<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999
Registration No. 333-52333
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUNBEAM CORPORATION
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 3634 25-1638266
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
2381 Executive Center Drive
Boca Raton, Florida 33431
(561) 912-4100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Paul E. Shapiro, Esq.
Executive Vice President and Chief Administrative Officer
Sunbeam Corporation
2381 Executive Center Drive
Boca Raton, Florida 33431
(561) 912-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Richard L. Easton, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19801
(302) 651-3000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement, which relates to (i) the issuance of common stock, par value $.01 per
share ("Sunbeam Common Stock"), of Sunbeam Corporation ("Sunbeam") in the merger
(the "Merger") of Camper Acquisition Corp., a wholly owned subsidiary of Sunbeam
("CAC"), with and into The Coleman Company, Inc. ("Coleman"), pursuant to the
Agreement and Plan of Merger, dated as of February 27, 1998, among Sunbeam, CAC
and Coleman and (ii) the issuance of warrants to purchase shares of Sunbeam
Common Stock in connection with the settlement of certain litigation relating to
the Merger.
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. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to be Offering Price Aggregate Amount of
to be Registered Registered Per Security Offering Price Registration Fee
=============================================== ===================== ===================== ===================== ================
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share, to
be issued in the Merger...................... 7,199,452 (1) N.A. $196,536,040 (2) $ 57,978
Common Stock, par value $.01 per share,
issuable following the Merger upon the
exercise of warrants ........................ 4,980,000 (3) $7.00 $34,860,000 (4) $ 9,691
Total................................. 12,179,452 (1) N.A. $231,396,040 $ 67,669 (5)
=============================================== ===================== ===================== ===================== ================
</TABLE>
(1) Based on the number of shares of common stock, par value $.01 per share
("Coleman Common Stock"), of Coleman to be exchanged in the Merger,
assuming the exercise of all outstanding options to purchase shares of
Coleman Common Stock, multiplied by 0.5677 of a share of Sunbeam Common
Stock, the stock portion of the merger consideration.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) under the
Securities Act by multiplying $21.9375, the average of the high and low
sale prices of Coleman Common Stock on May 8, 1998, as reported on the New
York Stock Exchange, Inc. Composite Transactions Tape, by 12,681,790, the
number of shares of Coleman Common Stock to be exchanged in the Merger,
assuming the exercise of all outstanding options to purchase shares of
Coleman Common Stock, and deducting $6.44 per share, or an aggregate of
$81,670,728, in respect of the cash portion of the merger consideration.
(3) Based on the number of shares of Sunbeam Common Stock to be issued upon
exercise of the warrants to be issued in connection with the settlement of
certain litigation relating to the Merger.
(4) Computed pursuant to Rule 457(g)(1) under the Securities Act by multiplying
$7.00, the per share exercise price of the warrants, by 4,980,000, the
aggregate number of shares of Sunbeam Common Stock issuable upon exercise
the warrants.
(5) Pursuant to Rule 457(a) under the Securities Act, $57,978 of the
Registration Fee was previously paid in connection with the filing of the
Registrant's Registration Statement on Form S-4 with the Securities and
Exchange Commission (the "Commission") on May 11, 1998.
-----------------
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 or until
this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
[THE COLEMAN COMPANY, INC. LETTERHEAD]
_______ __, 1999
Dear Stockholder:
On or about __________, 1999, Coleman plans to merge with a
subsidiary of Sunbeam Corporation and you will receive $6.44 in cash and 0.5677
of a share of Sunbeam common stock for each share of Coleman common stock you
own when the merger is completed. You will also receive warrants to purchase
shares of Sunbeam common stock at a cash price of $7 per share under a
[court-approved] settlement of litigation relating to the merger. The number of
warrants you receive will be based on the number of shares of Coleman common
stock you own at the time of the merger.
The merger was approved by Coleman's board of directors and
majority stock holder, an affiliate of MacAndrews & Forbes Holdings Inc., on
February 27, 1998. As a result, no further action by you or any other Coleman
stockholder is required to complete the merger.
At the same time that Coleman's board and majority stockholder
approved the merger, Sunbeam agreed to acquire indirectly about 81% of the then
outstanding Coleman common stock from a MacAndrews & Forbes affiliate. That
transaction was completed on March 30, 1998, and Sunbeam now owns indirectly
about 79% of the outstanding Coleman common stock.
As a result of several negative developments affecting
Sunbeam, the market price of Sunbeam common stock has declined sharply since the
transaction was first announced. Sunbeam's stock closed at $41.75 on February
27, 1998; it closed at $_____ on ________________, 1999. The financial advisor
who advised the then Coleman Board on February 27, 1998 that the merger was fair
to you from a financial point of view has since indicated that its opinion,
although correct when given, should no longer be relied upon because of
subsequent developments affecting Sunbeam.
Instead of receiving cash, Sunbeam stock and warrants upon
completion of the merger, you have the right to dissent from the merger and have
the fair value of your Coleman shares appraised by a court and paid to you in
cash. These appraisal rights are granted to you by Delaware law. In order to
pursue your appraisal rights, you must submit a written demand to Coleman on or
before _____, 1999 and satisfy the other requirements outlined in the attached
document.
<PAGE>
The attached document contains important information about the
merger, Coleman, Sunbeam, your Delaware law appraisal rights and the litigation
settlement. You should read it carefully.
Very truly yours,
/s/ Jerry W. Levin
Jerry W. Levin
Chairman and Chief Executive Officer
2
<PAGE>
PRELIMINARY COPY - SUBJECT TO COMPLETION
MAY 14, 1999
--------------
THE COLEMAN COMPANY, INC.
NOTICE OF MERGER
AND APPRAISAL RIGHTS
AND INFORMATION STATEMENT
-------------
SUNBEAM CORPORATION
PROSPECTUS
--------------
To Stockholders Of Coleman:
By ___________, 1999, The Coleman Company, Inc. plans to merge with a
subsidiary of Sunbeam Corporation and you will receive $6.44 in cash and 0.5677
of a share of Sunbeam common stock for each share of Coleman common stock you
own when the merger is completed. You will also receive warrants to purchase
shares of Sunbeam common stock at a cash price of $7 per share under a
[court-approved] settlement of litigation relating to the merger. The number of
warrants you receive will be based on the number of shares of Coleman common
stock you own at the time of the merger. As a result of the merger, Coleman will
become a wholly owned subsidiary of Sunbeam. A copy of the merger agreement is
attached as Annex I at the back of this document. You are urged to read the
merger agreement carefully as it is the legal document that governs the merger.
The merger was approved by Coleman's board of directors and majority
stockholder, an affiliate of MacAndrews & Forbes Holdings Inc., on February 27,
1998. As a result, no further action by you or any other stockholder of Coleman
is required to complete the merger.
At the same time that Coleman's board and majority stockholder approved
the merger, Sunbeam agreed to acquire indirectly about 81% of the then
outstanding Coleman common stock from the MacAndrews & Forbes affiliate. That
transaction was completed on March 30, 1998, and Sunbeam now owns indirectly
about 79% of the outstanding Coleman common stock.
Sunbeam common stock trades on the New York Stock Exchange under the
symbol "SOC." Coleman common stock trades on the New York Stock Exchange, the
Pacific Stock Exchange and the Chicago Stock Exchange under the symbol "CLN."
This document contains important information about the merger, Coleman,
Sunbeam, your Delaware law appraisal rights and the litigation settlement,
including the terms of the warrants you will receive. This document is the
prospectus of Sunbeam for the common stock to be issued in the merger and the
common stock to be issued when the warrants are exercised. As required by
Delaware law, this document also is Coleman's notice to you of your appraisal
rights.
<PAGE>
You should read this entire document carefully, including the Annexes
which are found at the back of the document and the documents referred to under
the caption "WHERE YOU CAN FIND MORE INFORMATION" beginning on page ___ which
tells you where you can find additional information about Coleman and Sunbeam.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Sunbeam common stock to be
issued under this document or determined if this document is accurate or
adequate. Any representation to the contrary is a criminal offense.
The information in this document is not complete and may be changed. We may
not sell these securities or accept offers to buy these securities until the
registration statement filed with the Securities and Exchange Commission is
declared effective. This document is not an offer to sell and it is not
soliciting an offer to buy these securities in any state where such an offer,
solicitation or sale is not permitted.
This document is dated ___________, 1999 and was first mailed to you and
the other stockholders of Coleman on or about _____________, 1999.
ii
<PAGE>
TABLE OF CONTENTS
Page
Summary................................................1
Risk Factors..........................................23
Recent Developments Affecting Sunbeam.................35
Recent Developments Affecting Coleman.................48
Special Factors.......................................48
The Merger............................................62
United States Federal Income Tax Considerations.......76
Litigation Settlement and Warrants....................77
Appraisal Rights......................................80
Source and Amount of Funds and Other Consideration....83
Material Contacts Between Coleman and Sunbeam and
its Affiliates......................................88
Unaudited Pro Forma Condensed Consolidated Financial
Statements..........................................93
Unaudited Pro Forma Condensed Consolidated Balance
Sheet...............................................95
Unaudited Pro Forma Condensed Consolidated Statement
of Operations.......................................96
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................97
Selected Consolidated Financial Information
of Sunbeam.........................................102
Selected Consolidated Financial Information
of Coleman.........................................105
Management's Discussion and Analysis of Financial
Condition and Results of Operations................108
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................144
Business of Sunbeam..................................145
Management...........................................164
Security Ownership of Certain Beneficial Owners......189
Security Ownership of Certain Management.............190
Description of Sunbeam Capital Stock.................193
Description of Coleman Capital Stock.................195
Experts..............................................196
Legal Opinions.......................................196
Where You Can Find More Information..................196
ANNEX I - MERGER AGREEMENT
ANNEX II - SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
iii
<PAGE>
SUMMARY
This summary highlights information that may be found in greater
detail elsewhere in this document. In this summary, we have attempted to
describe those matters which we believe will be of the greatest importance
to you in considering the merger. This summary may not, however, contain
all information that is important to you. For that reason, we urge you to
read this document carefully in its entirety, including the Annexes at the
back of this document and the additional documents we refer you to under
"WHERE YOU CAN FIND MORE INFORMATION" beginning on page ___. In
particular, you are urged to read carefully the information contained in
this document under the caption "RISK FACTORS," beginning on page ___.
Q: What will I receive in the merger?
A: In the merger, you will receive $6.44 in cash and 0.5677 of a share of
Sunbeam common stock for each share of Coleman common stock you own
when the merger is completed. You will not receive fractional shares
of Sunbeam common stock in the merger. Instead, you will receive a
check in payment for any fractional share based on the closing share
price of Sunbeam common stock on the day the merger is completed.
In addition, you will receive warrants to purchase shares of Sunbeam
common stock at a cash price of $7 per share under a [court-approved]
settlement of litigation relating to the merger unless you choose to
pursue your Delaware law appraisal rights. The number of warrants you
receive will be based on the number of shares of Coleman common stock
you own at the time of the merger. For further information regarding
the terms of the proposed settlement, including the terms of the
warrants, see "LITIGATION SETTLEMENT AND WARRANTS" beginning on page
___.
Q: What choice do I have?
A: Your basic choice is whether to receive the cash, stock and warrants
Sunbeam proposes to give you when the merger is completed, or to take
action to pursue your Delaware law appraisal rights to have a court
determine the value of your Coleman shares and to receive that value
as determined by the court entirely in cash.
<PAGE>
Q: What risks should I consider?
A: First, you should understand that you are receiving a fixed number of
Sunbeam shares in the merger (0.5677 of a share for each Coleman share
you own) and that, since the merger was approved, developments
affecting Sunbeam have caused the market price of the Sunbeam shares
to decline sharply (from $41.75 per share on February 27, 1998 to
$_____ per share on __________, 1999). The financial advisor who
advised the then Coleman Board on February 27, 1998 that the merger
was fair to you from a financial point of view has since indicated
that its opinion, although correct when given, should no longer be
relied upon because of subsequent developments affecting Sunbeam.
Second, you should realize that Sunbeam faces the following risks:
o Sunbeam is highly leveraged, which negatively affects Sunbeam's
operations and finances in many ways,
o Sunbeam's bank credit facility contains covenants which Sunbeam
may not be able to satisfy and default provisions Sunbeam may not
be able to avoid, and if Sunbeam cannot, the banks could demand
immediate repayment of Sunbeam's bank debt,
o Sunbeam's bank debt could become due on April 10, 2000 if Sunbeam
does not get another waiver from the banks or refinance the bank
debt by then,
o Sunbeam may not be able to service its large debt burden,
o Sunbeam's outside auditor determined that its 1997 internal
controls were inadequate,
o Sunbeam had significant losses and its operations consumed
significant amounts of cash in 1998,
o major lawsuits have been brought against Sunbeam, including
lawsuits under federal and state securities laws, and the SEC is
conducting a formal investigation of Sunbeam,
2
<PAGE>
o unless Sunbeam's financial results improve, Sunbeam's common
stock may lose its New York Stock Exchange listing,
o Sunbeam's 1998 acquisitions, including the acquisition of a
controlling interest in Coleman, have increased the size of the
operations Sunbeam has to manage,
o Sunbeam's international operations expose Sunbeam to
uncertainties and risks from abroad,
o the nature of Sunbeam's businesses requires Sunbeam to
successfully develop new and innovative products on a consistent
basis,
o Sunbeam's businesses are very sensitive to the strength of the
U.S. retail market,
o Sunbeam operates in a highly competitive market,
o Sunbeam's sales are highly dependent on purchases from several
key customers,
o raw materials and components are critical inputs for Sunbeam's
products and price hikes or problems with their supply could
adversely affect Sunbeam,
o Sunbeam's operations are dependent on third-party suppliers and
service providers,
o Sunbeam is subject to several production-related risks,
o the effects of Sunbeam's prior management's outsourcing of
critical operating tasks and sales policies may continue to cause
Sunbeam substantial difficulty,
o weather conditions can hurt sales of some of Sunbeam's products,
o Sunbeam remains vulnerable to Year 2000 compliance problems in
its systems and those of its suppliers and customers, and
o Sunbeam's debt covenants currently do not allow Sunbeam to pay
cash dividends on its common stock.
3
<PAGE>
For more detail about these and other risks, please carefully read "RISK
FACTORS" beginning on page ___ and "RECENT DEVELOPMENTS AFFECTING SUNBEAM"
beginning on p.___.
Q: When do you expect the merger to be completed?
A: We plan to complete the merger by __________, 1999, which is the
twenty-first business day following the date on which this document
was first mailed to you.
Q: What are the tax consequences of the merger to Coleman stockholders?
A: Your receipt of cash, Sunbeam common stock and warrants to purchase
Sunbeam common stock in exchange for the shares of Coleman common
stock you own when the merger is completed is expected to be a taxable
transaction for United States Federal income tax purposes and may also
be a taxable transaction under applicable state, local, foreign and
other tax laws. However, the tax consequences of the merger are
subject to a number of qualifications, as discussed below under the
caption "UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" beginning on
page ___.
The tax consequences to you of the merger and will depend on your own
situation. You should consult your own tax advisor for a full under
standing of these tax consequences.
Q: Am I being asked to vote on the merger?
A: No. The merger agreement was approved on February 27, 1998 by
Coleman's former board of directors and majority stockholder, a
MacAndrews & Forbes affiliate. As a result, no further action on your
part, or on the part of any other stockholder of Coleman, is required
to complete the merger.
Q: What if I want to accept the merger consideration and the litigation
settlement warrants? Should I send in my Coleman common stock
certificates now?
A: If you wish to accept the cash, stock and warrants described above in
exchange for the shares of Coleman common stock you own at the time of
the merger, you need not take any action now. After the merger is
completed, you will receive written instructions on how to
surrender your Coleman common stock certificates in exchange for
the merger consideration.
4
<PAGE>
Q: What if I do not wish to accept the merger consideration and the
litigation settlement warrants?
