT FOR
EACH PERSON AS
INDICATED)
II-8
<PAGE>
Exhibit 5.1
[Patterson, Belknap, Webb & Tyler LLP Letterhead]
September 30, 1998
Congoleum Corporation
3705 Quakerbridge Road
Mercerville, New Jersey 08619
Dear Sirs:
Registration Statement No. 333-63421
------------------------------------
We have acted as counsel for Congoleum Corporation, a Delaware corporation
(the "Company"), in connection with the proposed sale by the Company of up to
$100,000,000 principal amount of 8 5/8% Senior Notes due August 1, 2008 (the
"Exchange Notes") to be issued under an Indenture, dated as of August 3, 1998
(the "Indenture"), between the Company and First Union National Bank, as Trustee
(the "Trustee"). The Exchange Notes are to be offered in an exchange offer to
be made to the holders of the Company's currently outstanding 8 5/8% Senior
Notes due 2008 which were issued in a private placement transaction on August 3,
1998. As such counsel we have examined such documents and other matters as we
have deemed necessary for the opinions herein set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Indenture by the Company has
been validly authorized. The Indenture has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other laws affecting creditors' rights generally and general principles
of equity.
<PAGE>
September 30, 1998
Page 2
2. The issuance and sale of the Exchange Notes have been validly
authorized by the Company and, when duly executed on behalf of the Company,
duly authenticated by the Trustee under the Indenture and sold by the
Company, the Exchange Notes will be validly issued and will constitute
valid and binding obligations of the Company in accordance with their
terms, and will be entitled to the benefits of the Indenture in accordance
with their terms and the terms of the Indenture, except in each case as may
be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditors' rights generally
and general principles of equity.
We note that we are referred to under the heading "Legal Matters" in
the prospectus included in Registration Statement No. 333-63421 filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, and we hereby consent to such use of our name therein and to the use of
this opinion for filing as Exhibit 5.1 thereto.
Very truly yours,
PATTERSON, BELKNAP, WEBB & TYLER LLP
/s/ Jeffrey E. LaGueux
By: ______________________________________
A Member of the Firm
2
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
CONGOLEUM CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
BASIC EARNINGS PER COMMON SHARE: 1997 1996 1995
- ------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
NET INCOME PER COMMON AND COMMON
$6,741 $12,097 $ 9,435
EQUIVALENT SHARE ====== ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,837 9,997 10,000
NET INCOME PER COMMON SHARE $ 0.69 $ 1.21 $ 0.94
====== ======= =======
DILUTED EARNINGS PER COMMON SHARE:
- ---------------------------------
NET INCOME PER COMMON AND COMMON
$6,741 $12,097 $ 9,435
EQUIVALENT SHARE ====== ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,837 9,997 10,000
EFFECT OF ASSUMED EXERCISE OF DILUTIVE
STOCK OPTIONS(1) 2 10 22
------ ------- -------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 9,839 10,007 10,022
NET INCOME PER COMMON AND COMMON
$ 0.69 $ 1.21 $ 0.94
EQUIVALENT SHARE ====== ======= =======
</TABLE>
/(1)/ Computed based on the Treasury Stock method.
<PAGE>
EXHIBIT 11.1
CONGOLEUM CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
BASIC EARNINGS PER COMMON SHARE: 1998 1997 1998 1997
- ------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $2,645 $2,104 $3,072 $3,117
====== ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,038 9,942 9,038 9,970
====== ====== ====== ======
NET INCOME PER COMMON SHARE $ 0.29 $ 0.21 $ 0.34 $ 0.31
====== ====== ====== ======
DILUTED EARNINGS PER COMMON SHARE:
- ---------------------------------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $2,645 $2,104 $3,072 $3,117
====== ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,038 9,942 9,038 9,970
EFFECT OF ASSUMED EXERCISE OF DILUTIVE STOCK 0 2 0 20
OPTIONS (1) ------ ------ ------ ------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT 9,038 9,944 9,038 9,990
SHARES ====== ====== ====== ======
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.29 $ 0.21 $ 0.34 $ 0.31
====== ====== ====== ======
</TABLE>
/(1)/ Computed based on the treasury stock method.
<PAGE>
EXHIBIT 12.1
Congoleum Corporation
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
<TABLE>
<CAPTION>
Ten Months
Ended
Dec. 31 For the years ended December 31,
1993 1994 1995 1996 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Income from continuing operations before income taxes 17,733 28,626 15,964 19,995 11,055
Deduct: Interest capitalized 0 0 0 0 (823)
-------------------------------------------------------------
Sub-total 17,733 28,626 15,964 19,995 10,232
-------------------------------------------------------------
Interest expense 5,349 7,847 8,187 8,153 7,620
Amortization of debt issuance expenses 0 622 593 655 560
Portion of rental expense representative of interest 158 191 215 213 228
-------------------------------------------------------------
Total Fixed Charges 5,507 8,660 8,995 9,021 8,408
-------------------------------------------------------------
Earnings from continuing operations before
income taxes and fixed charges 23,240 37,286 24,959 29,016 18,640
=============================================================
Ratio of Earnings to Fixed Charges 4.2 4.3 2.8 3.2 2.2
=============================================================
<CAPTION>
Proforma Proforma
Six Months For The Year Six Months
Ended June 30, Ended Ended
Dec 31, June 30,
1997 1998 1997 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Earnings
Income from continuing operations before income taxes 4,984 4,838 10,177 4,048
Deduct: Interest capitalized (361) (139) (823) (139)
-------------------------- ---------------------------
Sub-total 4,623 4,699 9,354 3,909
-------------------------- ---------------------------
Interest expense 3,960 3,485 8,727 4,367
Amortization of debt issuance expenses 290 258 331 166
Portion of rental expense representative of interest 84 143 228 143
-------------------------- ---------------------------
Total Fixed Charges 4,334 3,886 9,286 4,676
-------------------------- ---------------------------
Earnings from continuing operations
before income taxes and fixed charges 8,957 8,585 18,640 8,585
========================== ===========================
Ratio of Earnings to Fixed Charges 2.1 2.2 2.0 1.8
========================== ===========================
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of
Congoleum Corporation for the registration of $100,000,000 of 8 5/8% Senior
Notes due 2008 and to the inclusion and incorporation by reference therein of
our report dated February 18, 1998 with respect to the financial statements of
Congoleum Corporation included and incorporated by reference in its Annual
Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
We also consent to the incorporation by reference therein of our report with
respect to the financial statement schedule of Congoleum Corporation for the
years ended December 31, 1997 and 1996 included in the Annual Report (Form 10-K)
for the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 15, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated February 20, 1996, on our audit of the
financial statements of Congoleum Corporation for the year ended December 31,
1995. We also consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated February 20, 1996, with respect to
the financial statement schedule of Congoleum Corporation for the year ended
December 31, 1995, included in the annual report on Form 10-K for the year
ended December 31, 1997, filed with the Securities and Exchange Commission. We
also consent to the reference to our firm under the caption "Experts" in this
Registration Statement.