A: If you object to the merger and do not wish to accept the cash, stock
and warrants described above in exchange for the shares of Coleman
common stock you own at the time of the merger, you have the right to
dissent from the merger and have the fair value of your Coleman shares
appraised by a court and the amount determined by the court will be
paid to you in cash. If you wish to exercise this right, you must
submit a written demand to Coleman on or before __________, 1999. You
must also satisfy the other requirements outlined under "APPRAISAL
RIGHTS" beginning on page ___. Failure to take any of the required
steps on a timely basis may result in the loss of your appraisal
rights.
Q: Where should I send my written demand for appraisal?
A: You should send your written demand for appraisal to the following
address:
The Coleman Company, Inc.
2111 East 37th Street North
Wichita, Kansas 67219
Attention: Corporate Secretary
Phone number: (316) 832-2700
Q: Does Sunbeam currently pay dividends?
A: No. Sunbeam stopped paying dividends after the first quarter of 1998
and has no present intention to pay any dividends for the foreseeable
future. In addition, Sunbeam's bank credit agreement prohibits Sunbeam
from paying cash dividends.
5
<PAGE>
Q: Who can help answer further questions?
A: If you would like additional copies of this document, or if you have
questions about the merger, you should contact either Sunbeam or
Coleman at the following addresses:
Sunbeam Corporation The Coleman Company, Inc.
2381 Executive Center Drive 2111 East 37th Street North
Boca Raton, Florida 33431 Wichita, Kansas 67219
Attention: Corporate Secretary Attention: Corporate Secretary
Phone number: (561) 912-4100 Phone number: (316) 832-2700
If you would like more general information about Sunbeam or Coleman,
please visit our websites at the following web addresses:
Sunbeam: Coleman:
http://www.sunbeam.com http://www.colemanco.com
For more details on where to find more information about the merger,
please see "WHERE YOU CAN FIND MORE INFORMATION" beginning on page
___.
The Companies
Sunbeam. Sunbeam is a leading designer, manufacturer and marketer of
branded consumer products. Sunbeam's primary business is the manufacturing,
marketing and distribution of durable household and outdoor leisure consumer
products through mass market and other distribution channels in the United
States and internationally. Sunbeam also sells its products to professional and
commercial end users, such as small businesses, health care providers, hotels
and other institutions. Sunbeam's principal products include household kitchen
appliances; health monitoring and care products for home use; scales for
consumer and professional use for weight management and business uses; electric
blankets and throws; clippers and trimmers for consumer, professional and animal
uses; smoke and carbon monoxide detectors; outdoor barbecue grills; camping
equipment such as tents, lanterns, sleeping bags and stoves; coolers; backpacks
and book bags; and portable generators and compressors. In 1998, Sunbeam's net
sales, including sales by Coleman from March 30, 1998, were about $1,800
million.
Sunbeam's principal executive offices are located at 2381 Executive Center
Drive, Boca Raton, Florida 33431, and its telephone number is (561) 912-4100.
For further information
6
<PAGE>
concerning Sunbeam, see "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page ___.
Coleman. Coleman is a leading manufacturer and marketer of consumer
products for the worldwide outdoor recreation market. Coleman's products have
been sold under the Coleman(Registered) brand name since the 1920s. Coleman
believes its strong market position is attributable primarily to its
well-recognized trademarks, particularly the Coleman brand name, broad product
line, product quality and innovation, and marketing, distribution and
manufacturing expertise. Coleman had net revenues in 1998 of about $1,015
million.
Coleman's principal executive offices are located at 2111 East 37th Street
North, Wichita, Kansas 67219, and its telephone number is (316) 832-2700. For
further information concerning Coleman, see "WHERE YOU CAN FIND MORE
INFORMATION" beginning on page ___.
Recent Developments Affecting Sunbeam
Sunbeam has experienced significant changes and events since January 1,
1998, including:
o acquisition of control of Coleman and acquisitions of Signature Brands
USA, Inc. and First Alert, Inc.,
o substantial borrowings resulting in a large debt burden and high
leverage,
o major changes in Sunbeam's management and board of directors,
o restatement of Sunbeam's 1996, 1997 and first quarter 1998 financial
results,
o large losses and negative cash flow in 1998,
o a change in Sunbeam's auditors,
o amendment of Sunbeam's bank credit facility,
o the filing of several lawsuits against Sunbeam, including lawsuits
brought under federal and state securities laws, and commencement of a
formal SEC investigation of Sunbeam, and
7
<PAGE>
o a review of Sunbeam's continued eligibility for listing on the New
York Stock Exchange.
We urge you to carefully read "RECENT DEVELOPMENTS AFFECTING SUNBEAM"
beginning on page ___ and "RISK FACTORS" beginning on page ___.
Recent Developments Affecting Coleman
Coleman has experienced significant changes and events since January 1,
1998, including:
o a review of Coleman's continued eligibility for listing on the New
York Stock Exchange, and
o revisions to Coleman's note payable to Sunbeam and the pledge of
Coleman's assets to secure the note.
We urge you to carefully read "RECENT DEVELOPMENTS AFFECTING COLEMAN"
beginning on page ___ and "RISK FACTORS" beginning on page ___.
The Merger
The merger agreement is attached as Annex I at the back of this document.
We encourage you to read the merger agreement carefully as it is the legal
document that governs the merger.
Merger Consideration. In the merger, you will receive $6.44 in cash and
0.5677 of a share of Sunbeam common stock for each share of Coleman common stock
you own when the merger is completed. You will not receive fractional shares of
Sunbeam common stock in the merger. Instead, you will receive a check in payment
for any fractional share based on the closing share price of Sunbeam common
stock on the day the merger is completed.
In addition, you will receive warrants to purchase shares of Sunbeam common
stock at a cash price of $7 per share under a [court-approved] settlement of
litigation relating to the merger. The number of warrants you receive will be
based on the number of shares of Coleman common stock you own at the time of the
merger. For further information regarding the terms of the settlement, including
the terms of the warrants, see "LITIGATION SETTLEMENT AND WARRANTS" beginning on
page ___.
8
<PAGE>
Instead of receiving the cash, stock and warrants described above in
exchange for the shares of Coleman common stock you own when the merger is
completed, you may exercise your Delaware law appraisal rights if you follow the
procedures and satisfy the other requirements outlined below under the caption
"APPRAISAL RIGHTS" beginning on page __.
Ownership of Sunbeam After the Merger. In the merger, Sunbeam will issue
about 6,676,135 shares of Sunbeam common stock, assuming all currently
outstanding options to acquire Coleman common stock are cashed out in the merger
and no Coleman stockholders exercise their Delaware law appraisal rights. See
"THE MERGER - Ownership Interest of Coleman Stockholders in Sunbeam After the
Merger" beginning on page ___. These 6,676,135 shares of Sunbeam common stock
will constitute about 6.2% of the outstanding Sunbeam shares after the merger.
On March 30, 1998, Sunbeam issued 14,099,749 shares of Sunbeam common stock
to a MacAndrews & Forbes affiliate in the transaction in which Sunbeam acquired
indirectly about 81% of the then outstanding Coleman common stock (the "M&F
Transaction"). These 14,099,749 shares will constitute about 13.1% of the
outstanding Sunbeam shares after the merger.
In addition, under a [court-approved] settlement of litigation relating to
the merger, Sunbeam will issue warrants to purchase about 4.98 million Sunbeam
shares at a cash price $7 per share when the merger is completed, assuming no
Coleman stockholders exercise their Delaware law appraisal rights. Sunbeam has
already issued a warrant to purchase 23 million Sunbeam shares at a cash price
of $7 per share to a MacAndrews & Forbes affiliate in settlement of claims
relating to the M&F Transaction. The warrants to be issued to you and the
warrant issued to the MacAndrews & Forbes affiliate generally have the same
terms. See "RECENT DEVELOPMENTS AFFECTING SUNBEAM - Settlement of Claims
Relating to the M&F Transaction" beginning on page ___ and "LITIGATION
SETTLEMENT AND WARRANTS" beginning on page ___. If all these warrants were
exercised promptly after the merger, the shares owned by the former Coleman
public stockholders would represent about 8.6% of the then outstanding Sunbeam
shares, and the shares owned by the MacAndrews & Forbes affiliate would
represent about 27.4% of the then outstanding Sunbeam shares.
The current stockholders of Sunbeam, other than the MacAndrews & Forbes
affiliate, will own about 81% of the outstanding Sunbeam shares after the
merger, or about 64% if all the warrants were exercised promptly after the
merger.
9
<PAGE>
Conditions. The completion of the merger was originally subject to the
following conditions contained in the merger agreement:
o this document had to be declared effective by the SEC;
o the shares of Sunbeam common stock to be issued in the merger had to
be listed for trading on the NYSE; and
o the M&F Transaction had to be completed.
All of these conditions have already been satisfied. Therefore, assuming no
court order is entered which prevents the merger from being completed, we expect
that the merger will be completed by _________, 1999, which is the twenty-first
business day following the date on which this document was first mailed to you.
Accounting Treatment. The merger will be accounted for under the "purchase"
method in accordance with generally accepted accounting principles. Therefore,
the aggregate consideration paid by Sunbeam to Coleman stockholders in the
merger and the M&F Transaction will be allocated to Coleman's assets and
liabilities based upon their fair market value with any excess being treated as
goodwill.
Coleman's Financial Advisor. Credit Suisse First Boston Corporation acted
as Coleman's financial advisor in connection with the merger. On February 27,
1998, when the merger agreement was approved by Coleman's former board of
directors, Credit Suisse First Boston delivered to Coleman's former board an
oral opinion, which was subsequently confirmed in writing, to the effect that,
as of that date and based upon and subject to the matters described in the
opinion, the cash and stock consideration you will receive in the merger was
fair to you from a financial point of view. Because Sunbeam did not plan to
issue the warrants at the time the merger agreement was signed, Credit Suisse
First Boston did not take the warrants into account when evaluating the fairness
of the merger consideration.
The last reported sale price of Sunbeam common stock on the day Credit
Suisse First Boston delivered its opinion was $41.75 per share. However, since
the date of the Credit Suisse First Boston opinion, numerous events have
occurred that significantly adversely affected the price of Sunbeam common
stock. The last reported sale price of Sunbeam common stock on the last trading
day prior to the date of this document was $___ per share. When Credit Suisse
First Boston was engaged by Coleman, they were not asked to render an updated
opinion as of the date of this document and neither Sunbeam nor Coleman has
requested that they
10
<PAGE>
do so. Moreover, Credit Suisse First Boston has advised Sunbeam that its
opinion, although correct when given, should no longer be relied upon because of
subsequent developments affecting Sunbeam. See "RECENT DEVELOPMENTS AFFECTING
SUNBEAM" beginning on page __.
For its services to Coleman, Credit Suisse First Boston has received fees
of about $4 million. See "SPECIAL FACTORS - Financial Advisors' Opinions"
beginning on page ___.
Sunbeam's Financial Advisor. Morgan Stanley & Co., Incorporated acted as
Sunbeam's financial advisor in connection with its acquisition of Coleman. On
February 27, 1998, when the merger agreement was approved by Sunbeam's board of
directors, Morgan Stanley rendered to Sunbeam's board of directors an oral
opinion, which was subsequently confirmed in writing, to the effect that, as of
that date and based upon and subject to certain matters described in the
opinion, the cash and stock consideration payable in the Coleman acquisition was
fair to Sunbeam from a financial point of view. Because Sunbeam did not plan to
issue the warrants at the time the merger agreement was signed, Morgan Stanley
did not take the warrants into account when evaluating the fairness to Sunbeam
of the merger consideration.
For its services to Sunbeam in connection with the Coleman acquisition,
Morgan Stanley has received fees from Sunbeam totaling about $9.6 million.
Morgan Stanley may be entitled to receive additional fees from Sunbeam when the
merger is completed up to a maximum total fee of $____________. The remainder of
Morgan Stanley's fee is payable, if at all, only if the merger is completed. See
"SPECIAL FACTORS - Financial Advisors' Opinions" beginning on page ___.
Interests of Certain Persons in the Merger. You should be aware that a
number of persons, including some of the former directors and executive officers
of Coleman, have interests in the merger that are different from or in addition
to yours. See "THE MERGER Interests of Certain Persons in the Merger" beginning
on page ___. These interests include:
o the accelerated vesting of options to purchase Coleman common stock as
a result of the M&F Transaction,
o the right under the merger agreement to have each option to purchase
shares of Coleman common stock cashed out in the merger at a price
equal to $27.50 per share minus the per share exercise price of the
option,
o rights to continued indemnification,
11
<PAGE>
o severance arrangements, and
o rights to require the registration under the federal and state
securities laws of the shares of Sunbeam common stock held by these
persons.
Governmental and Regulatory Approvals. Under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, Sunbeam and Coleman were
required to make filings with the Federal Trade Commission and the Antitrust
Division of the Department of Justice about the merger and observe a waiting
period before completing the merger. These filings were made and the waiting
period was terminated in March 1998.
United States Federal Income Tax Considerations
Your receipt of cash, Sunbeam common stock and warrants to purchase Sunbeam
common stock in exchange for the shares of Coleman common stock you own when the
merger is completed is expected to be a taxable transaction for United States
Federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign and other tax laws. In general, for United
States Federal income tax purposes, you will recognize gain or loss equal to the
difference between:
o the sum of the cash received in the merger, the fair market value of
the Sunbeam common stock you receive in the merger and the fair market
value of the warrants to purchase additional shares of Sunbeam common
stock you receive, and
o your adjusted tax basis in the shares of Coleman common stock you
exchange in the merger.
This gain or loss will be capital gain or loss if you hold the shares of Coleman
common stock as a capital asset and will be long-term capital gain or loss if
you have held the shares for more than twelve months.
However, the tax consequences of the merger are subject to a number of
qualifications, discussed below under the caption "UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS" beginning on page ___.
The tax consequences to you of the merger will depend on your own
situation. You should consult your own tax advisor for a full understanding of
all of these tax consequences.
12
<PAGE>
Litigation Settlement and Warrants
On October 21, 1998, Sunbeam announced that it had entered into a
memorandum of understanding to settle class action and derivative lawsuits
brought by stockholders of Coleman challenging the merger. Under the terms of
the [court-approved] settlement, you will receive from Sunbeam when the merger
is completed warrants to purchase shares of Sunbeam common stock unless you have
demanded and perfected your Delaware law appraisal rights. Each warrant will
entitle you to purchase one share of Sunbeam common stock at a cash price of $7
per share. The number of warrants you receive will be based on the number of
shares of Coleman common stock you own at the time of the merger and will be
equal to the product of (A) 4.979,663 less the number of warrants to be awarded
by the court to the plaintiffs' counsel for the Coleman public stockholders in
the litigation as their fee and (B) a fraction, the numerator of which is equal
to the number of shares of Coleman common stock you hold when the merger is
completed (other than any shares with respect to which Delaware law appraisal
rights have been exercised) and the denominator of which is equal to the total
number of shares of Coleman common stock outstanding and owned by Coleman public
stockholders at the time of the merger (approximately 11,759,970 shares assuming
no further exercises of Coleman options). The warrants will be subject to
anti-dilution adjustments. For a description of the warrants, see "LITIGATION
SETTLEMENT AND WARRANTS" beginning on page ___.
Material Contacts Between Coleman and Sunbeam and Its Affiliates
Financial Transactions Between Coleman and Sunbeam. In connection with the
M&F Transaction, Coleman repaid substantially all of its outstanding
indebtedness with the proceeds of borrowings from Sunbeam. Since then, Coleman
has borrowed and repaid additional funds from Sunbeam. During 1998 and through
April 15, 1999, Coleman's obligations to Sunbeam were evidenced by an unsecured
subordinated demand note payable by Coleman to Sunbeam which had an unpaid
principal amount of $365.1 million on December 31, 1998. This note was pledged
by Sunbeam to its lenders as security for Sunbeam's obligations under its bank
credit facility.
In connection with the April 15, 1999 amendment to Sunbeam's bank credit
facility, the Coleman note was revised to, among other things:
o lower the interest rate,
o make the note payable on April 15, 2000 rather than on demand,
13
<PAGE>
o add customary representations, warranties, covenants and events of
default, and
o provide that an event of default under Sunbeam's bank credit facility
would constitute an event of default under the Coleman note.
As security for the revised Coleman note, Coleman pledged:
o substantially all of its domestic assets, other than real property,
o 66% of its ownership interests in its direct foreign subsidiaries and
domestic holding companies for its foreign subsidiaries, and all of
its ownership interests in its other direct domestic subsidiaries (but
Coleman's subsidiaries have not pledged their assets or the stock of
their subsidiaries), and
o all of its ownership interests in its other direct domestic
subsidiaries (but not the assets of these subsidiaries).
Sunbeam pledged the revised Coleman note as security for Sunbeam's
obligations to its lending banks under its bank credit facility and assigned to
these lending banks the security pledged by Coleman for the revised Coleman
note. Coleman also agreed to give the lending banks a direct pledge of the
assets securing the revised Coleman note to secure the obligations under
Sunbeam's bank credit facility, subject to a cap equal to the balance due from
time to time on the revised Coleman note. The revision of the Coleman note and
the pledge of Coleman's assets were approved on behalf of Coleman by A. Whitman
Marchand, Coleman's only disinterested director, acting as a duly authorized
independent committee of the Coleman board of directors.
Under Sunbeam's bank credit facility, an event of default will occur if
this document is not declared effective by the SEC on or before October 30,
1999, if the merger is not completed within 25 business days after the
effectiveness of this registration statement or if Sunbeam has to pay more than
$87.5 million in cash (excluding expenses) to complete the merger (including any
amounts paid with respect to appraisal rights). An event of default of this kind
would also constitute an event of default under the Coleman note, and Sunbeam's
lenders would be entitled to foreclose on the Coleman note and the Coleman
assets pledged as security for the Coleman note. See "SOURCE AND AMOUNT OF FUNDS
AND OTHER CONSIDERATION" beginning on page ___, and "MATERIAL CONTACTS BETWEEN
COLEMAN AND SUNBEAM AND ITS AFFILIATES - Financial Transactions Between Coleman
and Sunbeam" beginning on page ___.
14
<PAGE>
M&F Transaction. In the M&F Transaction, which was completed on March 30,
1998, Sunbeam acquired indirectly about 81% of the then outstanding Coleman
common stock (about 79% as a result of the exercise of Coleman stock options
immediately following the M&F Transaction).
In the M&F Transaction, an affiliate of MacAndrews & Forbes received
14,099,749 shares of Sunbeam common stock, which represent about 14% of the
currently outstanding Sunbeam common stock, and about $160 million in cash. In
addition, in connection with the M&F Transaction, Sunbeam assumed about $1,016
million in debt of Coleman and its parent corporations.
Immediately following the M&F Transaction, all the directors of Coleman
resigned, the number of directors constituting the Coleman board of directors
was fixed at five, and five designees of Sunbeam were elected as directors of
Coleman. In addition, Sunbeam designees were appointed to senior management
positions at Coleman. Subsequently, as a result of changes in Sunbeam's
management and board of directors, Jerry W. Levin, a current executive officer
and director of Sunbeam and the Chief Executive Officer of Coleman, was
reelected to the Coleman board. In addition, Paul E. Shapiro, a current
executive officer of Sunbeam and the Executive Vice President and Chief
Administrative Officer of Coleman, was elected to the Coleman board of
directors. The other members of the Coleman board of directors resigned or were
removed by Sunbeam. In April 1999, the size of the Coleman board of directors
was set at three members and A. Whitman Marchand, who is not otherwise
affiliated with either Sunbeam or Coleman, was elected to the Coleman board of
directors. See "- Appointments of Coleman Executive Officers to Sunbeam's
Management and Board," "- Settlement of Claims Relating to the M&F Transaction"
and "- Services Provided by MacAndrews & Forbes" beginning on pages __, __ and
__, respectively.
Registration Rights Agreement. The shares of Sunbeam common stock issued to
an affiliate of MacAndrews & Forbes in the M&F Transaction were not registered
under the federal or state securities laws and Sunbeam entered into a
registration rights agreement with the MacAndrews & Forbes affiliate. Under the
registration rights agreement, the MacAndrews & Forbes affiliate can require
Sunbeam to register under the federal and applicable state securities laws the
shares of Sunbeam common stock it received in the M&F Transaction. The
registration rights agreement was amended in August 1998 to provide that the
MacAndrews & Forbes affiliate can also require Sunbeam to register under the
federal and applicable state securities laws the warrant, and the shares of
Sunbeam common stock issuable upon exercise of the warrant, issued to the
MacAndrews & Forbes affiliate in settlement of legal claims related to the M&F
Transaction.
15
<PAGE>
Directors, officers and other affiliates of Coleman who receive shares of
Sunbeam common stock in the merger can also require Sunbeam to register those
shares under the federal and applicable state securities laws. To exercise this
right, however, these individuals must agree to be bound by the terms of the
registration rights agreement.
Appointments of Former Coleman and MacAndrews & Forbes Officers to
Sunbeam's Management and Board. In June 1998, following the termination of
Sunbeam's former Chief Executive Officer and Chief Financial Officer, Sunbeam
announced that Jerry W. Levin of MacAndrews & Forbes had been elected as
Sunbeam's Chief Executive Officer. Mr. Levin and other Sunbeam executives that
were affiliated with MacAndrews & Forbes later signed three-year employment
agreements with Sunbeam. The other executives include Paul E. Shapiro, Executive
Vice President and Chief Administrative Officer of Sunbeam, and Bobby G.
Jenkins, Executive Vice President and Chief Financial Officer of Sunbeam. Mr.
Levin and Howard Gittis of MacAndrews & Forbes also were elected to the Sunbeam
board. For a description of the terms of the employment agreements entered into
by Messrs. Levin, Shapiro and Jenkins, see "MANAGEMENT - Executive Compensation"
beginning on page ___. For a further discussion of the events leading up to the
appointment of Mr. Levin as Sunbeam's Chief Executive Officer and the
appointment of Messrs. Levin and Gittis to the Sunbeam board, see "RECENT
DEVELOPMENTS AFFECTING SUNBEAM - Changes in Sunbeam's Management and Board"
beginning on page ___.
Settlement of Claims Relating to the M&F Transaction. On August 12, 1998,
Sunbeam announced that, following investigation and negotiation by a Special
Committee of the Sunbeam board consisting of four directors not affiliated with
MacAndrews & Forbes, Sunbeam had entered into a settlement agreement with a
MacAndrews & Forbes affiliate. The settlement:
o released Sunbeam from threatened claims of MacAndrews & Forbes and its
affiliates arising from the M&F Transaction,
o enabled Sunbeam to retain the services of executive personnel
affiliated with MacAndrews & Forbes who had been managing Sunbeam
since mid-June of 1998, including Jerry W. Levin, Sunbeam's Chief
Executive Officer, Paul E. Shapiro, Sunbeam's Chief Administrative
Officer, and Bobby Jenkins, Sunbeam's Chief Financial Officer, and
o provided for the continuing management assistance and other support by
MacAndrews & Forbes and its affiliates to Sunbeam described in
"MATERIAL CONTACTS BETWEEN COLEMAN AND SUNBEAM AND ITS
16
<PAGE>
AFFILIATES - Services Provided by MacAndrews & Forbes" beginning
on page __.
As part of the settlement, the MacAndrews & Forbes affiliate received from
Sunbeam a five-year warrant to purchase 23 million shares of Sunbeam common
stock at a cash exercise price of $7 per share, subject to anti-dilution
adjustments. For a description of the settlement agreement and the terms of the
warrant issued to the MacAndrews & Forbes affiliate, see "RECENT DEVELOPMENTS
AFFECTING SUNBEAM - Settlement of Claims Relating to the M&F Transaction"
beginning on page ___.
Services Provided by MacAndrews & Forbes. Under Sunbeam's August 1998
settlement agreement with a MacAndrews & Forbes affiliate, in addition to the
services of MacAndrews & Forbes former executive personnel who have been
managing Sunbeam since mid-June 1998, MacAndrews & Forbes agreed to provide
management assistance and other support to Sunbeam in specified areas. Sunbeam
does not pay MacAndrews & Forbes and its affiliates for these services, but does
reimburse them for out-of-pocket expenses.
Summary Historical and Pro Forma Financial Information
The following summary historical financial information is derived from
Sunbeam's audited consolidated financial statements. The following summary pro
forma financial information is derived from Sunbeam's unaudited pro forma
condensed consolidated financial statements beginning on page [__]. The summary
unaudited pro forma financial information gives effect to the following "Pro
Forma Transactions":
o the corporate acquisitions Sunbeam made in 1998, excluding the
acquisition of First Alert, Inc., the effect of which is not
significant;
o the original borrowing of approximately $1,325 million (the "Bank
Financing") under Sunbeam's bank credit facility;
o the original offering of the debentures (the "Original Offering");
o the use of a portion of the net proceeds of the Bank Financing and
the Original Offering to acquire Coleman and Signature Brands; and
o Sunbeam's planned acquisition of the remaining Coleman shares
outstanding.
17
<PAGE>
The summary unaudited pro forma financial information is not necessarily
indicative of what Sunbeam's results for 1998 would have been if the Pro Forma
Transactions actually had occurred on December 29, 1997 or of what our future
operating results will be.
This summary financial information should be read in conjunction with
Sunbeam's audited consolidated financial statements beginning on page F-1, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section beginning on page [__] and the "Unaudited Pro Forma
Condensed Consolidated Financial Statements" section beginning on page [__].
While reviewing the historical and pro forma financial information, please
note the following:
o Sunbeam accounted for the March 30, 1998 acquisition of a controlling
interest in Coleman and the April 6, 1998 acquisitions of First Alert
and Signature Brands under the purchase method of accounting.
Accordingly, Sunbeam's consolidated financial statements include the
financial position and results of operations of each of the acquired
companies from the respective dates of acquisition.
o For the fiscal year ended December 31, 1998, Sunbeam took an
extraordinary charge of $122.4 million related to the early
extinguishments of debt and took other charges of:
o $70.0 million related to the issuance of warrants to a
MacAndrews & Forbes affiliate;
o $62.5 million related to the write-off of goodwill;
o $39.4 million related to fixed asset impairments;
o $31.2 million related to compensation expense for employment
agreements with Sunbeam's former Chairman and Chief Executive
Officer and two other former senior officers; and
o $95.8 million related to write-downs of inventory.
See Notes 2, 3 and 11 to Sunbeam's consolidated financial
statements.
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<PAGE>
o For the fiscal year ended December 28, 1997, Sunbeam reversed $28.0
million of pre-tax liabilities no longer required and $13.3 million of
tax liabilities no longer required.
o For the fiscal year ended December 29, 1996, Sunbeam took
restructuring, asset impairment and other charges of $239.2 million
before taxes. See Note 12 to Sunbeam's consolidated financial
statements.
o The pro forma condensed consolidated balance sheet data as of December
31, 1998 gives effect to Sunbeam's acquisition in the merger of the
shares of Coleman common stock held by the Coleman public stockholders
as if it had occurred on December 31, 1998. The pro forma condensed
consolidated statement of operations data for the fiscal year ended
December 31, 1998 gives pro forma effect to the Pro Forma
Transactions, as if they had occurred on December 29, 1997. Also, pro
forma net losses are from continuing operations and do not include
extraordinary items.
o In computing the ratio of earnings to fixed charges: (a) earnings
represent income (loss) from continuing operations before income taxes
and fixed charges (exclusive of interest capitalized); and (b) fixed
charges consist of interest expense, capitalized interest and the
estimated interest portion of rental expense. For the fiscal year
ended December 29, 1996 and the fiscal year ended December 31, 1998,
historical earnings were insufficient to cover fixed charges by $262.2
million and $797.1 million, respectively. For the fiscal year ended
December 31, 1998, on a pro forma basis, earnings were insufficient to
cover fixed charges by $839.6 million.
o At December 31, 1998, Sunbeam had goodwill and other intangible assets
of $1,859.4 million.
19
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------------
January December December December December December 31,
1, 1995 31, 1995 29, 1996 28, 1997 31, 1998 1998
------- -------- -------- -------- -------- Pro Forma
---------
(in millions, except percentage, ratio and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales........................ $1,044.3 $1,016.9 $ 984.2 $1,073.1 $1,836.9 $2,098.7
Operating earnings (loss)........ 151.0 70.3 (244.5) 104.1 (670.0) (702.7)
Net earnings (loss).............. 107.0 50.5 (208.5) 38.3 (897.9) (810.5)
Diluted earnings (loss) per
share........................ 1.30 0.61 (2.51) 0.44 (9.25) (7.55)
Weighted average shares
outstanding ................. 82.6 82.8 82.9 87.5 97.1 107.3
Other Data:
Ratio of earnings to fixed
charges ..................... 14.4x 4.7x -- 7.2x -- --
Balance Sheet Data (at period end):
Working capital.................. $ 294.8 $ 411.7 $ 359.9 $ 369.1 $ 488.5 $ 492.8
Total assets..................... 1,008.9 1,158.7 1,059.4 1,058.9 3,405.5 3,538.2
Long-term debt................... 124.0 161.6 201.1 194.6 2,142.4 2,229.4
Shareholders' equity............. 454.7 601.0 415.0 472.1 260.4 320.8
</TABLE>
Comparative Per Share Data
The table below shows comparative per share data for Sunbeam (on a
historical and consolidated pro forma basis) and for Coleman (on a historical
and pro forma equivalent basis). Historical information for Sunbeam and Coleman
has been derived from the respective selected financial data for the two
companies which can be found elsewhere in this document. Pro forma information
for Sunbeam was derived from the Unaudited Pro Forma Condensed Financial
Statements of Sunbeam as of and for the year ended December 31, 1998 which are
included in "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS"
beginning on page __. Pro forma equivalent information for Coleman was
calculated by multiplying the pro forma per share amounts for Sunbeam by 0.5677,
the exchange ratio of Coleman common stock for Sunbeam common stock.
20
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
-----------------------------------------------------------------------
Coleman
Sunbeam Coleman Pro Forma Pro Forma
Historical Historical Consolidated Equivalent
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Cash dividends per share $ 0.01 $ 0.00 $ 0.01 $ 0.01
Loss per share from continuing
operations before extraordinary charge (7.99) (0.73) (7.55) (4.29)
Book value per share 2.59 4.27 2.99 1.70
</TABLE>
Market Prices and Dividends
Market Prices. Sunbeam common stock is traded on the NYSE under the
symbol "SOC." Coleman common stock is traded on the NYSE, the Pacific Stock
Exchange and the Chicago Stock Exchange under the symbol "CLN." The table
below shows:
o the closing sale prices of Sunbeam common stock and Coleman common
stock, as reported on the NYSE Composite Transactions Tape, on
February 27, 1998, the last trading day prior to the signing of the
merger agreement,
o the closing sale prices of Sunbeam common stock and Coleman common
stock, as reported on the NYSE Composite Transactions Tape, on
_________, 1999, the last trading day prior to the date of this
document, and
o the equivalent pro forma prices of Coleman common stock on those
dates, as determined by multiplying the last reported sale prices of
Sunbeam common stock by 0.5677 and adding $6.44.
The table below does not reflect any value attributable to the warrants to be
issued to Coleman public stockholders in settlement of the litigation relating
to the merger.