/s/ PriceWaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 15, 1998
<PAGE>
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS A TRUSTEE
_______________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) __
_______________
FIRST UNION NATIONAL BANK
(Name of Trustee)
22-1147033
(Jurisdiction of Incorporation or (I.R.S. Employer
Organization if not a U.S. National Bank) Identification No.)
301 SOUTH COLLEGE STREET, CHARLOTTE, NORTH CAROLINA 28288-0630
(Address of Principal Executive Offices) (Zip Code)
_______________
FIRST UNION NATIONAL BANK, 301 SOUTH COLLEGE STREET, CHARLOTTE, NORTH CAROLINA
28288-0630, (704) 590-7408
(Name, address and telephone number of agent for service)
_______________
CONGOLEUM CORPORATION
(Name of Obligor)
DELAWARE 02-0398678
(State of Incorporation) (I.R.S. Employer
Identification No.)
3705 QUAKERBRIDGE ROAD, MERCERVILLE, N.J. 08619
(Address of Principal Executive Offices) (Zip Code)
_______________
CONGOLEUM CORPORATION 8 5/8% SENIOR NOTES DUE 2008
(Title of Indenture Securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT:
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, Richmond, VA 23219
Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES OF
THE TRUSTEE:
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B
- --------------------------------------------------------------------------------
TITLE OF CLASS AMOUNT OUTSTANDING
- --------------------------------------------------------------------------------
Not Applicable
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES:
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY OTHER
SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING INFORMATION:
(A) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH SUCH OTHER INDENTURE.
Not Applicable
(B) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS A BASIS FOR THE CLAIM
THAT NO CONFLICTING INTEREST WITHIN THE MEANING OF SECTION 310(B)(1) OF THE ACT
ARISES AS A RESULT OF THE TRUSTEESHIP UNDER ANY SUCH OTHER INDENTURE, INCLUDING
A STATEMENT AS TO HOW THE INDENTURE SECURITIES WILL RANK AS COMPARED WITH THE
SECURITIES ISSUED UNDER SUCH OTHER INDENTURE.
Not Applicable.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICERS OF THE TRUSTEE
IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR REPRESENTATIVE OF THE
OBLIGOR OR OF ANY UNDERWRITER
<PAGE>
FOR THE OBLIGOR, IDENTIFY EACH SUCH PERSON HAVING ANY SUCH CONNECTION AND STATE
THE NATURE OF EACH SUCH CONNECTION.
Not Applicable
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND
EXECUTIVE OFFICER OF THE OBLIGOR.
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- -------------------------------------------------------------------------------
Percentage of Voting
Amount owned securities represented
Name of Owner Title of Class beneficially by amount given in Col. C
- --------------------------------------------------------------------------------
Not Applicable
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER, AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER.
AS OF SEPTEMBER 29, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
Percentage of Voting
Amount owned securities represented
Name of Owner Title of Class beneficially by amount given in Col. C
- --------------------------------------------------------------------------------
Not Applicable
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO SECURITIES OF THE OBLIGOR OWNED
BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR THE OBLIGATIONS IN DEFAULT BY
THE TRUSTEE.
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
================================================================================
Whether the Amount owned beneficially Percentage of class
securities are or held as collateral represented by
voting or Security for obligations amount given in
nonvoting in default by Trustee Col. C.
Title of Class Securities
- --------------------------------------------------------------------------------
Not Applicable
ITEM 9. SECURITIES OF THE UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR, FURNISH
THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH UNDERWRITER ANY
OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
<PAGE>
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------
Amount owned beneficially Percentage of class
Name of or held as collateral represented by
issuer and Amount security for obligations amount given in
title of class outstanding in default by Trustee Col. C
- --------------------------------------------------------------------------------
Not Applicable.
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE (1) OWNS 10 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR
OR (2) IS AN AFFILIATE, OTHER THAN A SUBSIDIARY, OF THE OBLIGOR, FURNISH THE
FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF SUCH PERSON.
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------
Amount owned beneficially Percentage of class
Name of or held as collateral represented by
issuer and Amount security for obligations in amount given in
title of class outstanding default by Trustee Col. C
- --------------------------------------------------------------------------------
Not Applicable.
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF THE
TRUSTEE, OWNS 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH PERSON
ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------
Amount owned beneficially Percentage of class
Name of or held as collateral represented by
issuer and Amount security for obligations in amount given in
title of class outstanding default by Trustee Col. C
- --------------------------------------------------------------------------------
Not Applicable.
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE
TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
AS OF SEPTEMBER 24, 1998
- --------------------------------------------------------------------------------
COL A. COL. B COL.C
- --------------------------------------------------------------------------------
Nature of indebtedness Amount outstanding Date due
- --------------------------------------------------------------------------------
Not Applicable
<PAGE>
ITEM 13. DEFAULTS BY THE OBLIGOR.
(A) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO THE
SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
(B) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE
OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS
BEEN DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR
SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not Applicable
ITEM 15. FOREIGN TRUSTEE.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN TRUSTEE IS
AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED
UNDER THE ACT.
Not Applicable
ITEM 16. LISTS OF EXHIBITS.
LISTED BELOW ARE ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1* -Copy of Articles of Association of the Trustee as now in effect.
2 -No certificate of authority of the Trustee to commence business is
furnished
since this authority is contained in the Articles of Association of
the Trustee.
3* -Copy of the authorization of the Trustee to exercise corporate trust
powers.
4* -Copy of the existing By-Laws of the Trustee, as now in effect.
5 -Not applicable.
6 -The consent of the Trustee required by Section 321 (b) of the Act.
7 -A copy of the latest report of Condition of the Trustee published
pursuant to the
law or the requirements of its supervising or examining authority.
8 -Not Applicable
9 -Not Applicable
_________________________
*Exhibits thus designated have heretofore been filed with the Securities and
Exchange Commission, have not been amended since filing and are incorporated
herein by reference (see Exhibit T-1 Registration Number 333-47985).