<TABLE>
<CAPTION>
Sunbeam Coleman
Common Common Coleman
Stock Stock Equivalent
----- ----- ----------
<S> <C> <C> <C>
February 27, 1998................................. $41.750 $20.875 $30.14
_________, 1999..................................
------- ------- ------
</TABLE>
21
<PAGE>
The number of shares of Sunbeam common stock to be received by Coleman
stockholders in the merger is fixed at 0.5677 of a share of Sunbeam common
stock for each share of Coleman common stock. This number will not be adjusted
in the event of any increase or decrease in the price of either Sunbeam common
stock or Coleman common stock between February 27, 1998 and the day on which the
merger is completed. Since February 27, 1998, the market price of Sunbeam common
stock reached a high of $53 on March 4, 1998 and a low of $4.625 on October 15,
1998. It was $___ on _______, 1999, the last trading day prior to the date of
this document, and may increase or decrease between the date of this document
and the date on which the merger is completed. Stockholders of Coleman are urged
to obtain current market quotations for Sunbeam common stock and Coleman common
stock. See "RISK FACTORS - Stock Price Decline" beginning on page ___.
The following table shows, for the periods indicated, the range of the
high and low sale prices of Coleman common stock and Sunbeam common stock,
respectively, as reported on the NYSE Composite Transactions Tape.
<TABLE>
<CAPTION>
Coleman Sunbeam
------- -------
Common Stock Common Stock
------------ ------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
First Quarter................. $ 16.125 $ 11.500 $ 34.500 $ 24.625
Second Quarter................ 19.125 12.875 40.750 30.000
Third Quarter................. 18.000 15.188 45.750 35.375
Fourth Quarter................ 16.813 12.375 50.438 37.000
1998
First Quarter................. $ 35.563 $ 12.063 $ 53.000 $ 35.438
Second Quarter................ 31.750 10.812 45.563 8.188
Third Quarter ................ 12.000 8.938 10.375 5.125
Fourth Quarter................ 10.188 7.438 7.313 4.625
1999
First Quarter................. $ 10.625 $ 8.188 $ 7.500 $ 5.500
Second Quarter................ 9.563 6.625 9.125 5.375
(through May 13, 1999)
</TABLE>
As of _______, 1999, the last trading day prior to the date of this
document, there were _________ shares of Coleman common stock outstanding, which
were held of record by _____ holders, and _________ shares of Sunbeam common
stock outstanding, which were held of record by _____ holders.
22
<PAGE>
The shares of Sunbeam common stock to be issued in the merger have been
listed for trading on the NYSE. Sunbeam intends to file an application with the
NYSE to list the shares of Sunbeam common stock issuable upon exercise of the
warrants. For a discussion of matters relating to Sunbeam's continued listing on
the NYSE, see "RECENT DEVELOPMENTS AFFECTING SUNBEAM - New York Stock Exchange
Listing" beginning on page ___.
For a discussion of matters relating to Coleman's continued listing on the
NYSE, see "RECENT DEVELOPMENTS AFFECTING COLEMAN" beginning on page ___.
Following the completion of the merger, the Coleman common stock will be
delisted from all of the stock exchanges on which it is listed and deregistered
under the Exchange Act.
Sunbeam Dividend Policy. Through the first quarter of 1998, Sunbeam's
recent practice had been to pay a dividend at a quarterly rate of $.01 per
share. Sunbeam discontinued paying dividends after the first quarter of 1998 and
has no present intention to pay any dividends for the foreseeable future.
Moreover, Sunbeam's bank credit facility, as amended on April 15, 1999,
prohibits Sunbeam from paying cash dividends.
Coleman Dividend Policy. Coleman has not declared a cash dividend on its
common stock since its initial public offering in February 1992. Under the
merger agreement, Coleman is prohibited from paying any cash dividends prior to
the completion of the merger.
RISK FACTORS
In reviewing the information contained in this document and in deciding
whether to accept the merger consideration payable to you in the merger in
exchange for your shares of Coleman common stock or to dissent from the merger
and have the fair value of your shares appraised by a court and paid to you in
cash, you should consider the following:
o The exchange ratio of Sunbeam common stock for Coleman common stock is
fixed and will not be adjusted.
In the merger, you will receive $6.44 in cash and 0.5677 of a share of
Sunbeam common stock for each share of Coleman common stock you own when the
merger is completed. The number of shares of Sunbeam common stock you will
receive in the merger is fixed and will not be adjusted in the event of any
increase or decrease in the market price of either Sunbeam common stock or
Coleman common stock between February 27, 1998 and the completion of the merger.
Since February 27, 1998, the market price of Sunbeam common stock reached a high
of
23
<PAGE>
$53 on March 4, 1998 and a low of $4.625 on October 15, 1998. It was $___ on
_______, 1999, the last trading day prior to the date of this document, and may
increase or decrease between the date of this document and the date on which the
merger is completed. Variations in the price of Sunbeam common stock may be the
result of changes in the business, operations or prospects of Sunbeam or
Coleman, general market and economic conditions and other factors. See "- Stock
Price Decline." Stockholders of Coleman are urged to obtain current market
quotations for Sunbeam common stock and Coleman common stock. See "SUMMARY -
Market Prices and Dividends."
o Sunbeam is highly leveraged, which negatively affects its operations
and finances in many ways
Sunbeam is highly leveraged, with indebtedness that is very large when
compared to its stockholders' equity. Much of its indebtedness was incurred to
finance three corporate acquisitions in 1998. At December 31, 1998, Sunbeam's
consolidated indebtedness was approximately $2,261.5 million and its
stockholders' equity was approximately $260.4 million, including approximately
$1,859.4 million of goodwill and other intangible assets. If required, Sunbeam
may incur additional indebtedness under the bank credit facility or, subject to
restrictions in the bank credit facility, through other borrowings.
Sunbeam's high leverage has important consequences. For example:
o Sunbeam's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes is
and may continue to be impaired,
o all or a substantial portion of Sunbeam's cash flow from operations
must be dedicated to the payment of principal and interest on
Sunbeam's indebtedness; therefore cash available for its operations
and other purposes will be limited,
o Sunbeam may be substantially more leveraged than some of its
competitors, which may place it at a competitive disadvantage,
o Sunbeam may be less able to adjust rapidly to changing market
conditions, and
o Sunbeam's high leverage could adversely affect its results of
operations, particularly in the event of a downturn in general
economic conditions or Sunbeam's business.
24
<PAGE>
o The bank credit facility contains covenants which Sunbeam may not be
able to satisfy and default provisions it may not be able to avoid,
and if Sunbeam cannot, the banks could demand immediate payment of the
bank debt
As of December 31, 1998, Sunbeam had incurred about $1,360 million in
borrowings and had availability to borrow an additional $260 million under the
bank credit facility. The bank credit facility contains covenants which require
Sunbeam to meet financial tests and ratios relating to Sunbeam's future
performance which it may not be able to satisfy. If Sunbeam cannot satisfy these
tests and ratios it would be in default. The bank credit facility also provides
that the occurrence of any of the following events, which Sunbeam may not be
able to avoid, would be an event of default:
o if Sunbeam fails to have the SEC declare this document effective by
October 30, 1999,
o if Sunbeam fails to complete the merger within 25 business days after
this document is declared effective by the SEC, or
o if Sunbeam has to pay more than $87.5 million in cash to complete the
merger, including any payments on account of the exercise of any
appraisal rights, but excluding related legal, accounting and other
customary fees and expenses.
An event of default would give the banks the right to demand immediate
payment - a demand Sunbeam might not be able to meet.
o Sunbeam's bank debt could become due on April 10, 2000 if Sunbeam does
not get another waiver from the banks or refinance the bank debt by
then
In 1998, Sunbeam was in violation of some of the covenants of the bank
credit facility, but the banks waived these violations first until December 31,
1998, then until April 10, 1999 and now until April 10, 2000. However, if
Sunbeam does not get another waiver or refinance the bank debt by April 10,
2000, the banks would have the right to demand immediate payment - a demand
Sunbeam might not be able to meet.
o Sunbeam may not be able to service its large debt burden
25
<PAGE>
To meet its debt service requirements, Sunbeam must be able to successfully
implement its business strategy and integrate into its operations the three
companies Sunbeam acquired in 1998. In addition, Sunbeam's future financial and
operating performance will affect its ability to repay or to refinance its
indebtedness. Sunbeam's future financial and operating performance is subject to
prevailing economic and competitive conditions and to financial, business and
other factors which may be beyond Sunbeam's control.
Sunbeam cannot assure you that its operating cash flow and capital
resources will be sufficient to meet its debt service requirements. For the year
ended December 31, 1998 Sunbeam's earnings were insufficient to cover its fixed
charges by approximately $797.1 million. If Sunbeam does not have enough cash
flow and capital resources to meet its debt service obligations, Sunbeam may be
forced to reduce or delay capital expenditures, sell assets, or seek to obtain
additional equity capital. Sunbeam also might be forced to refinance or
restructure its debt, including the debentures. Although Sunbeam does not have
any firm plans or arrangements to restructure its debt, a restructuring, if
Sunbeam decided to pursue one, could involve one or more exchange offers, tender
offers or consent solicitations involving the debentures.
o Sunbeam's outside auditors determined that its 1997 internal
accounting controls were inadequate
In October 1998, Sunbeam's auditors at the time, Arthur Andersen LLP, told
Sunbeam that the design and effectiveness of its internal accounting controls
were inadequate to detect material misstatements in the preparation of Sunbeam's
1997 annual and quarterly financial statements. As described further in the
"CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE" section beginning on page __, Sunbeam has restated its financial
results for a six-quarter period from the fourth quarter of 1996 through the
first quarter of 1998. While Sunbeam believes it has taken steps to avoid the
need for any further restatements, Sunbeam cannot assure you that any interim or
final corrective measures Sunbeam has adopted or will adopt to address the
inadequacies in its internal accounting controls will be effective.
o Sunbeam had significant losses and its operations consumed significant
amounts of cash in 1998
For the year ended December 31, 1998, Sunbeam had a consolidated net loss
of approximately $897.9 million and net cash used in operations of $190.4
million. Sunbeam cannot assure you that it will be able to generate profits or
positive cash flow from operations in the future. See
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the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" section beginning on page __ for a further discussion.
o Major lawsuits have been brought against Sunbeam, including lawsuits
under federal and state securities laws, and the SEC is conducting a
formal investigation of Sunbeam
Litigation. Beginning in April 1998 many lawsuits alleging claims arising
under Delaware law, Texas law and federal and state securities laws have been
filed against Sunbeam and some of its former directors and officers, some of its
current directors and its former auditor in various federal and state courts.
Many of these lawsuits relate to Sunbeam's financial performance from the second
quarter of 1997 through the second quarter of 1998. Many plaintiffs are claiming
that Sunbeam's prior management misrepresented and omitted material information
in its public filings and in their statements concerning its historical and
expected future results of operations for the purpose of artificially inflating
the market price of Sunbeam common stock. Currently Sunbeam cannot predict the
outcome of these lawsuits, evaluate the likelihood of Sunbeam's success in any
particular case, or evaluate the range of potential loss. If Sunbeam were to
lose these lawsuits, judgments would likely have a material adverse effect on
Sunbeam's financial position, results of operations and cash flow.
Sunbeam's insurers are attempting to have the directors' and officers'
liability policies it has with them voided or canceled or have advised Sunbeam
that they do not intend to provide coverage with respect to these lawsuits.
Failure by Sunbeam to obtain insurance recoveries from its liability insurers
following an adverse judgment against Sunbeam or any persons it is obligated to
indemnify in any of the lawsuits discussed above could have a material adverse
effect on Sunbeam's financial position, results of operations and cash flow.
SEC Investigation. In July 1998 the SEC commenced a formal investigation of
Sunbeam after informing Sunbeam in the previous month of an informal
investigation. Although Sunbeam believes that it has cooperated fully with the
SEC and furnished the SEC with documents they requested, it cannot predict how
long this investigation will last or its outcome. In addition, Sunbeam cannot at
this time determine what actions, if any, the SEC might take against it or what
effect any action might have on Sunbeam.
Product-Related Liabilities. As a consumer goods manufacturer and
distributor, Sunbeam faces the constant risks of product liability and related
lawsuits involving claims for substantial money damages, product recall actions
and higher than anticipated rates of warranty returns or other returns of goods.
These claims could result in liabilities that could have a material adverse
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effect on Sunbeam's financial position and results of operations. Some of the
product lines Sunbeam acquired in the 1998 acquisitions may increase its
potential exposure to litigation.
See "BUSINESS - Litigation and Other Contingent Liabilities" beginning on
page __ for more information about lawsuits Sunbeam is involved in, the SEC
investigation and other contingent liabilities.
o Unless Sunbeam's financial results improve, Sunbeam common stock could
lose its New York Stock Exchange listing
In May 1998 the New York Stock Exchange advised Sunbeam that it did not
meet the NYSE's continuing listing standards. Following discussions and a
meeting with NYSE officials, the NYSE informed Sunbeam that Sunbeam common stock
will not be delisted at this time. The NYSE will, however, continue to
carefully monitor Sunbeam's compliance with its listing standards.
Sunbeam cannot assure you that the NYSE will continue to list Sunbeam
common stock. A delisting of Sunbeam common stock from the NYSE could have a
material adverse impact on the market value of Sunbeam common stock. A delisting
could also have a material adverse impact on Sunbeam's ability to raise
additional funds in the securities markets, to complete the merger and to
restructure its debt if necessary.
o Sunbeam's 1998 acquisitions have increased the size of the operations
Sunbeam has to manage
The 1998 acquisitions of Coleman, First Alert, and Signature Brands have
resulted in a substantial increase in the size of Sunbeam's operations. As a
result, Sunbeam must effectively use its employees and management, operational,
and financial resources to manage its expanded operations. A failure on
Sunbeam's part to successfully integrate and effectively manage its expanded
operations would likely cause Sunbeam to have poor operating results.
o Sunbeam's international operations expose it to uncertainties and
risks from abroad
Sunbeam currently has sales in countries where economic growth has slowed,
primarily Japan and Korea; or where economies have been unstable or
hyperinflationary in recent years, primarily Mexico and Venezuela. The economies
of other foreign countries important to
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Sunbeam's operations, including other countries in Latin America and Asia, could
also suffer instability in the future.
The following are among the factors that could negatively affect Sunbeam's
operations in foreign markets:
o access to markets,
o currency devaluation,
o new tariffs,
o changes in monetary policies,
o inflation, and
o governmental instability.
o The nature of Sunbeam's businesses requires it to successfully develop
new and innovative products on a consistent basis
Sunbeam must develop new and innovative products to regain profitability
and increase revenues. In the past Sunbeam has experienced difficulties in
developing and introducing quality new products on a timely basis. Sunbeam may
not be able to meet its schedules for future product development. Failure to
develop and manufacture successful new products could have a material adverse
effect on Sunbeam's future financial performance.
o Sunbeam's businesses are very sensitive to the strength of the U.S.
retail market
The strength of the retail economy in the United States has a significant
impact on Sunbeam's performance. Weakness in consumer confidence and poor
financial performance by retail outlets, including the financial weakness or
bankruptcy of retail outlets, especially mass merchants, may adversely impact
Sunbeam's future financial results.
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o Sunbeam operates in a highly competitive market
Sunbeam operates in a highly competitive environment. Sunbeam has numerous
domestic and foreign competitors, and many of them are financially strong and
capable of competing effectively with Sunbeam. Such competitors may take actions
to match Sunbeam's new product introductions and other initiatives. Some
competitors may be willing to accept lower profit margins and reduce prices to
compete with Sunbeam. As a result of this competition, Sunbeam could lose market
share and sales and suffer losses, which could have a material adverse effect on
Sunbeam's future financial performance.
Sunbeam's future success will significantly depend upon its ability to
remain competitive in the areas of price, quality, marketing, product
development, manufacturing, distribution, order processing and customer service.
Sunbeam cannot assure you that it will be able to compete effectively in all
these areas in the future.
o Sunbeam's sales are highly dependent on purchases from several large
customers
Due to the consolidation of the U.S. retail industry, Sunbeam's customer
base has become relatively concentrated. Wal-Mart Stores, Inc., Sunbeam's
largest single customer, accounted for 18% of Sunbeam's net sales in 1998, and
its five largest customers combined accounted for 40% of its 1998 net sales.
Sunbeam has no long-term supply contracts with any of its customers. As a
result, Sunbeam must receive a continuous flow of new orders from its large,
high-volume retailing customers. Sunbeam has responded to the challenges of its
markets by pursuing strategic relationships with large, high-volume
merchandisers. However, Sunbeam cannot assure you that it can continue to
successfully meet the needs of Sunbeam's customers. In addition, delays or
cancellations of orders from key customers could have a material adverse effect
on Sunbeam's future financial performance.
o Raw materials and components are critical inputs for Sunbeam's
products and price hikes or problems with their supply could adversely
affect Sunbeam
Raw materials and components constitute a significant portion of the cost
of Sunbeam's goods. Factors which are largely beyond Sunbeam's control, such as
movements in commodity prices for the specific materials Sunbeam requires, may
affect the future cost of such raw
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materials and components. In addition, any unanticipated change in suppliers
could be disruptive and costly to Sunbeam.
A significant failure by Sunbeam to contain raw material or component costs
could have a material adverse effect on its future financial performance. In
addition, delays or cancellations by suppliers could adversely affect results.
o Sunbeam's operations are dependent upon third party suppliers and
service providers
Sunbeam currently manufactures many of its products, but it sources many of
its parts and products from third parties. Sunbeam's ability to select reliable
vendors who provide timely deliveries of quality parts and products will impact
its success in meeting customer demand for timely delivery of quality products.
Any unanticipated change in suppliers or pricing of products could be
disruptive and costly to Sunbeam.
Sunbeam has entered into various arrangements with third parties for the
provision of back-office administrative services that it used to perform
internally. Sunbeam now outsources some necessary computer systems servicing,
among other things. If any of these third-party service providers failed to
perform adequately, Sunbeam's normal business operations could be disrupted.
Among other things, this could hurt Sunbeam's sales, collections, customer
service, cash flow and profitability.
o Sunbeam is subject to several production-related risks
To realize sales and operating profits at anticipated levels, Sunbeam must
manufacture, source and deliver in a timely manner products of high quality.
Among others, the following factors can have a negative effect on Sunbeam's
ability to do these things:
o labor difficulties,
o scheduling and transportation difficulties,
o management dislocation,
o substandard product quality, which can result in higher warranty
costs, product liability and costs related to product recalls,
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o delays in development of quality new products,
o changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws and occupational health and
safety laws, and
o changes in the availability and relative costs of labor.
o The effects of Sunbeam's prior management's outsourcing of critical
operating tasks and sales policies may continue to cause Sunbeam
substantial difficulty
Sunbeam's prior management substantially reduced the number of its
employees and hired third parties to perform many of its critical operating
tasks, including handling of accounts payable, computer support, customer
service and collection of accounts receivable. Sunbeam is currently evaluating
the effectiveness of outsourcing these activities and are hiring personnel to
perform some of these tasks in-house once again. Sunbeam may experience
disruption in critical services and other difficulties while it implements
necessary staff increases and changes in prior management's outsourcing policy.
Sunbeam's prior management increased sales of products in some prior
periods by providing retailers with substantial price discounts or attractive
payment terms to induce them to purchase more products than they needed at the
time. Sunbeam believes this caused many of its customers to build up inventory
in its products and hence reduced Sunbeam's sales and profitability in later
periods. Although Sunbeam believes that the excess inventory maintained by
retailers has been eliminated, Sunbeam may not have correctly evaluated the
amount of or the impact of such inventory practices, which may continue to
negatively impact its sales and profitability.
o Weather conditions can hurt sales of some of Sunbeam's products
Weather conditions may negatively impact sales of some of Sunbeam's
products. For instance, Sunbeam may not sell as many portable generators as
anticipated if there are fewer natural disasters such as hurricanes and ice
storms; mild winter weather may negatively impact sales of electric blankets,
some health products and smoke detectors; and the late arrival of summer weather
may negatively impact sales of outdoor camping equipment and grills.
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o Sunbeam remains vulnerable to Year 2000 compliance problems in its
systems and those of its suppliers and customers
Sunbeam is preparing for the impact of the Year 2000 on its operations.
Year 2000 issues could include potential problems in Sunbeam's information
technology and other systems that it use in its operations. Year 2000 system
failures could affect routine but critical operations such as:
o forecasting,
o purchasing,
o production,
o order processing,
o inventory control,
o shipping, and
o billing and collections.
In addition, system failures could affect security, payroll operations and
employee safety. Third parties who fail to adequately address their own Year
2000 issues could also expose Sunbeam to potential risks.
Systems and applications that Sunbeam has identified to date as not
currently Year 2000 ready and which are critical to its operations include:
o financial software systems, which process:
o order entry,
o purchasing,
o production management,
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o general ledger,
o accounts receivable, and
o accounts payable functions,
o payroll applications, and
o critical applications in Sunbeam's manufacturing and distribution
facilities, such as warehouse management applications.
Sunbeam's failure to timely complete its Year 2000 compliance work could
have a material adverse impact on Sunbeam. In addition, the failure of its third
party suppliers and customers to become Year 2000 compliant could have a
material adverse impact on Sunbeam.
At this time, Sunbeam believes that the most likely "worst-case" scenario
relating to Year 2000 involves potential disruptions in areas in which its
operations must rely on third parties, such as suppliers, whose systems may not
work properly after January 1, 2000. While these system failures could
significantly affect some of Sunbeam's important operations, currently it cannot
estimate either the likelihood or the potential cost of such failures. If
Sunbeam does not develop appropriate contingency plans before January 1, 2000,
the impact on its operations could be material.
Sunbeam currently estimates that the total cost of addressing and remedying
Year 2000 issues and enhancing its operating systems is about $60 million.
Through December 31, 1998, Sunbeam spent about $19 million to address Year 2000
issues. As Sunbeam completes its assessment of the Year 2000 issues, it may
determine that the actual expenditures it must incur may be materially higher
than its current estimates. The bank credit facility does not permit Sunbeam to
spend more than $50 million on Year 2000 testing and remediation during 1999.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Year 2000 Readiness Disclosure" beginning on page __ for
more details of its Year 2000 assessment and compliance efforts.
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o Sunbeam's debt covenants currently do not allow it to pay cash
dividends on Sunbeam common stock
The bank credit facility prohibits Sunbeam from paying cash dividends on
Sunbeam common stock. Accordingly, Sunbeam cannot assure you that Sunbeam will
be able to pay dividends on Sunbeam common stock. In any event, Sunbeam
currently does not intend to pay dividends on Sunbeam common stock. Sunbeam
discontinued paying dividends beginning in the second quarter of 1998. See the
"SUMMARY - Comparative Per Share Data" section beginning on page __ for
information concerning the history of Sunbeam's dividend payments.
o Negative developments since March 1998 have caused Sunbeam common
stock price to drop significantly
The price of Sunbeam common stock has dropped significantly since March
1998. Sunbeam believes this was the result of many of the negative developments
described in the "RECENT DEVELOPMENTS AFFECTING SUNBEAM" section beginning on
page __. On March 18, 1998, the last trading day prior to former management's
announcement of lower than expected net sales for the first quarter of 1998, the
last reported sale price of Sunbeam common stock was $50.625 per share. On
_________ __, 1999, the last reported sale price of Sunbeam common stock was
$_____ per share. Sunbeam cannot assure you that the market price of Sunbeam
common stock will not experience further declines. See the "SUMMARY -
Comparative Per Share Data" section beginning on page __ for details of Sunbeam
common stock's recent trading prices.
RECENT DEVELOPMENTS AFFECTING SUNBEAM
The 1998 Acquisitions
On March 2, 1998, in addition to announcing its agreement to acquire
Coleman, Sunbeam announced that it had entered into separate agreements to
acquire Signature Brands and First Alert, companies not affiliated with Coleman
or MacAndrews & Forbes.
In the M&F Transaction, which was completed on March 30, 1998, Sunbeam
acquired about 81% of the then outstanding shares of Coleman common stock from
an affiliate of MacAndrews & Forbes. In exchange, the MacAndrews & Forbes
affiliate received about 14% of the currently outstanding shares of Sunbeam
common stock and about $160 million in cash. Sunbeam also assumed about $1,016
million in debt. Immediately after the M&F Transaction, as
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a result of the exercise of employee stock options, Sunbeam's ownership of
Coleman decreased to about 79% of the outstanding shares of Coleman common
stock.
At the same time Sunbeam agreed to acquire the Coleman shares from the
MacAndrews & Forbes affiliate, Sunbeam also agreed to acquire the remaining
shares of Coleman common stock in the merger and the MacAndrews & Forbes
affiliate voted its shares to approve the merger. In the merger, you will
receive $6.44 in cash and 0.5677 of a share of Sunbeam common stock for each
share of Coleman common stock you own when the merger is completed. In addition,
you will receive warrants to purchase shares of Sunbeam common stock at a cash
price of $7 per share under a [court-approved] settlement of litigation relating
to the merger. The number of warrants you receive will be based on the number of
shares of Coleman common stock you own at the time of the merger. In the
aggregate, the Coleman public stockholders will receive about 6.7 million
shares of Sunbeam common stock, about $87 million in cash (including cash outs
of Coleman options) and warrants to purchase about 4.98 million shares of
Sunbeam common stock (less the warrants to be awarded by the court to
plaintiffs' counsel as their fee), assuming no Coleman stockholders exercise
their Delaware law appraisal rights. See "- Settlement of Claims Relating to the
M&F Transaction" for information regarding the settlement of legal claims of an
affiliate of MacAndrews & Forbes relating to the M&F Transaction. See
"LITIGATION SETTLEMENT AND WARRANTS" for information regarding the settlement of
legal claims of Coleman stockholders relating to the merger.
On April 3, 1998, Sunbeam acquired more than 90% of the stock of each of
Signature Brands and First Alert in cash tender offers. On April 6, 1998,
Sunbeam acquired the remaining shares of each of Signature Brands and First
Alert in merger transactions. Signature Brands is a leading manufacturer of a
comprehensive line of consumer and professional products, including coffee
makers marketed under the Mr. Coffee(Registered) brand name and consumer health
products marketed under the Health o Meter(Registered), Counselor(Registered)
and Borg(Registered) brand names. Signature Brands had revenues of about $279
million in 1997. First Alert is the worldwide leader in residential fire safety
equipment, including smoke and carbon monoxide detectors marketed under the
First Alert(Registered) brand name. First Alert had revenues of about $187
million in 1997. Sunbeam paid about $255 million in cash, including the paying
down of debt, to acquire Signature Brands. Sunbeam paid about $133 million in
cash and assumed about $49 million in debt - a total consideration of about $182
million - to acquire First Alert.
Issuance of Debentures and Bank Credit Facility
In order to finance the 1998 acquisitions and to refinance substantially
all of the indebtedness of Sunbeam, Coleman, First Alert and Signature Brands,
Sunbeam completed an offering of an aggregate principal amount of $2,014 million
of its Zero Coupon Convertible Senior
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Subordinated Debentures on March 25, 1998, for net proceeds of about $730
million, and borrowed about $1,325 million under a new bank credit facility.
The debentures are due March 25, 2018, are subject to earlier repurchase at
the option of the holders on specified dates beginning in 2003 and are
convertible into up to 13,242,050 shares of Sunbeam common stock, subject to
adjustment in certain events.
The bank credit facility, as amended, allows Sunbeam to borrow up to $1,700
million under:
o a $400 million revolving credit facility maturing on March 30, 2005,
of which $52.5 million may only be used to complete the merger if the
merger does not occur prior to August 31, 1999,
o up to $800 million in term loans maturing on March 30, 2005, of which
$35 million may only be used to complete the merger, and
o a $500 million term loan maturing on September 30, 2006.
Unless Sunbeam further amends its bank credit facility or refinances its bank
debt by April 10, 2000, Sunbeam's lenders will be able to accelerate the
maturities listed above at any time after April 10, 2000.
Until March 31, 2000, Sunbeam has agreed to limit the total amount of
revolving loans at the end of each month as provided in the bank credit
facility. Borrowings under the bank credit facility are secured by, among other
things, substantially all of Sunbeam's assets, including a pledge of Sunbeam's
stock in Coleman, First Alert, Signature Brands and its other material
subsidiaries. See "SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION Security
and Guarantees."
This credit facility accrues interest, at Sunbeam's option:
o at LIBOR, or
o at the base rate of the administrative agent which is generally the
higher of the prime commercial lending rate of the administrative
agent or the Federal Funds Rate plus 0.50%,
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in each case, plus an interest rate margin which varies depending on the
occurrence of specified events. The interest rate margin is currently 3.75% for
LIBOR loans and 2.50% for base rate loans, but can increase or decrease in the
future. See "- Covenants Under Bank Credit Facility."
Under an April 15, 1999 amendment to the bank credit facility, Sunbeam
agreed to pay the bank lenders a fee which varies from 0.25% to 1.00% of the
commitments under the bank credit facility. The percentage used to calculate
the fee will be determined by reference to the bank lenders' aggregate
commitments and loan exposure under the bank credit facility on September 30,
2000. The fee is payable on the earlier of September 30, 2000 and the date the
commitments are terminated and the loans and other amounts payable under the
bank credit facility are repaid.
At December 31, 1998, Sunbeam owed about $1,360 million under the bank
credit facility and had about $260 million available for borrowing. See "SOURCE
AND AMOUNT OF FUNDS AND OTHER CONSIDERATION."
Covenants Under Bank Credit Facility
Sunbeam's bank credit facility contains a number of covenants, including
covenants requiring Sunbeam to meet various financial tests and ratios. As a
result of Sunbeam's operating losses in 1998, Sunbeam was not in compliance with
some of the covenants of the bank credit facility. Effective June 30, 1998,
Sunbeam entered into an agreement with its bank lenders which waived Sunbeam's
compliance through December 31, 1998. On October 19, 1998, Sunbeam's bank
lenders agreed to extend this waiver through April 10, 1999. In April 1999, the
waiver was extended to April 10, 2000, and the bank credit facility was amended
to, among other things:
o require Sunbeam to meet new financial tests and ratios,
o decrease the interest rates to the levels described under the
heading "- Issuance of Debentures and Bank Credit Facility"
above,
o reduce the interest margin by 0.50% and postpone until April 10,
2000 principal payments of $69.25 million otherwise due September
30, 1999 and principal payments of $69.25 million otherwise due
March 31, 2000, as soon as Coleman and its domestic subsidiaries
execute and deliver to Sunbeam's lending banks guarantees and
security documents which will become effective upon the
completion of the merger, so long as these documents are
executed and delivered by May 25, 1999,
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o provide that the following events relating to the merger will be
events of default under the bank credit facility:
o if Sunbeam fails to have the SEC declare this document effective
by October 30, 1999,
o if Sunbeam fails to complete the merger within 25 business days
after this document is declared effective by the SEC, or
o if Sunbeam has to pay more than $87.5 million (excluding
expenses) in cash to complete the merger (including any amounts
paid with respect to appraisal rights),
o require Sunbeam and Coleman to amend Coleman's note payable to Sunbeam
and to have Coleman secure the note, which is pledged by Sunbeam to
secure the obligations under the bank credit facility, with
substantially all of Coleman's domestic assets other than real
property,
o impose restrictions on the total amount of revolving loans permitted
to be out standing at the end of each month under the bank credit
facility,
o require Sunbeam to maintain a concentration cash management system and
to repay to the banks (subject to reborrowing) revolving loans to the
extent that cash on hand in Sunbeam's concentration account on any
business day exceeds $15 million,
o require Sunbeam to prepay term loans under the bank credit facility on
each of September 30, 1999 and December 31, 1999 to the extent that
cash on hand in Sunbeam's concentration account plus the total amount
of unused revolving loan commitments on these dates exceeds $115
million and $125 million, respectively, but Sunbeam is not required to
prepay more than $69.25 million in total as a result of this
provision,
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o require Sunbeam to reserve $52.5 million of availability under the
revolving credit facility, if the merger does not occur on or before
August 31, 1999, for use solely to pay the required cash portion of
the merger consideration,
o limit the amount that Sunbeam may spend on Year 2000 testing and
remediation to $50 million in total during the fiscal year ending
December 31, 1999,
o require Sunbeam to obtain the bank lenders' consent to any litigation
settlement concerning the restatement of Sunbeam's 1996 and 1997
fiscal year and first quarter 1998 financial statements if such
settlements require the payment of money, not paid by insurance
carriers or other third parties, of more than $1 million in total,
o impose new informational reporting requirements, and
o provide Sunbeam with a $40 million foreign currency revolving loan
subfacility.