IN ANSWERING ANY ITEM IN THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION
WHICH RELATES TO MATTERS PECULIARLY WITHIN THE KNOWLEDGE OF THE OBLIGOR OR OF
ITS DIRECTORS OR OFFICERS, OR AN UNDERWRITER FOR THE OBLIGOR, THE UNDERSIGNED,
FIRST UNION NATIONAL BANK, HAS RELIED UPON INFORMATION FURNISHED TO IT BY THE
OBLIGOR OR SUCH UNDERWRITER.
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939 THE
TRUSTEE, FIRST UNION NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE UNITED STATES, HAS DULY CAUSED THIS STATEMENT OF
ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, ALL IN THE CITY OF NEWARK, AND STATE OF NEW JERSEY, ON THE 24TH DAY
OF SEPTEMBER, 1998.
FIRST UNION NATIONAL BANK
(TRUSTEE)
(CORPORATE SEAL)
BY: /S/ RICK BARNES
-------------------------------
ASSISTANT VICE PRESIDENT
5
<PAGE>
EXHIBIT T-7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the First Fidelity Bank,
National Association , at the close of business on June 30, 1998, published in
response to call made by Comptroller of the Currency, under title 12, United
States Code, Section 161. Charter Number 33869 Comptroller of the Currency
Northeastern District.
STATEMENT OF RESOURCES AND LIABILITIES
ASSETS
Thousand of Dollars
-------------------
<TABLE>
<S> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin............ 9,898,292
Interest-bearing balances..................................... 1,785,499
Securities...................................................... /////////
Hold-to-maturity securities................................... 2,105,231
Available-for-sale securities................................. 36,130,513
Federal funds sold and securities purchased under agreements
to resell................................................. 4,551,009
Loans and lease financing receivables:
Loan and leases, net of unearned income................... 136,146,280
LESS: Allowance for loan and lease losses................. 1,814,169
LESS: Allocated transfer risk reserve..................... 0
Loans and leases, net of unearned income, allowance, and
reserve................................................... 134,332,111
Assets held in trading accounts................................. 5,786,208
Premises and fixed assets (including capitalized leases)........ 3,278,523
Other real estate owned......................................... 125,154
Investment in unconsolidated subsidiaries and associated........ //////////
companies....................................................... 345,634
Customer's liability to this bank on acceptances outstanding.... 1,091,060
Intangible assets............................................... 5,221,760
Other assets.................................................... 8,649,274
Total assets.................................................... 213,300,168
LIABILITIES
In domestic offices....................................... 133,606,970
Noninterest-bearing..................................... 26,221,093
Interest-bearing........................................ 107,385,877
In foreign offices, Edge and Agreement subsidiaries,
and IBFs.................................................. 9,377,311
Noninterest-bearing..................................... 581,219
Interest-bearing........................................ 8,796,092
Federal funds purchased and securities sold under agreements
to repurchase............................................. 22,988,933
Demand notes issued to the U.S. Treasury........................ 850,539
Trading liabilities............................................. 4,824,321
Other borrowed money:(includes mortgage indebtedness and obligations
under capitalized leases).
With original maturity of one year or less................ 11,459,244
With original maturity of more than one year.............. 590,270
With original maturity of more than three years.......... 437,360
Mortgage indebtedness and obligations under capitalized leases
Bank's liability on acceptances executed and outstanding........ 1,106,327
Subordinated notes and debentures............................... 3,512,216
Other liabilities............................................... 7,361,602
Total liabilities............................................... 196,115,093
Limited-life preferred stock and related surplus................ 0
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EQUITY CAPITAL
Perpetual preferred stock and related surplus................... 160,540
Common Stock.................................................... 454,543
Surplus......................................................... 13,225,076
Undivided profits and capital reserves.......................... 3,015,429
Net unrealized holding gains (losses) on available-for-sale..... /////////
securities..................................................... 330,722
Cumulative foreign currency translation adjustments............. (1,235)
Total equity capital............................................ 17,185,075
Total liabilities, limited-life preferred stock and equity...... //////////
capital....................................................... 213,300,168
</TABLE>
<PAGE>
CONSENT OF TRUSTEE
PURSUANT TO THE REQUIREMENTS OF SECTION 321 (B) OF THE TRUST INDENTURE ACT
OF 1939, AND IN CONNECTION WITH THE PROPOSED ISSUE OF CONGOLEUM CORPORATION, WE
HEREBY CONSENT THAT REPORTS OF EXAMINATIONS BY FEDERAL, STATE, TERRITORIAL OR
DISTRICT AUTHORITIES MAY BE FURNISHED BY SUCH AUTHORITIES TO THE SECURITIES AND
EXCHANGE COMMISSION UPON REQUEST THEREFOR.
FIRST UNION NATIONAL BANK
BY: /S/ RICK BARNES
--------------------------------
ASSISTANT VICE PRESIDENT
NEWARK, NJ
SEPTEMBER 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH
FLOWS AS REPORTED IN THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,069
<SECURITIES> 7,900
<RECEIVABLES> 14,512
<ALLOWANCES> 0
<INVENTORY> 44,434
<CURRENT-ASSETS> 83,921
<PP&E> 88,401
<DEPRECIATION> 9,102
<TOTAL-ASSETS> 196,581
<CURRENT-LIABILITIES> 44,903
<BONDS> 76,594
0
0
<COMMON> 94
<OTHER-SE> 31,689
<TOTAL-LIABILITY-AND-EQUITY> 196,581
<SALES> 252,526
<TOTAL-REVENUES> 255,352
<CGS> 180,093
<TOTAL-COSTS> 180,093
<OTHER-EXPENSES> 57,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,797
<INCOME-PRETAX> 11,055
<INCOME-TAX> 4,035
<INCOME-CONTINUING> 7,020
<DISCONTINUED> 0
<EXTRAORDINARY> 279
<CHANGES> 0
<NET-INCOME> 6,741
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH
FLOWS AS REPORTED IN THE FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,135
<SECURITIES> 10,100
<RECEIVABLES> 29,551
<ALLOWANCES> 3,607
<INVENTORY> 49,341
<CURRENT-ASSETS> 102,647
<PP&E> 176,195
<DEPRECIATION> 88,886
<TOTAL-ASSETS> 213,756
<CURRENT-LIABILITIES> 59,602
<BONDS> 76,594
0
0
<COMMON> 94
<OTHER-SE> 34,761
<TOTAL-LIABILITY-AND-EQUITY> 213,756
<SALES> 69,750
<TOTAL-REVENUES> 70,605
<CGS> 48,749
<TOTAL-COSTS> 48,749
<OTHER-EXPENSES> 15,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,671
<INCOME-PRETAX> 4,166
<INCOME-TAX> 1,521
<INCOME-CONTINUING> 2,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,645
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
CONGOLEUM CORPORATION
OFFER TO EXCHANGE ITS
8 5/8% SENIOR NOTES DUE AUGUST 1, 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
8 5/8% SENIOR NOTES DUE AUGUST 1, 2008
WHICH HAVE NOT BEEN SO REGISTERED
PURSUANT TO THE PROSPECTUS
DATED OCTOBER 2, 1998
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
1525 WEST W.T. HARRIS BOULEVARD
CHARLOTTE, NORTH CAROLINA 28288
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 2, 1998 UNLESS THE EXCHANGE OFFER IS EXTENDED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Original Notes
(as defined below) either if Original Notes are to be forwarded herewith or if
tenders of Original Notes are to be made by book-entry transfer to an account
maintained by First Union National Bank (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Original Notes" in the Prospectus and
an Agent's Message (as defined herein) is not delivered.