See "SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION."
Delayed Filing of Registration Statement
On March 25, 1998, Sunbeam entered into a registration rights agreement
with Morgan Stanley relating to the original issuance of the debentures. The
registration rights agreement required Sunbeam to file a registration statement
with the SEC by June 23, 1998 to register the debentures and the shares of
Sunbeam common stock issuable upon conversion of the debentures. However,
Sunbeam did not file that registration statement until February 4, 1999 and the
SEC did not declare the registration statement effective until __________, 1999.
The delay resulted from Sunbeam's need to review and restate its historical
financial statements following the refusal of its former independent auditors,
Arthur Andersen, to consent to the inclusion in that registration statement of
their opinion on Sunbeam's 1997 financial statements.
Sunbeam's failure to file that registration statement by June 23, 1998 did
not constitute a default under the debentures. However, from June 23, 1998 until
the day on which that registration statement was declared effective, cash
liquidated damages payable to the holders of the debentures accrued:
o on a daily basis at a rate per annum equal to 0.25% during the first
90 days, and
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o on a daily basis at a rate per annum equal to 0.50% thereafter,
multiplied, in each case, by the sum of the issue price of the debentures plus
the accrued original issue discount on the debentures on each day for which
damages are calculated. Sunbeam paid liquidated damages of about $500,000 on
September 25, 1998 and about $2 million on March 25, 1999.
Press Releases Relating to Sunbeam's First Quarter 1998 Results
On March 19, 1998, Sunbeam's prior management issued a press release
stating that Sunbeam's net sales for the first quarter of 1998 might be lower
than the range of Wall Street analysts' estimates of $285 million to $295
million, but that net sales for the quarter were expected to exceed 1997 first
quarter net sales of $253.4 million. On April 3, 1998, Sunbeam's prior
management issued a press release announcing that net sales for the first
quarter of 1998 were expected to be about 5% lower than those achieved in the
first quarter of 1997 and, due to the lower sales and significant one-time
charges, a loss was expected for the quarter.
On May 11, 1998, Sunbeam's prior management announced 1998 first quarter
results and made forecasts for the remainder of 1998 and beyond. They reported
net sales of $244.3 million for the quarter, as compared to $253.4 million in
the first quarter of 1997. Before one-time charges of $36.8 million for early
retirement of debt and compensation expense relating to new employment
agreements with three former Sunbeam executives, they reported a net loss from
continuing operations of $7.8 million in the first quarter of 1998 versus net
income from continuing operations of $20.6 million in the first quarter of 1997.
After one-time charges of $0.43 per share, Sunbeam lost $0.52 per share in the
1998 quarter, compared with earnings per share of $0.08 in the comparable 1997
period. Sunbeam's prior management also stated that it expected earnings per
share in the range of $1.00 for 1998 and $2.00 for 1999. On June 15, 1998,
Sunbeam's new management announced that these previously announced forecasts
should not be relied upon.
Following each of these press releases, the market price of Sunbeam common
stock fell substantially. On October 20, 1998, Sunbeam issued a press release
restating operating results for fiscal years 1996 and 1997, as well as the first
quarter of fiscal 1998. See "- Restatement of Financial Results," "- Changes in
Sunbeam's Management and Board" and "RISK FACTORS Stock Price Decline."
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Changes in Sunbeam's Management and Board
On June 15, 1998, Sunbeam's board of directors terminated Albert J. Dunlap
as Sunbeam's Chairman and Chief Executive Officer. Three days later, Sunbeam's
board of directors terminated Russell A. Kersh as Sunbeam's Vice Chairman and
Chief Financial Officer. On June 15, 1998, the Sunbeam board elected Peter A.
Langerman as non-executive Chairman of the board and Jerry W. Levin as Sunbeam's
new Chief Executive Officer. Mr. Langerman, an outside director of Sunbeam
since 1990, is President and Chief Executive Officer of Franklin Mutual
Advisers, Inc., the investment adviser to Franklin Mutual Series Fund, which
owns about 16% of Sunbeam's common stock. Mr. Levin is an Executive Vice
President of MacAndrews & Forbes, an affiliate which owns about 14% of Sunbeam's
common stock and a warrant which, if exercised in full would increase its
ownership to about 29% of Sunbeam's outstanding common stock. Mr. Levin was
Chairman and Chief Executive Officer of Coleman at the time of the M&F
Transaction and previously was the Chairman and Chief Executive Officer of
Revlon, Inc., an affiliate of MacAndrews & Forbes.
In June 1998, Mr. Levin, Howard Gittis of MacAndrews & Forbes, and Lawrence
Sondike of Franklin Mutual Advisers, Inc. were elected to the Sunbeam board.
William T. Rutter resigned from the Sunbeam board effective July 8, 1998, and
Faith Whittlesey was elected to fill the vacancy on the Sunbeam board of
directors' audit committee resulting from Mr. Rutter's resignation. Messrs.
Dunlap and Kersh resigned from the Sunbeam board of directors effective August
5, 1998. In January 1999, Mr. Sondike resigned from the Sunbeam board of
directors. In February 1999, John H. Klein was elected to the Sunbeam board of
directors.
In March 1999, Mr. Levin became Chairman of the Sunbeam board of directors,
succeeding Mr. Langerman, who remains a director of Sunbeam.
Philip E. Beekman, President of Owl Hollow Enterprises, Inc., has been
nominated for election to Sunbeam's board at Sunbeam's annual stockholders'
meeting scheduled for June 29, 1999.
Restatement of Financial Results; Change of Auditors
On June 25, 1998, Sunbeam announced that its former independent auditors,
Arthur Andersen, would not consent to the inclusion of their opinion on
Sunbeam's 1997 financial statements in a registration statement Sunbeam was then
planning to file with the SEC. On June 30, 1998, Sunbeam announced that the
audit committee of its board of directors would review the accuracy of Sunbeam's
prior financial statements and, therefore, those financial statements
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should not be relied upon. Sunbeam also announced that Deloitte & Touche LLP had
been retained to assist the audit committee and Arthur Andersen in this review.
On August 6, 1998, Sunbeam announced that the audit committee had determined
that Sunbeam would be required to restate its financial statements for 1997, the
first quarter of 1998, and possibly 1996, and that the adjustments, while not
then quantified, would be material.
On October 20, 1998, Sunbeam announced the restatement of its financial
results for a six-quarter period from the fourth quarter of 1996 through the
first quarter of 1998. Sunbeam had to restate these financial results because
its previously issued financial statements generally overstated losses for 1996,
overstated profits for 1997 and understated losses for the first quarter of
1998. The audit committee concluded that Sunbeam had incorrectly recognized
revenue during these periods from "bill and hold" and guaranteed sales
transactions. The audit committee also concluded that some costs and allowances
for sales returns, co-op advertising, customer deductions and reserves for
product liability and warranty expense were not accrued or were incorrectly
recorded. Finally, the audit committee concluded that various costs were
incorrectly included in and charged to restructuring, asset impairment and other
costs.
On November 20, 1998, Sunbeam announced that its audit committee had
recommended, and its board of directors had approved, the appointment of
Deloitte & Touche to replace Arthur Andersen as Sunbeam's independent auditors
for fiscal year 1998. Arthur Andersen will continue to provide Sunbeam with
limited professional services. For further information regarding Sunbeam's
independent auditors, see "CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE."
Reporting of 1998 Results
On April 21, 1999, Sunbeam reported that, for the full year 1998, Sunbeam
had net sales of $1,800 million and a net loss of $898 million, or a loss of
$9.25 per diluted share. Excluding sales of Coleman, First Alert and Signature
Brands, comparable sales declined 23% to $828 million in 1998 from about $1,100
million in 1997. Sunbeam also announced net cash provided by operations of about
$30 million for the fourth quarter of 1998, compared with net cash used in
operations of about $220 million during the first three quarters of 1998.
Litigation Involving Sunbeam
Since prior management's issuance of the April 3, 1998 press release
concerning Sunbeam's 1998 first quarter results, many lawsuits alleging legal
claims arising under federal and state securities and other laws have been filed
against Sunbeam, some of Sunbeam's former
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directors and officers, some of Sunbeam's current directors and Arthur Andersen.
Sunbeam is currently defending these lawsuits in a number of courts. Many of
these suits relate to Sunbeam's financial performance from the second quarter of
1997 through the second quarter of 1998. Many plaintiffs are claiming that
Sunbeam's prior management misrepresented and omitted material information in
its public filings and in their statements concerning Sunbeam's historical and
expected future results of operations. The plaintiffs claim that the alleged
actions were intended to artificially inflate the market price of Sunbeam's
common stock. Sunbeam's insurers have also attempted to have Sunbeam's
directors' and officers' liability policies voided or canceled or have advised
Sunbeam that they do not intend to provide coverage with respect to these
lawsuits. Sunbeam is unable to predict the outcome of these lawsuits or its
potential exposure to damages. However, if Sunbeam were to lose these lawsuits,
the judgments would likely have a material adverse effect on Sunbeam's financial
condition, results of operations and cash flow. For a more detailed description
of the various lawsuits, see "BUSINESS OF SUNBEAM - Litigation and Other
Contingent Liabilities."
SEC Investigation
The staff of the Division of Enforcement of the SEC advised Sunbeam in a
letter dated June 17, 1998 that it was conducting an informal inquiry into
Sunbeam's accounting policies and procedures. On July 2, 1998, the SEC informed
Sunbeam that they were initiating a formal investigation of Sunbeam. At that
time, the SEC also subpoenaed various documents from Sunbeam. On November 4,
1998, Sunbeam received another SEC subpoena requiring the production of
additional documents. Sunbeam has cooperated fully with the SEC and has
furnished the SEC with documents they requested. Sunbeam cannot predict how long
the SEC investigation will continue or its outcome.
Settlement of Claims Relating to the M&F Transaction
On August 12, 1998, Sunbeam announced that it had entered into an agreement
to settle threatened claims of the MacAndrews & Forbes affiliate that sold
Sunbeam a controlling interest in Coleman in the M&F Transaction in March 1998,
in exchange for consideration which included about 14 million shares of Sunbeam
common stock. These shares had a market value of about $580 million when the
MacAndrews & Forbes affiliate agreed to the M&F Transaction, but their market
value was less than $100 million at the time of the settlement.
The settlement:
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o released Sunbeam from threatened claims arising out of Sunbeam's
acquisition of the MacAndrews & Forbes affiliate's controlling
interest in Coleman,
o enabled Sunbeam to retain the services of executive personnel
affiliated with MacAndrews & Forbes who had been managing Sunbeam
since mid-June of 1998, including Jerry W. Levin, Sunbeam's Chairman
and Chief Executive Officer, Paul E. Shapiro, Sunbeam's Chief
Administrative Officer, and Bobby G. Jenkins, Sunbeam's Chief
Financial Officer, and
o provided for continuing management assistance and other support by
MacAndrews & Forbes to Sunbeam.
In exchange, Sunbeam issued to the MacAndrews & Forbes affiliate a five-year
warrant to purchase 23 million shares of Sunbeam common stock at a cash
exercise price of $7 per share, subject to anti-dilution adjustments. Sunbeam
has agreed that the MacAndrews & Forbes affiliate can require Sunbeam to
register under the federal and applicable state securities laws the warrant
and the shares of Sunbeam common stock issuable upon exercise of the warrant.
The terms of the settlement and warrant were negotiated and approved on
Sunbeam's behalf by a special committee of four of Sunbeam's outside directors,
none of whom has any affiliation with MacAndrews & Forbes. The members of the
special committee were Howard Kristol (Chairman), Charles Elson, Peter Langerman
and Faith Whittlesey. They were assisted by independent financial advisors and
legal counsel.
For their services rendered as members of the special committee in
connection with the settlement, Mr. Kristol received additional compensation of
$50,000 and Messrs. Elson and Langerman and Mrs. Whittlesey each received
additional compensation of $35,000. Sunbeam also agreed to indemnify each of the
members of the special committee to the fullest extent allowed by applicable law
and Sunbeam's certificate of incorporation and by-laws.
The settlement normally would have required approval by Sunbeam's
stockholders under the rules of the NYSE because of the issuance of the warrant
as part of the settlement. However, Sunbeam's audit committee determined that
the delay that would be necessary to secure stockholder approval prior to
issuing the warrant would:
o be lengthy due to the SEC's ongoing investigation of Sunbeam's
accounting practices and policies and the need to complete the
restatement of Sunbeam's historical financial statements,
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o inhibit Sunbeam's ability to reach a settlement with the MacAndrews &
Forbes affiliate and to retain and hire essential senior management
personnel, and
o seriously jeopardize Sunbeam's financial viability.
Based on these determinations, Sunbeam's audit committee, relying on an
exception provided in the NYSE stockholder approval policy, expressly approved
Sunbeam's omission to seek stockholder approval. The NYSE accepted Sunbeam's
application of the exception.
In connection with the settlement agreement, Messrs. Levin, Shapiro and
Jenkins each signed three-year employment agreements with Sunbeam. See
"MANAGEMENT."
Options Repricing
In August 1998, Sunbeam approved a plan to reprice outstanding options held
by its employees to purchase shares of Sunbeam common stock. The repricing
program, which has been completed, provided for the outstanding options with
exercise prices in excess of $10.00 per share to be valued by reference to the
generally accepted Black-Scholes option pricing model, and permitted Sunbeam
employees to exchange old options for new options with an exercise price of
$7.00 per share having a value equivalent to the value of the old options. See
Note 9 to Sunbeam's Consolidated Financial Statements.
New York Stock Exchange Listing
On May 22, 1998, the NYSE advised Sunbeam that it did not meet their
continuing listing standards because Sunbeam did not have tangible net assets of
at least $12 million at December 31, 1997 and average annual net income of at
least $600,000 for 1995, 1996 and 1997. Sunbeam has met with NYSE officials, and
on March 23, 1999, the NYSE informed Sunbeam that Sunbeam common stock will not
be delisted at this time. The NYSE will, however, continue to carefully monitor
Sunbeam's compliance with its listing standards.
Matters Involving Former Management
In early August 1998, Sunbeam entered into a six-month agreement with
Messrs. Dunlap and Kersh in which the parties agreed not to assert claims
against each other and to exchange information relating to the pending
stockholder lawsuits. Sunbeam also agreed to pay a portion of the accrued
vacation and employment benefits of Messrs. Dunlap and Kersh.
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After the agreement expired, by letters dated February 9, 1999, Messrs.
Dunlap and Kersh submitted demands for arbitration to the American Arbitration
Association alleging that Sunbeam terminated their employment without cause.
Messrs. Dunlap and Kersh are seeking lump sum payments of about $5,250,000 and
$2,296,875, respectively. Messrs. Dunlap and Kersh also are seeking:
o amounts for accrued but unused vacation,
o amounts in respect of certain benefit plans,
o confirmation that their options to acquire shares of Sunbeam common
stock are fully vested and that they will receive the economic
equivalent of their participation in Sunbeam's program for repricing
of options,
o indemnification and expense reimbursement in connection with the
stockholder litigation and the SEC investigation referred to above,
and
o in the case of Mr. Kersh, more than $3 million, including tax
gross-ups, with respect to his restricted stock.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in Delaware
state court seeking an order directing Sunbeam to advance attorneys' fees and
other expenses incurred in connection with the defense of the stockholder
lawsuits and the SEC investigation. The complaint filed by Messrs. Dunlap and
Kersh alleges that these advancements are required by Sunbeam's by-laws and the
agreements Sunbeam entered into with them in August 1998. A trial of this
summary proceeding is scheduled for June 15, 1999. Messrs. Dunlap and Kersh have
agreed to repay to Sunbeam all amounts advanced if it is determined that they
did not meet the applicable standard of conduct for indemnification under
Delaware law.
Sunbeam is vigorously contesting the claims of Messrs. Dunlap and Kersh. As
a result of a motion for preliminary injunction filed by Sunbeam in an action
pending in state court in Florida, the arbitrations were suspended until May 10,
1999. To date, Sunbeam has not made any severance payments to either of Messrs.
Dunlap or Kersh.
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RECENT DEVELOPMENTS AFFECTING COLEMAN
On April 6, 1999, the NYSE advised Coleman that it did not meet their
continuing listing standards because Coleman did not have tangible net assets of
at least $12 million at September 30, 1998 and average annual net income of at
least $600,000 for fiscal years 1997, 1996 and 1995. Coleman has requested that
the NYSE continue to list the Coleman common stock until completion of the
merger. It is possible, however, that the Coleman common stock will be delisted
by the NYSE prior to completion of the merger.
Following the M&F Transaction, Sunbeam caused Coleman to repay
substantially all of its outstanding indebtedness (which had been assumed by
Sunbeam in the M&F Transaction) with the proceeds of borrowings from Sunbeam.
Since the completion of the M&F Transaction, Coleman has borrowed additional
funds from Sunbeam. During 1998 and through April 15, 1999, these borrowings
were evidenced by an unsecured subordinated demand note payable by Coleman to
Sunbeam which had an unpaid principal amount of $365.1 million on December 31,
1998. This note was pledged by Sunbeam to its lenders as security for Sunbeam's
obligations under its bank credit facility. In April 1999, Coleman's note
payable to Sunbeam was revised and secured by a pledge of Coleman assets in
favor of Sunbeam's lending banks. See "MATERIAL CONTACTS BETWEEN COLEMAN AND
SUNBEAM AND ITS AFFILIATES - Financial Transactions Between Coleman and
Sunbeam."
SPECIAL FACTORS
Background of the Merger
In the spring of 1997, as part of a long-term strategic planning process,
Sunbeam's prior management began exploring a possible sale of Sunbeam or the
making of one or more major acquisitions. On April 22, 1997, representatives of
Morgan Stanley & Co., Incorporated, Sunbeam's financial advisor, met with Albert
J. Dunlap, Sunbeam's then Chairman and Chief Executive Officer, and Russell A.
Kersh, Sunbeam's then Vice Chairman and Chief Financial Officer, to discuss,
among other things, the retention of Morgan Stanley as Sunbeam's financial
advisor in connection with a possible sale of Sunbeam or one or more major
acquisitions by Sunbeam.
On September 11, 1997, Morgan Stanley was formally retained by Sunbeam to
assist in connection with a possible sale of Sunbeam, one or more possible
acquisitions by Sunbeam and
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the consideration of other strategic alternatives. Thereafter, representatives
of Morgan Stanley contacted a number of companies in the branded consumer
products business to determine whether any of these companies would be
interested in exploring a possible acquisition of Sunbeam. One of the companies
contacted was MacAndrews & Forbes, which Morgan Stanley from time to time
advises on a variety of business and financial matters. None of the companies
contacted by Morgan Stanley expressed interest in acquiring Sunbeam at a price
which would have constituted a premium over the then current market price of the
Sunbeam common stock. Based on Morgan Stanley's initial contacts with potential
acquirors of Sunbeam, Sunbeam's then senior management concluded that it was
unlikely that any major consumer products company would be likely to pursue an
acquisition of Sunbeam at a price or on terms that would be acceptable to
Sunbeam. Morgan Stanley then explored the impact on Sunbeam of various other
strategic alternatives, including a sale of one or more of Sunbeam's businesses,
a spin-off of one or more of Sunbeam's subsidiaries or a recapitalization of
Sunbeam. These strategic alternatives were rejected by Sunbeam's former
management because of former management's stated belief that one or more
acquisitions by Sunbeam would have a more positive impact on stockholder value.
Former management then directed Morgan Stanley to shift its focus to one or more
possible major acquisitions.
On December 12, 1997, Mr. Kersh, David C. Fannin, Sunbeam's then Executive
Vice President, General Counsel and Secretary, and Peter A. Langerman, a
director of Sunbeam, met with Jerry W. Levin, then Chairman and Chief Executive
Officer of Coleman, Paul E. Shapiro, then Coleman's Executive Vice President and
General Counsel, and Joseph P. Page, then Executive Vice President and Chief
Financial Officer of Coleman, and discussed Coleman's businesses and the
potential cost savings, efficiencies and other benefits that could result from a
combination of Sunbeam and Coleman. The December 12 meeting was initiated by
Morgan Stanley on Sunbeam's behalf. Notwithstanding MacAndrews & Forbes'
previous rejection of Sunbeam's overtures regarding an acquisition of Sunbeam by
MacAndrews & Forbes, both Morgan Stanley and Sunbeam believed that the
complementary nature of the product offerings of Sunbeam and Coleman, the asset
base of Coleman, including its ownership of various brand names which enjoy
substantial consumer recognition, the potential revenue and operational benefits
associated with a Sunbeam/Coleman combination and the then current trading
prices of Coleman's common stock all favored an acquisition of Coleman by
Sunbeam.
At that time, MacAndrews & Forbes indirectly owned about 81% of the Coleman
common stock through the subsidiaries depicted in the chart below. Other
stockholders then owned about 19% of the outstanding Coleman common stock.
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----------------------------------
| Mafco Holdings Inc. |
----------------------------------
| 100%
|
----------------------------------
|Coleman (Parent) Holdings Inc. |
----------------------------------
| 100%
|
----------------------------------
| CLN Holdings Inc. |
----------------------------------
| 100%
|
---------------------------------- -------------------------------
| Coleman Worldwide Corporation | | Public Stockholders |
---------------------------------- -------------------------------
| about 81% | about 19%
| |
----------------------------------------------------------------------------
| The Coleman Company, Inc. |
----------------------------------------------------------------------------
On December 18, 1997, Mr. Dunlap and Michael Price, the then President and
Chief Executive Officer of Franklin Mutual Advisers, Inc., Sunbeam's largest
stockholder, met with Ronald O. Perelman, MacAndrews & Forbes' Chairman, Chief
Executive Officer and sole stockholder, and another senior executive of
MacAndrews & Forbes. Mr. Dunlap suggested a possible transaction in which
Sunbeam would acquire Coleman for consideration valued in the range of $18 to
$22 per share of Coleman common stock. Mr. Perelman advised Mr. Dunlap that the
price range was too low and indicated that he would not support a transaction in
that price range.
On or about January 22, 1998, in an effort to revive a possible
transaction, a representative of Morgan Stanley contacted a representative of
MacAndrews & Forbes and indicated that Sunbeam might consider a possible
transaction involving both cash and shares of Sunbeam common stock at a price
higher than the price range suggested by Mr. Dunlap at the December 18 meeting.
MacAndrews & Forbes' representative indicated his willingness to discuss a
possible transaction on those terms. On January 23, 1998, representatives of
Morgan Stanley met with representatives of MacAndrews & Forbes to begin
discussions regarding a possible transaction between Sunbeam and Coleman. On
January 29, 1998, representatives of Sunbeam and Morgan Stanley met with
representatives of Coleman and MacAndrews & Forbes, as well as representatives
of Credit Suisse First Boston Corporation, Coleman's financial advisor. During
the meeting, the parties discussed the potential cost savings, revenue and
operational efficiencies and other benefits that might be associated with a
business combination of Sunbeam and Coleman and a preliminary schedule for
mutual due diligence. During the week of February 2, 1998, Morgan Stanley
submitted to MacAndrews & Forbes an outline of a possible transaction structure
which focused on Sunbeam's acquisition of Coleman in a one-step merger of a
wholly owned Sunbeam subsidiary with and into Coleman in which all outstanding
shares of Coleman
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common stock, including the shares owned indirectly by MacAndrews & Forbes,
would be exchanged for consideration consisting solely of Sunbeam common stock.
The proposal was rejected because the consideration proposed was unacceptable to
MacAndrews & Forbes. This structure did not contemplate the assumption by
Sunbeam of the indebtedness of two subsidiaries of MacAndrews & Forbes through
which it held its interest in Coleman, Coleman Worldwide and CLN Holdings, or
the payment of any cash consideration. At that time, Coleman Worldwide and CLN
Holdings had aggregate outstanding indebtedness of about $518.7 million.
On February 6, 1998, representatives of Morgan Stanley met with
representatives of MacAndrews & Forbes and Credit Suisse First Boston to again
discuss a possible acquisition of Coleman by Sunbeam. At this meeting, the
possibility of Sunbeam's acquisition of MacAndrews & Forbes' interest in
Coleman, including Sunbeam's assumption of the indebtedness of Coleman
Worldwide and CLN Holdings, as the first step in an acquisition of Coleman was
discussed. Although the parties had not yet reached agreement on price or the
value of Coleman, the parties began to discuss this structure.
On February 13, 1998 and February 19, 1998, representatives of Sunbeam and
Morgan Stanley participated in conference calls with a representative of
MacAndrews & Forbes and discussed the terms of a possible transaction, including
structure and price. The parties tentatively agreed that the transaction would
be structured as a stock purchase in which Sunbeam would acquire all of the
outstanding capital stock of CLN Holdings from Coleman (Parent) Holdings, an
indirect subsidiary of MacAndrews & Forbes. Under this structure, Sunbeam in
effect would assume the indebtedness of CLN Holdings and its subsidiary, Coleman
Worldwide. The consideration payable by Sunbeam was not, however, agreed upon.
Due diligence meetings were held at various times on and after February 21, 1998
during which representatives of Sunbeam and Morgan Stanley, as well as Sunbeam's
accountants and consultants, met with representatives of Coleman, MacAndrews &
Forbes and Credit Suisse First Boston, as well as Coleman's accountants, to
discuss Coleman's financial results for fiscal year 1997, strategic plans and
financial projections for fiscal year 1998.
Due diligence meetings were also held on February 23 and 24, 1998 during
which representatives of Sunbeam met with representatives of Coleman, along with
representatives of MacAndrews & Forbes and Credit Suisse First Boston, to
discuss Sunbeam's long-term strategic plan and financial projections for fiscal
years 1998 through 2000.
On February 24, 1998, Messrs. Kersh and Fannin and representatives of
Morgan Stanley participated in conference calls with representatives of
MacAndrews & Forbes to finalize the transaction structure and negotiate the
remaining terms of the transaction. During these conference calls, the parties
reached agreement on the type of consideration payable by Sunbeam
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in the acquisition, although neither the amount of cash consideration nor the
precise exchange ratio of Sunbeam common stock for Coleman common stock was
agreed upon. On February 25 and 26, 1998, meetings and conference calls were
held between representatives of Sunbeam and its legal advisors, representatives
of Coleman and its legal advisors, and representatives of MacAndrews & Forbes
and its legal advisors. During the February 26, 1998 meetings and conference
calls, the parties agreed that the final transaction structure would consist of
a merger of CLN Holdings and a wholly owned Sunbeam subsidiary, followed by a
second-step merger of a wholly owned Sunbeam subsidiary with Coleman. At that
time, the parties also reached final agreement on the consideration payable by
Sunbeam in the acquisition, including the amount of cash consideration and the
precise exchange ratio of Sunbeam common stock for Coleman common stock. The
parties and their advisors then finalized definitive agreements reflecting the
agreed upon transaction structure and consideration.
On February 25, 1998, Coleman's then board of directors met and received
and considered the presentations of the management of Coleman, Credit Suisse
First Boston and Coleman's legal counsel regarding the transactions.
On Friday, February 27, 1998, meetings of the boards of directors of
Coleman and Sunbeam were held to consider and act upon the proposed
transactions. At the meeting of the Coleman board Credit Suisse First Boston
delivered its opinion to the Coleman board to the effect that, as of that date,
the consideration of 0.5677 of a share of Sunbeam common stock and $6.44 in
cash, without interest thereon, in exchange for each share of Coleman common
stock, was fair, from a financial point of view, to the stockholders of Coleman,
other than MacAndrews & Forbes and its subsidiaries. At the meeting of the
Sunbeam board, the directors of Sunbeam received and considered presentations of
Morgan Stanley regarding the transactions. In addition, at the February 27,
1998 Sunbeam board meeting, consistent with its prior presentation, Morgan
Stanley delivered its opinion to the Sunbeam board to the effect that, as of
that date, the consideration payable in the merger and the M&F Transaction was
fair, from a financial point of view, to Sunbeam. Following the receipt of the
respective fairness opinions, the boards of directors of Sunbeam and Coleman
each approved the merger and the M&F Transaction. Definitive agreements were
executed by the parties late that night and a press release announcing the
transactions was issued before the opening of trading on the NYSE on Monday,
March 2, 1998.
On February 27, 1998, Coleman Worldwide, as the owner of about 81% of the
then outstanding shares of Coleman common stock, executed a written consent and
voted its shares to approve the merger agreement and the merger. As a result, no
further action on your part, or on the part of any other stockholder of Coleman,
is required to complete the merger.
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Coleman's Reasons for the Merger and Approval of the Coleman Board
At its meetings on February 25 and 27, 1998, the then Coleman board
received and considered the presentations of Coleman management, Credit Suisse
First Boston and Coleman's legal counsel regarding the merger agreement and the
merger. At its February 27 meeting, the Coleman board unanimously approved and
adopted the merger and approved the merger agreement and the transactions
contemplated by the merger agreement. See "- Background of the Merger."
In reaching its determination to approve the merger, the Coleman board
considered a number of factors. Listed below are the material factors considered
by the Coleman board. In view of the number and variety of factors considered in
connection with its evaluation of the merger, the Coleman board did not consider
it practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Coleman board may have given different
weight to the different factors.
Coleman's Business, Condition and Prospects. The Coleman board reviewed
Coleman's business, its then current financial condition and results of
operations and its future prospects, including Coleman's ability to maintain its
position in the consumer products business at its present size, and the current
and anticipated developments in Coleman's business. The Coleman board received
and reviewed presentations from, and discussed the terms and conditions of the
merger agreement with, executive officers of Coleman and Coleman's financial and
legal advisors. The Coleman board considered the views of its management and
financial advisor regarding recent trends in the industry in which Coleman
operates, including recent acquisitions and business combinations. Based on its
familiarity with the business, current financial condition and results of
operations and future prospects of Coleman, and in light of the various
presentations it received, the Coleman board concluded that a business
combination of Coleman with Sunbeam would be in the best interests of Coleman
and its stockholders.
Terms and Structure of the Transaction. The Coleman board of directors
considered the fact that the merger agreement does not contain any provisions
that either limit the effect of changes in the market price of the Sunbeam
common stock prior to the completion of the merger on the value of the
consideration to be received by Coleman stockholders in the merger or permit
Coleman or Sunbeam to terminate the merger agreement based upon changes in stock
price and that, accordingly, the value of the consideration could change based
on the performance of the Sunbeam common stock between the execution of the
merger agreement and the completion of the merger. While recognizing that the
absence of these provisions exposed Coleman's stock-
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holders to market risk, the Coleman board considered this risk to be mitigated
to some extent by the trading history of Sunbeam common stock during the period
from January 1, 1997 through February 24, 1998 and the fact that the Sunbeam
common stock had outperformed both the Coleman common stock and the Standard and
Poor's 500 Stock Index during that period.
The Coleman board reviewed the economic terms of the transaction based upon
the closing prices of the Coleman common stock and the Sunbeam common stock on
February 24, 1998 and February 26, 1998, the days prior to each of the meetings
of the Coleman board. As reported on the NYSE Composite Transactions Tape, the
closing prices of Sunbeam common stock and Coleman common stock were $40.625 and
$20.688, respectively, on February 24, 1998, and $41.875 and $20.188,
respectively, on February 26, 1998. The Coleman board considered that, in each
case, the merger consideration implied a per share premium of about 44.2% when
the market value of the merger consideration was compared to the then market
price per share of Coleman common stock. The Coleman board also considered that
the merger consideration was higher than the value implied by the historical
stock market prices of the Coleman common stock and Sunbeam common stock.