Holders of Original Notes whose certificates (the "Certificates") for such
Original Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or
prior to the Expiration Date (as defined in the Prospectus) or who cannot
complete the procedures for book-entry transfer on a timely basis, must tender
their Original Notes according to the guaranteed delivery procedures set forth
in "The Exchange Offer--Procedures for Tendering Original Notes" in the
Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
1
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF ORIGINAL NOTES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF BLANK,
PLEASE
PRINT NAME
AND
ADDRESS OF
REGISTERED ORIGINAL NOTES
HOLDER. (ATTACH ADDITIONAL LIST)
- -----------------------------------------------------
PRINCIPAL AMOUNT
CERTIFICATE OF ORIGINAL NOTES
NUMBER(S)* TENDERED**
-------
-------
-------
-------
<S> <C> <C> <C>
TOTAL AMOUNT
TENDERED:
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by book-entry holders..
** All Original Notes held shall be deemed tendered unless a lesser number
is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------------------------
DTC Account Number:
-------------------------------------------------------------
Transaction Code Number:
----------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------
Window Ticket Number (if any):
------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------
Name of Institution which Guaranteed Delivery:
------------------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
-----------------------------
Name of Tendering Institution:
------------------------------------------------------
DTC Account Number:
-----------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES
(A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Congoleum Corporation, a Delaware
corporation (the "Company"), the above described principal amount of the
Company's outstanding 8 5/8% Senior Notes due August 1, 2008 (the "Original
Notes") in exchange for a like principal amount of the Company's new 8 5/8%
Senior Notes due August 1, 2008 (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), upon the terms and subject to the conditions set forth in the
Prospectus dated October 2, 1998 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitute
the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such issued
Original Notes as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer) with respect to
the tendered Original Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (i)
deliver Certificates for Original Notes to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company, upon receipt by the Exchange Agent, as the undersigned's agent,
of the Exchange Notes to be issued in exchange for such Original Notes, (ii)
present Certificates for such Original Notes for transfer, and to transfer the
Original Notes on the books of the Company, and (iii) receive for the account
of the Company all benefits and otherwise exercise all rights of beneficial
ownership of such Original Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF
THE ORIGINAL NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS
OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Original
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the Certificates representing such Original
Notes. The Certificate number(s) and the Original Notes that the undersigned
wishes to tender should be indicated in the appropriate boxes above.
If any tendered Original Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Original Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Original Notes will be returned (or, in the case of Original
Notes tendered by book-entry transfer, such Original Notes will be credited to
an account maintained at DTC), without expense to the tendering holder,
promptly following the expiration or termination of the Exchange Offer.
3
<PAGE>
If the undersigned is a broker-dealer holding Original Notes acquired for
its own account as a result of market-making activities or other trading
activities, it agrees to deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received in
respect of such Original Notes pursuant to the Exchange Offer.
The undersigned understands that tenders of Original Notes pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for
Tendering Original Notes" in the Prospectus and in the instructions will, upon
the Company's acceptance for exchange of such tendered Original Notes,
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Original Notes
tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Original Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Original Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Original Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Notes to the undersigned at
the address shown below the undersigned's signature.
BY TENDERING ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN THE DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND
DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF SUCH EXCHANGE NOTES. ANY HOLDER OF ORIGINAL NOTES WHICH IS
NOT A BROKER-DEALER, AND WHICH IS USING THE EXCHANGE OFFER TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES IS
HEREBY NOTIFIED (1) THAT IT WILL NOT BE ABLE TO RELY ON THE POSITION OF THE
STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION (THE "STAFF") SET FORTH IN EXXON CAPITAL HOLDINGS CORPORATION
(AVAIL. APRIL 13, 1989) AND SIMILAR LETTERS AND (2) THAT IT MUST COMPLY WITH
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN
CONNECTION WITH ANY RESALE OF EXCHANGE NOTES.
ANY HOLDER OF ORIGINAL NOTES WHICH IS A BROKER-DEALER BY TENDERING ORIGINAL
NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL,
REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF TO THIRD PARTIES, THAT (A) SUCH ORIGINAL NOTES HELD BY THE BROKER-
DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH ORIGINAL NOTES WERE ACQUIRED BY
SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES
OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT
IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT).
4
<PAGE>
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer (as defined below)
in connection with resales of Exchange Notes received in exchange for Original
Notes, where such Original Notes were acquired by such Participating Broker-
Dealer for its own account as a result of market making activities or other
trading activities, for a period ending 90 days after the Expiration Date
(subject to extension under certain limited circumstances described in the
Prospectus) or, if earlier, when all such Exchange Notes have been disposed of
by such Participating Broker-Dealer. In that regard, each Broker-Dealer who
acquired Original Notes for its own account and as a result of market making
or other trading activities (a "Participating Broker-Dealer"), by tendering
such Original Notes and executing this Letter of Transmittal, agrees that,
upon receipt of notice from the Company of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference therein, in light of the circumstances under which they were made,
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of Exchange Notes pursuant to the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
the Participating Broker-Dealer or the Company has given notice that the sale
of the Exchange Notes may be resumed, as the case may be. If the Company gives
such notice to suspend the sale of the Exchange Notes, it shall extend the 90-
day period referred to above during which Participating Broker-Dealers are
entitled to use the Prospectus in connection with the resale of Exchange Notes
by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating Broker-
Dealers shall have received copies of the supplemented or amended Prospectus
necessary to permit resales of the Exchange Notes or to and including the date
on which the Company has given notice that the sale of Exchange Notes may be
resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the Prospectus
in connection with resales of Exchange Notes received in exchange for Original
Notes pursuant to the Exchange Offer must notify the Company, or cause the
Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
above or may be delivered to the Exchange Agent at the address set forth in
the Prospectus under "The Exchange Offer--Exchange Agent."
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive interest on such Original Notes and the undersigned waives
the right to receive any interest on such Original Notes accumulated from and
after August 3, 1998. Accordingly, holders of Exchange Notes as of the record
date for the payment of interest on February 1, 1999 will be entitled to
interest accumulated from and after August 3, 1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
5
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s)
appear(s) on Certificate(s) for the Original Notes hereby
tendered or on a security position listing, or by any person(s)
authorized to become the registered holder(s) by endorsements
on documents transmitted herewith (including such opinions of
counsel, certificates and other information as may be required
by the Company for the Original Notes to comply with any
restrictions on transfer applicable to the Original Notes). If
signature is by an attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting
in a fiduciary capacity or representative capacity, please set
forth the signer's full title. See Instruction 5.
________________________________________________________________
________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: _________________________, 1998
Name(s): _______________________________________________________
(PLEASE PRINT)
________________________________________________________________
Capacity or Title: _____________________________________________
Address: _______________________________________________________
(INCLUDE ZIP CODE)
Area Code(s) and Telephone Number: _____________________________
________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature: __________________________________________
Name: __________________________________________________________
(PLEASE PRINT)
Date: __________________________,1998
Capacity or Title: _____________________________________________
Name of Firm: __________________________________________________
Address: _______________________________________________________
(INCLUDE ZIP CODE)
Area Code(s) and Telephone Number: ____________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, AND 6) (SEE INSTRUCTIONS 1, 5, AND 6)
To be completed ONLY if Exchange To be completed ONLY if Exchange
Notes or any Original Notes that Notes or any Original Notes that
are not tendered are to be issued are not tendered are to be sent
in the name of someone other than to someone other than the regis-
the registered holder of the tered holder of the Original
Original Notes whose name(s) ap- Notes whose name(s) appear(s)
pear(s) above. above, or to the registered hold-
er(s) at an address other than
that shown above.
ISSUE:
[_] Exchange Notes to: MAIL:
[_] Original Notes not tendered
to: [_] Exchange Notes to:
[_] Original Notes not tendered
Name(s): _________________________ to:
(PLEASE PRINT) Name______________________________
Address __________________________ (PLEASE PRINT)
__________________________________ Address __________________________
(ZIP CODE) __________________________________
__________________________________ __________________________________
(TAX PAYER IDENTIFICATION OR (ZIP CODE)
SOCIAL SECURITY NUMBER)
(SEE ENCLOSED SUBSTITUTE FORM W-
9)
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
tenders are to be made pursuant to the procedures for tender by book- entry
transfer set forth in "The Exchange Offer--Procedures for Tendering" in the
Prospectus and an Agent's Message is not delivered or (b) Certificates are to
be forwarded herewith. Timely confirmation of a book-entry transfer of such
Original Notes into the Exchange Agent's account at DTC, or Certificates as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its addresses set forth herein on or prior to the Expiration
Date. Tenders by book-entry transfer may also be made by delivering an Agent's
Message in lieu of this Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC to and received by the Exchange Agent and
forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the tendering Participant, which
acknowledgment states that such Participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce the Letter
of Transmittal against such Participant. The term "book-entry confirmation"
means a timely confirmation of book-entry transfer of Original Notes into the
Exchange Agent's account at DTC.
Holders who wish to tender their Original Notes and (i) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, or (ii)
who cannot deliver their Original Notes, this Letter of Transmittal and all
other required documents to the Exchange Agent on or prior to the Expiration
Date or (iii) whose Original Notes are not immediately available may tender
their Original Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Procedures for Tendering Original Notes" in the
Prospectus. Pursuant to such procedures: (a) such tender must be made by or
through an Eligible Institution (as defined below); (b) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form
made available by the Company, must be received by the Exchange Agent on or
prior to the Expiration Date; and (c) the Certificates (or a book-entry
confirmation) representing tendered Original Notes, in proper form for
transfer, together with a Letter of Transmittal (or facsimile thereof or
Agent's Message in lieu thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three New
York Stock Exchange, Inc. trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in "The Exchange Offer--
Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association recognized program.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
8
<PAGE>
THE COMPANY WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS. EACH TENDERING HOLDER, BY EXECUTION OF A LETTER OF TRANSMITTAL (OR
FACSIMILE THEREOF OR AGENT'S MESSAGE IN LIEU THEREOF), WAIVES ANY RIGHT TO
RECEIVE ANY NOTICE OF THE ACCEPTANCE OF SUCH TENDER.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on a security position listing as the owner of the
Original Notes) of Original Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Issuance Instructions" or
the box entitled "Special Delivery Instructions" above, or
(ii) such Original Notes are tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Original Notes Tendered" is inadequate, the Certificate number(s) and/or
the principal amount of Original Notes and any other required information
should be listed on a separate signed schedule which is attached to this
Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all the Original
Notes evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Original Notes which are to be tendered in the box
entitled "Principal Amount of Original Notes Tendered." In such case, new
Certificate(s) for the remainder of the Original Notes that were evidenced by
your nontendered Original Notes will be sent to the holder of the Original
Notes, promptly after the Expiration Date. All Original Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in
the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Original Notes
to be withdrawn, the aggregate principal amount of Original Notes to be
withdrawn, and (if Certificates for Original Notes have been tendered) the
name of the registered holder of the Original Notes as set forth on the
Certificate for the Original Notes, if different from that of the person who
tendered such Original Notes. If Certificates for the Original Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Original Notes, the tendering
holder must submit the serial numbers shown on the particular Certificates for
the Original Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed, by an Eligible Institution, except in the case
of Original Notes tendered for the account of an Eligible Institution. If
Original Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "The Exchange Offer--Procedures for Tendering Original
Notes," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Original Notes, in which
case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Original Notes may not be rescinded. Original Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering Original Notes."
9
<PAGE>
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Original Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the
Original Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) or on a security
position listing without alteration, enlargement or any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or facsimiles thereof or Agent's Message
in lieu thereof) as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes
are to be issued in the name of person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Original Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also
must be accompanied by such opinions of counsel, certifications and other
information as the Company may require in accordance with the restrictions on
transfer applicable to the Original Notes. Signatures on such Certificates or
bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVER INSTRUCTIONS. If Exchange Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be
completed. Certificates for Original Notes not exchanged will be returned by
mail or, if tendered by book-entry transfer, by crediting the account
indicated above maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Original Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance of which,
or exchange for, may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer--Conditions to the Exchange Offer" or any conditions or
irregularity in any tender of Original Notes of any particular holder whether
or not similar conditions or irregularities are waived in the case
10
<PAGE>
of other holders. The Company's interpretation of the terms and conditions of
the Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Original Notes will be deemed
to have been validly made until all irregularities with respect to such tender
have been cured or waived. Neither the Company, any affiliates or assigns of
the Company, the Exchange Agent, or any other person shall be under any duty
to give notification of any irregularities in tenders or incur any liability
for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, this Letter of Transmittal and the Notice
of Guaranteed Delivery may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Original Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Original Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60-days
after the date of the Substitute Form W-9, the amounts retained during the 60-
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60-day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Original Notes. If the Original Notes are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign person
may qualify as an exempt recipient by submitting a properly completed IRS Form
W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
11
<PAGE>
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Original Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed
as to the steps that must be taken in order to replace the Certificate(s).
This Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Original Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Original Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Original Notes in connection with the Exchange Offer,
then the amount of any such transfer tax (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
12
<PAGE>
PAYOR'S NAME: FIRST UNION NATIONAL BANK, AS EXCHANGE AGENT
PART I--PLEASE PROVIDE YOUR Social Security Number
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND Identification Number
DATING BELOW.
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE ----------------------
TREASURY INTERNAL (If awaiting TIN, write
REVENUE SERVICE "Applied For")
PART II--For Payees
NOT subject to backup
withholding, see the
enclosed Guidelines
for Certification of
Taxpayer Identifica-
tion Number on Substi-
tute Form W-9 and com-
plete as instructed
therein.
--------------------------------------------------------
----------------------------
NAME (PLEASE PRINT)
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
----------------------------
ADDRESS
----------------------------
CITY STATE ZIP
CODE
- --------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), AND
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out Item (2) above if you have
been notified by the IRS that you are subject to backup withholding
because of under reporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2).
- --------------------------------------------------------------------------------
Signature: _____________________________________ Date: _________________,1998
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE
"APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
SIGNATURE(S): __________________________________ DATE: ______________________
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8 5/8% SENIOR NOTES
DUE AUGUST 1, 2008
OF
CONGOLEUM CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis, (ii) certificates for the Company's (as defined below) 8 5/8% Senior
Notes due August 1, 2008 (the "Original Notes") are not immediately available
or (iii) the Original Notes, the Letter of Transmittal and all other required
documents cannot be delivered to First Union National Bank (the "Exchange
Agent") on or prior to the Expiration Date (as defined in the Prospectus
referred to below). This Notice of Guaranteed Delivery may be delivered by
hand, overnight courier or mail, or transmitted by facsimile transmission, to
the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Original
Notes" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
By Registered or Certified Mail or Hand or Overnight Delivery:
First Union National Bank
1525 West W.T. Harris Boulevard
Charlotte, North Carolina 28288
Attention: Reorg. Dept. 3C3-NC 1153
Confirm by Telephone: (704) 590-7408
Facsimile Transmissions: (704) 590-7628
(Eligible Institutions Only)
----------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Congoleum
Corporation, a Delaware corporation (the "Company"),
upon the terms and subject to the conditions set
forth in the Prospectus dated October 2, 1998 (as
the same may be amended or supplemented from time to
time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange
Offer"), receipt of which is hereby acknowledged,
the aggregate liquidation amount of the Original
Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures
for Tendering Original Notes".
Aggregate Principal Amount Tendered:
-----------------------------------------------------
CERTIFICATE NOS. (IF AVAILABLE)
-----------------------------------------------------
Check box if the Original Notes will be delivered by
book-entry transfer and provide account number.
[_] The Depository Trust Company
DTC Account Number:
Date:
-----------------------------------------------------
(NAME(S) OF REGISTERED HOLDER(S)--PLEASE PRINT)
-----------------------------------------------------
(ADDRESS OF REGISTERED HOLDER(S)) (ZIP CODE)
-----------------------------------------------------
(AREA CODE AND TELEPHONE NO.)
-----------------------------------------------------
(NAME(S) OF AUTHORIZED SIGNATORY)
-----------------------------------------------------
(CAPACITY)
-----------------------------------------------------
(ADDRESS(ES) OF AUTHORIZED SIGNATORY)
-----------------------------------------------------
(AREA CODE AND TELEPHONE NO.)
-----------------------------------------------------
(SIGNATURE(S) OF RECORD HOLDER OR AUTHORIZED
SIGNATORY)
DATED:
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended,
as an "eligible guarantor institution," including (as such
terms are defined therein): (1) a bank; (2) a broker, dealer,
municipal securities broker, municipal securities dealer,
government securities broker, or government securities dealer;
(3) a credit union; (4) a national securities exchange,
registered securities association or clearing agency; or (5) a
savings association that is a participant in a Securities
Transfer Association recognized program (each of the foregoing
being referred to as an "Eligible Institution"), hereby
guarantees to deliver to the Exchange Agent at one of its
addresses set forth above, either the Original Notes tendered
hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Original Notes to the Exchange
Agent's account at The Depository Trust Company ("DTC"),
pursuant to the procedures for book-entry transfer set forth
in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal
(or facsimile thereof or Agent's Message in lieu thereof) and
any other required documents within three business days after
the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the
Letter(s) of Transmittal (or facsimile thereof or Agent's
Message in lieu thereof) and the Original Notes tendered
hereby to the Exchange Agent within the time period set forth
above and that failure to do so could result in a financial
loss to the undersigned.
_______________________________________________________________
(NAME OF FIRM)
_______________________________________________________________
(AUTHORIZED SIGNATURE)
_______________________________________________________________
(TITLE)
_______________________________________________________________
(ADDRESS)
_______________________________________________________________
(ZIP CODE)
_______________________________________________________________
(AREA CODE AND TELEPHONE NUMBER)
DATED: ________________________________________________________
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. ACTUAL SURRENDER OF ORIGINAL NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE>
EXHIBIT 99.3
CONGOLEUM CORPORATION
3705 QUAKERBRIDGE ROAD
MERCERVILLE, NJ 08619
EXCHANGE AGENT AGREEMENT
OCTOBER 2, 1998
First Union National Bank
765 Broad Street, 2nd Floor
Newark, New Jersey 07102-1720
Attention: Mr. Rick Barnes
Assistant Vice President
Ladies and Gentlemen:
Congoleum Corporation, a Delaware corporation (the "Company") proposes to
make an offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate
principal amount of its 8 5/8% Senior Notes due August 1, 2008 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its outstanding
8 5/8% Senior Notes due August 1, 2008 (the "Original Notes"), of which
$100,000,000 aggregate principal amount is outstanding. The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated October 2, 1998 (the "Prospectus"), a copy of which is
attached to this Agreement as Attachment A, proposed to be distributed to all
record holders of the Original Notes. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Prospectus.
The Company hereby appoints First Union National Bank to act as exchange
agent (the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to First Union National Bank.
The Exchange Offer is expected to be commenced by the Company on or about
October 5, 1998. The Letter of Transmittal accompanying the Prospectus is to
be used by the holders of the Original Notes to accept the Exchange Offer, and
contains instructions with respect to the Exchange Offer.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
November 2, 1998 or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the
right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (promptly confirmed in writing) or written
notice to you no later than 9:00 a.m., New York City time, on the prior
business day after the previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Original Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions to the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions to the Exchange Offer." The Company will give oral (promptly
confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
-1-
<PAGE>
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer,"
as specifically set forth herein and such duties which are necessarily
incidental thereto; provided, however, that in no way will your general
duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Original Notes at
The Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Exchange Offer within two business days after the date of
the Prospectus or, if you already have established an account with the
Book-Entry Transfer Facility suitable for the Exchange Offer, you will
identify such pre-existing account to be used in the Exchange Offer, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Original Notes by
causing the Book-Entry Transfer Facility to transfer such Original Notes
into your account in accordance with the Book-Entry Transfer Facility's
procedure for such transfer.
3. You are to examine each of the Letters of Transmittal, certificates
for the Original Notes and confirmations of book-entry transfers into your
account at the Book-Entry Transfer Facility and any Agent's Message or
other documents delivered or mailed to you by or for holders of the
Original Notes to ascertain whether: (i) the Letters of Transmittal and any
such other documents are duly executed and properly completed in accordance
with instructions set forth therein and (ii) the Original Notes have
otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed
or any of the certificates for Original Notes are not in proper form for
transfer or some other irregularity in connection with the acceptance of
the Exchange Offer exists, you will endeavor to inform the presenters of
the need for fulfillment of all requirements and to take any other action
as may be necessary or advisable to cause such irregularity to be corrected
subject to the satisfaction of the conditions set forth in paragraph 4
below.
4. With the approval of the President and Chief Executive Officer or the
Senior Vice President--Finance and Chief Financial Officer of the Company
(such approval, if given orally, to be confirmed in writing), you are
authorized to waive any irregularities in connection with any tender of
Original Notes pursuant to the Exchange Offer.
5. Tenders of Original Notes may be made only as set forth in the section
of the Prospectus captioned "The Exchange Offer--Procedures for Tendering
Original Notes" or in the Letter of Transmittal, and Original Notes shall
be considered properly tendered to you only when tendered in accordance
with the procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Original Notes which the
Company or any other party designated by the Company in writing shall approve
as having been properly tendered shall be considered to be properly tendered
(such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Original Notes
delivered subsequent to the Expiration Date and accept its instructions
with respect to the disposition of such Original Notes.
7. You shall accept tenders:
(a) in cases where the Original Notes are registered in two or more
names only if signed by all named holders.
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority to so act is submitted;
and
-2-
<PAGE>
(c) from persons other than the registered holder of Original Notes
provided that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
You shall accept partial tenders of Original Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Original
Notes to the transfer agent for split-up and return any untendered Original
Notes to the holder (or to such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be
promptly confirmed in writing) of the Company's acceptance, promptly after
the Expiration Date, of all Original Notes properly tendered and you, on
behalf of the Company, will exchange such Original Notes for Exchange Notes
and cause such Original Notes to be canceled. Delivery of Exchange Notes
will be made on behalf of the Company by you at the rate of $1,000
principal amount of Exchange Notes for each $1,000 principal amount of
Original Notes tendered promptly after notice (such notice if given orally,
to be promptly confirmed in writing) of acceptance of said Original Notes
by the Company; provided, however, that in all cases, the Original Notes
tendered pursuant to the Exchange Offer will be exchanged only after timely
receipt by you of certificates for such Original Notes (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility),
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees (or Agent's Message in lieu
thereof) and any other required documents. You shall issue Exchange Notes
only in denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Original Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time on or prior to the Expiration
Date.
10. The Company shall not be required to exchange any Original Notes
tendered if any of the conditions set forth in the Exchange Offer are not
met. Notice of any decision by the Company not to exchange any Original
Notes tendered shall be given (such notice, if given orally, shall be
promptly confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company advises you that it
does not accept for exchange all or part of the Original Notes tendered
because of an invalid tender, the occurrence of certain other events set
forth in the Prospectus under the caption "The Exchange Offer--Conditions
to the Exchange Offer" or otherwise, you shall as soon as practicable after
such notice and the expiration or termination of the Exchange Offer return
those certificates for unaccepted Original Notes (or effect the appropriate
book-entry transfer of the unaccepted Original Notes), and return any
related required documents and the Letters of Transmittal relating thereto
that are in your possession, to the persons who deposited them.
12. All certificates for reissued Original Notes or for unaccepted
Original Notes shall be forwarded by (a) first-class mail, return receipt
requested, under a blanket surety bond protecting you and the Company from
loss or liability arising out of the non-receipt or non-delivery of such
certificates or (b) by registered mail insured separately for the
replacement value of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other
persons or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness
of Original Notes, the Letter of Transmittal, the
-3-
<PAGE>
Notice of Guaranteed Delivery, the Prospectus or any other documents
prepared by the Company in connection with the Exchange Offer or any
signatures or endorsements other than your own and will not be required
to and will make no representation as to the validity, value or
genuineness of the Exchange Offer or any disclosure materials in
connection therewith; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing;
(b) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability,
unless you shall have been furnished with indemnity reasonably
satisfactory to you;
(c) shall not be liable to the Company for any action taken or
omitted by you, or any action suffered by you to be taken or omitted,
without negligence, misconduct or bad faith on your part, by reason of
or as a result of the administration of your duties hereunder in
accordance with the terms and conditions of this Agreement or by reason
of your compliance with the instructions set forth herein or with any
written or oral instructions delivered to you pursuant hereto, and may
conclusively rely on and shall be fully protected and indemnified in
acting in good faith in reliance upon any instructions, certificate,
instrument, opinion, notice, letter, facsimile or other document or
security delivered to you and reasonably believed by you to be genuine
and to have been signed by the proper party or parties;
(d) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due
execution and validity and the effectiveness of its provisions, but
also as to the truth and accuracy of any information contained therein,
which you shall in good faith reasonably believe to be genuine or to
have been signed or represented by a proper person or persons;
(e) may conclusively rely on and shall be fully protected in acting
upon written or oral instructions from any officer of the Company with
respect to the Exchange Offer;
(f) shall not advise any person tendering Original Notes pursuant to
the Exchange Offer as to the wisdom of making such tender or as to the
market value or decline or appreciation in market value of any Original
Notes; and
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the written opinion of
such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by you hereunder in
good faith and in accordance with such advice or written opinion of
such counsel.
15. You shall take such action as may from time to time be requested by
the Company or its counsel (and such other action as you may reasonably
deem appropriate) to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery, or such other forms as
may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish you with copies of such documents
at your request. All other requests for information relating to the
Exchange Offer shall be directed to the Secretary of the Company at 3705
Quakerbridge Road, Mercerville, New Jersey 08619.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the Company and Patterson, Belknap, Webb &
Tyler LLP, counsel for the Company, and such other person or persons as
they may request, weekly, and more frequently, if reasonably requested, up
to and including the Expiration Date, as to the principal amount of
Original Notes which have been tendered pursuant to the Exchange Offer and
the items received by you pursuant to this Agreement, separately reporting
and giving cumulative totals of the items properly received, items
improperly received and items covered by Notices of Guaranteed Delivery.
You
-4-
<PAGE>
shall also provide the Company or any such other person or persons as the
Company may request from time to time prior to the Expiration Date with
such other information as the Company or such other person may reasonably
request. In addition, you shall grant to the Company and such persons as
the Company may request, access to those persons on your staff who are
responsible for receiving tenders, in order to ensure that immediately
prior to the Expiration Date, the Company shall have received information
in sufficient detail to enable it to decide whether to extend the Exchange
Offer. You shall prepare a list of persons who failed to tender or whose
tenders were not accepted and the aggregate principal amount of Original
Notes not tendered or not accepted and deliver said list to the Company at
least seven days prior to the Expiration Date. You shall also prepare a
final list of all persons whose tenders were accepted, the aggregate
principal amount of Original Notes tendered and the aggregate principal
amount of Original Notes accepted and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time
you preserve other records pertaining to the transfer of securities. You
shall dispose of unused Letters of Transmittal and other surplus materials
by returning them to the Company.
18. For services rendered as Exchange Agent hereunder you shall be
entitled to a fee of ($2,000) and you shall be entitled to reimbursement of
your expenses (including fees and expenses of your counsel), which fees are
expected under normal circumstances to be not in excess of ($4,000)
incurred in connection with the Exchange Offer.
19. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal attached hereto and further acknowledge that you have examined
each of them to the extent necessary to perform your obligations hereunder.
Any inconsistency between this Agreement, on the one hand, and the
Prospectus and the Letter of Transmittal (as they may be amended from time
to time), on the other hand, shall be resolved in favor of this Agreement.
20. The Company agrees to indemnify and hold you (and your officers,
directors, employees and agents) harmless in your capacity as Exchange
Agent hereunder against any liability, cost or expense, including
reasonable attorneys' fees, arising out of or in connection with the
acceptance or administration of your duties hereunder, including, without
limitation, in connection with any act, omission, delay or refusal made by
you in reasonable reliance upon any signature, enforcement, assignment,
certificate, order, request, notice, instruction or other instrument or
document reasonably believed by you to be valid, genuine and sufficient and
in accepting any tender or effecting any transfer of Original Notes
reasonably believed by you in good faith to be authorized, and in delaying
or refusing in good faith to accept any tenders or effect any transfer of
Original Notes; provided, however, that the Company shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to
the extent arising out of your negligence, willful breach of this
Agreement, willful misconduct or bad faith. In no case shall the Company be
liable under this indemnity with respect to any claim against you unless
the Company shall be notified by you, by letter or by facsimile confirmed
by letter, of the written assertion of a claim against you or of any other
action commenced against you, promptly after you shall have received any
such written assertion or commencement of action. The Company shall be
entitled to participate at its own expense in the defense of any such claim
or other action. You shall not compromise or settle any such action or
claim without the consent of the Company.
21. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New
Jersey applicable to agreements made and to be performed entirely within
such state, without regard to conflicts of law principles, and shall inure
to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
-5-
<PAGE>
22. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together
constitute one and the same agreement.
23. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
24. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party
to be charged. This Agreement may not be modified orally.
25. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company, to:
Congoleum Corporation
3705 Quakerbridge Road
Mercerville, NJ 08619
Attention: Mr. Howard N. Feist III
Senior Vice President--Finance and
Chief Financial Officer
Facsimile: (609) 584-3555
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036-6710
Attention: Jeffrey E. LaGueux, Esq.
Facsimile: (212) 336-2222
If to the Exchange Agent, to:
First Union National Bank
765 Broad Street, 2nd Floor
Newark, New Jersey 07102-1720
Attention: Mr. Rick Barnes
Assistant Vice President
Facsimile: (973) 430-4963
26. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 18 and 20 shall survive the termination of this
Agreement. Except as provided in Paragraph 17, upon any termination of this
Agreement, you shall promptly deliver to the Company any funds or property
(including, without limitation, Letters of Transmittal and any other
documents relating to the Exchange Offer) then held by you as Exchange
Agent under this Agreement.
27. This Agreement shall be binding and effective as of the date hereof.
-6-
<PAGE>
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
CONGOLEUM CORPORATION
By: _________________________________
Name: ___________________________
Title: __________________________
Accepted as of the date
first above written:
FIRST UNION NATIONAL BANK,
as Exchange Agent
By: _________________________________
Name: ___________________________
Title: __________________________
-7-