The Coleman board also considered the fact that the transaction was
structured as a two-step acquisition which, among other things, would enable
Sunbeam to acquire control of Coleman as quickly as possible in order to reduce
disruption to Coleman's business.
Opinion of Credit Suisse First Boston. The Coleman board considered the
oral opinion delivered by Credit Suisse First Boston at the meeting of the
Coleman board on February 27, 1998, which was subsequently confirmed in writing,
to the effect that, as of that date and based upon and subject to the matters
described in the opinion, the cash and stock consideration payable in the merger
was fair from a financial point of view to Coleman's public stockholders. When
Credit Suisse First Boston was engaged by Coleman, they were not asked to render
an updated opinion as of the date of this document and neither Sunbeam nor
Coleman has requested that they do so. Moreover, Credit Suisse First Boston has
advised Sunbeam that its opinion, although correct when given, should no longer
be relied upon because of subsequent developments affecting Sunbeam.
Ability of Coleman's Stockholders to Obtain a Continuing Interest in
Sunbeam. The Coleman board considered that, under the terms of the merger
agreement, Coleman's stockholders will receive equity securities of Sunbeam,
thus enabling Coleman's stockholders to participate in increases in the value of
Sunbeam, including any value that may be generated through Sunbeam's acquisition
of Coleman's businesses. The Coleman board also noted that the price of the
Sunbeam common stock had more than doubled since the time Mr. Dunlap had become
Chief Executive Officer of Sunbeam.
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Ownership of Coleman Voting Stock. The Coleman board considered the fact
that, prior to the merger, the Coleman public stockholders were stockholders in
a company controlled by MacAndrews & Forbes, but that, following the merger,
they would be stockholders in a public company without any controlling
stockholder and therefore the Coleman public stockholders, as stockholders of
Sunbeam, may be able to obtain a control premium with respect to their Sunbeam
common stock in the future. The ability of Coleman's stockholders to receive
dividends or other distributions declared and paid by Coleman were not
considered material by the Coleman board because Coleman had not declared a
dividend since its initial public offering in February 1992 and at the time of
the approval of the merger, the then Coleman board had no plans to declare any
dividends.
Tax Treatment. The Coleman board considered the fact that the merger is
expected to be a taxable transaction for United States Federal income tax
purposes and may be taxable under state, local or foreign laws as well. For a
discussion of the tax consequences of the merger to Coleman public stockholders,
see "UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS."
Procedural Safeguards. The Coleman board received the opinion of Credit
Suisse First Boston to the effect that, as of the date of the opinion, the
merger consideration was fair to Coleman's public stockholders from a financial
point of view. Moreover, the terms of the merger were arrived at through
arm's-length negotiations between two unaffiliated parties, MacAndrews & Forbes
and Sunbeam. The Coleman board believed that the interests of MacAndrews &
Forbes, as the then indirect owner of about 81% of the outstanding Coleman
common stock, were substantially aligned with the interests of Coleman's public
stockholders. The merger agreement also contains provisions designed to protect
Coleman's public stockholders. For example, the merger agreement prevents
Sunbeam from altering the consideration payable to Coleman's public stockholders
in the merger or otherwise amending the merger agreement after completion of
the M&F Transaction. Furthermore, the merger would be subject to very few
conditions, consisting only of (1) this document had to be declared effective by
the SEC, (2) the Sunbeam common stock to be issued in the merger had to be
listed on the NYSE, (3) the M&F Transaction had to be completed and (4) there
could be no preliminary or permanent injunction preventing the merger. In
addition, the merger agreement was approved by a unanimous vote of the Coleman
board, including by those members of the Coleman board who were not employees or
affiliates of Coleman or MacAndrews & Forbes. In light of the foregoing, the
Coleman board did not deem it necessary to institute additional procedural
safeguards such as a requirement that the merger be approved by a majority of
Coleman's public stockholders or the formation of a special committee of
Coleman's outside directors to negotiate the terms of the merger.
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Financial Advisors' Opinions
Coleman's Financial Advisor. Credit Suisse First Boston acted as Coleman's
financial advisor in connection with the merger at the time the merger agreement
was signed. Credit Suisse First Boston was selected by Coleman based on Credit
Suisse First Boston's experience, expertise and familiarity with Coleman and its
business. Credit Suisse First Boston is an internationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
On February 27, 1998, Credit Suisse First Boston delivered to the Coleman
board an oral opinion, which was subsequently confirmed in writing, to the
effect that, as of that date and based upon and subject to the matters described
in the opinion, the cash and stock consideration payable in the merger was fair
from a financial point of view to Coleman's public stockholders. However, since
the date of Credit Suisse First Boston's opinion, numerous events have occurred
that significantly affected the price of Sunbeam common stock. When Credit
Suisse First Boston was engaged by Coleman, they were not asked to render an
updated opinion as of the date of this document and neither Sunbeam nor Coleman
has requested that they do so. Moreover, Credit Suisse First Boston has advised
Sunbeam that its opinion, although correct when given, should no longer be
relied upon because of subsequent developments affecting Sunbeam. Because
Sunbeam did not plan to issue the warrants at the time the merger agreement was
signed, Credit Suisse First Boston did not take the warrants into account when
evaluating the fairness of the merger consideration.
Terms of Credit Suisse First Boston's Engagement. Under the letter
agreement dated December 10, 1997 between Coleman and Credit Suisse First
Boston, Coleman agreed to pay Credit Suisse First Boston for services rendered
in connection with the merger a fee of about $4 million. Coleman also agreed to
reimburse Credit Suisse First Boston for all reasonable out-of-pocket expenses,
including the reasonable fees and expenses of its legal counsel and any other
advisor retained by Credit Suisse First Boston, resulting from or arising out of
the engagement. Coleman further agreed to indemnify Credit Suisse First Boston
and related persons and entities for losses, claims, damages or liabilities
(including related actions or proceedings) related to or arising out of, among
other things, its engagement as Coleman's financial advisor.
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In the past, Credit Suisse First Boston has performed investment banking
services for Coleman and MacAndrews & Forbes and their affiliates and has
received customary fees for these services. In the ordinary course of its
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of Coleman, MacAndrews & Forbes and its affiliates
and Sunbeam for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in those securities.
Sunbeam's Financial Advisor. Morgan Stanley was retained by Sunbeam to
assist in connection with a possible sale of Sunbeam, one or more possible
acquisitions by Sunbeam and/or other strategic alternatives. As part of that
engagement, Morgan Stanley acted as Sunbeam's financial advisor in connection
with its acquisition of Coleman. Sunbeam retained Morgan Stanley based on its
qualifications, expertise and reputation, as well as upon its prior investment
banking relationships with Sunbeam and its familiarity with Sunbeam and its
business.
On February 27, 1998, Morgan Stanley rendered to the Sunbeam board an oral
opinion, which was later confirmed in writing, to the effect that, as of that
date and based upon and subject to the matters described in the opinion, the
cash and stock consideration payable in the M&F Transaction and the merger was
fair from a financial point of view to Sunbeam. Because Sunbeam did not plan to
issue the warrants at the time the merger agreement was signed, Morgan Stanley
did not take the warrants into account when evaluating the fairness to Sunbeam
of the consideration payable in the merger.
Terms of Morgan Stanley's Engagement. Under an amended engagement letter
between Sunbeam and Morgan Stanley, Sunbeam agreed to pay Morgan Stanley (1) an
exposure fee equal to 25% of the estimated transaction fee referred to below,
payable upon execution of the agreement relating to the M&F Transaction and the
merger agreement, and (2) a transaction fee equal to a percentage of the
aggregate value of the consideration payable by Sunbeam in the M&F Transaction
and the merger (including the amount of any debt assumed or repaid by Sunbeam),
payable, as to the M&F Transaction, upon its completion and, as to the merger,
upon its completion. For purposes of calculating the transaction fee, the value
of the Sunbeam common stock issued in the M&F Transaction and the merger will be
the average of the closing sale prices for the Sunbeam common stock for the ten
trading days prior to the completion of the M&F Transaction and the merger,
respectively. Based on the average market price of the Sunbeam common stock
prior to the M&F Transaction and the average market price of the Sunbeam common
stock prior to the date of this document, the aggregate fees which may be paid
in respect of the M&F Transaction and the merger would be $_____ million. In
April 1998, Sunbeam paid Morgan Stanley about $9.6 million in respect of the
exposure fees and transaction fees associated with the M&F Transaction and the
merger. Sunbeam has also agreed to
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reimburse Morgan Stanley for its expenses, including fees and expenses of its
counsel, and to indemnify Morgan Stanley and related parties against various
liabilities and expenses, which may include liabilities under the federal
securities laws, arising out of its engagement. Morgan Stanley also acted as an
initial purchaser for the private placement of the Sunbeam debentures and an
affiliate of Morgan Stanley is a lender under Sunbeam's bank credit facility.
Morgan Stanley also advised Sunbeam in connection with its acquisitions of
Signature Brands and First Alert.
Sunbeam's Reasons for Acquiring Coleman
While Sunbeam's current management does not know all the reasons why prior
management agreed to acquire Coleman, current management believes that the
following reasons were provided by prior management to the Sunbeam board.
As part of its 1997 review of strategic alternatives, Sunbeam's then
management team concluded that it was unlikely that Sunbeam could be sold at a
price or on terms that would be acceptable to Sunbeam. Sunbeam shifted its
strategic focus to identify underperforming companies with strong brand names
that Sunbeam could acquire. Sunbeam's former management intended to capitalize
on its perceived capability in cost containment and operational improvement by
acquiring one or more of these companies and their premier brand names, thereby
broadening the Sunbeam product offering spectrum and presenting opportunities to
eliminate redundant or inefficient operations.
Sunbeam acquired its current interest in Coleman and agreed to acquire the
remaining equity interest in Coleman primarily due to Coleman's strong and
established brand names, the potential opportunity to streamline operations, the
diversification these brand names provide to Sunbeam's product base and the
potential for revenue and operational benefits. In addition, Sunbeam believed
that its existing international geographic marketing and distribution strengths
and those of Coleman would significantly complement each other. Sunbeam's former
management believed that the acquisition of Coleman would give Sunbeam a
platform from which to capitalize on the fragmentation and potential
consolidation of the durable household consumer products sector.
Purposes and Effects of the Merger
The purpose of the merger is to enable Sunbeam to acquire the entire equity
interest in Coleman. In the M&F Transaction, which was completed on March 30,
1998, Sunbeam acquired indirectly about 81% of the then outstanding shares of
Coleman common stock. Sunbeam's
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ownership interest in Coleman was reduced to about 79% as a result of the
exercise of Coleman stock options immediately following the M&F Transaction. As
a result of the merger, Sunbeam will acquire the remaining equity interest in
Coleman, and Coleman will become an indirect, wholly owned subsidiary of
Sunbeam.
In addition, under the April 15, 1999 amendment to Sunbeam's bank credit
facility, it is an event of default under the bank credit facility:
o if Sunbeam fails to have the SEC declare this document effective by
October 30, 1999,
o if Sunbeam fails to complete the merger within 25 business days after
this document is declared effective by the SEC, or
o if Sunbeam has to pay more than $87.5 million (excluding expenses) in
cash to complete the merger (including any amounts paid with respect
to appraisal rights).
If an event of default were to occur, a default would also occur under the
Coleman note payable to Sunbeam and, among other things, the lenders under
Sunbeam's credit agreement would be entitled to foreclose on the Coleman note
and all of the Coleman assets pledged under the Coleman note. See "MATERIAL
CONTACTS BETWEEN SUNBEAM AND COLEMAN AND ITS AFFILIATES - Financial
Transactions Between Coleman and Sunbeam."
Coleman and Sunbeam adopted a two-step acquisition structure for several
reasons, including to enable Sunbeam to acquire control of Coleman as quickly as
possible. Alternative transaction structures were considered by Sunbeam and
Coleman, including a one-step merger without first completing the M&F
Transaction and a direct purchase by Sunbeam of Coleman Worldwide's equity
interest in Coleman prior to completion of the merger. MacAndrews & Forbes
rejected these transaction structures. The parties agreed that the final
transaction would be structured as a merger of CLN Holdings and a wholly owned
Sunbeam subsidiary, followed by a second-step merger of another wholly owned
Sunbeam subsidiary with Coleman. See "- Background of the Merger."
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Sunbeam also considered paying alternative types of consideration to
Coleman stock holders. Sunbeam initially proposed consideration consisting
exclusively of Sunbeam common stock. Sunbeam's prior management believed that
the use of Sunbeam common stock as consideration would enhance stockholder value
by allowing Sunbeam to capitalize on the then recent rise in Sunbeam's stock
price. This consideration, however, was rejected by MacAndrews & Forbes. Other
types of consideration were also briefly discussed, including the use of Sunbeam
preferred stock instead of the cash portion of the merger consideration. This
type of consideration was not seriously considered by the parties.
As a result of the merger, the public stockholders of Coleman:
o will cease to hold any direct equity interest in Coleman,
o will no longer directly share in the profits and losses of Coleman,
o will not be entitled to receive dividends or other distributions, if
any, declared and paid by Coleman, and
o will not be entitled to vote or otherwise participate in the corporate
governance of Coleman, except through their ability to vote and
participate in the corporate governance of Sunbeam through their
ownership of Sunbeam common stock.
As a result of the M&F Transaction and the merger, Sunbeam will have the
entire indirect interest in the net book value and net earnings of Coleman.
Sunbeam will also be entitled to all benefits resulting from that interest,
including all income generated by Coleman's operations, any future increase in
Coleman's value and the right to elect all members of the Coleman board
of directors. Similarly, Sunbeam will bear the entire risk of losses generated
by Coleman's operations and any decrease in the value of Coleman after the
merger. The public stockholders of Coleman will have only an indirect interest
in the net book value and net earnings of Coleman and future increases, if any,
in the value of Coleman through their holdings of Sunbeam common stock to be
received in the merger and upon any exercise of the warrants.
Upon completion of the merger, there will no longer be any publicly held
shares of Coleman common stock and the Coleman common stock will be delisted
from the NYSE, the Pacific Stock Exchange and the Chicago Stock Exchange and
deregistered under the Exchange Act.
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The tax consequences of the merger are subject to a number of
qualifications, as discussed below under the caption "UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS."
Sunbeam's Plans and Proposals for Coleman
On May 11, 1998, Sunbeam's former management announced its plans to
commence a restructuring intended to integrate Sunbeam's operations with those
of Coleman, First Alert and Signature Brands. The planned restructuring was also
intended to centralize the operations of the four companies, close or divest
some of Sunbeam's plants and reduce Sunbeam's workforce. Following the changes
in Sunbeam's management that were announced in June 1998, plans for the proposed
restructuring were postponed pending further review of Sunbeam's organizational
structure. On August 24, 1998, Sunbeam's new management announced a revised
organizational structure which provides for some plant closings and reductions
in workforce, but eliminates the previously announced centralization of
Sunbeam's operations.
Upon completion of the M&F Transaction, which occurred on March 30, 1998,
all of the members of the Coleman board resigned, the number of directors
constituting the Coleman board of directors was fixed at five, and five
designees of Sunbeam were elected as directors of Coleman. In addition, Sunbeam
designees were appointed to senior management positions at Coleman.
Subsequently, as a result of changes in Sunbeam's management and board of
directors, Jerry W. Levin, the current Chairman and Chief Executive Officer of
Sunbeam and the Chief Executive Officer of Coleman, was reelected to the Coleman
board, as Chairman. In addition, Paul E. Shapiro, a current executive officer of
Sunbeam and the Executive Vice President and Chief Administrative Officer of
Coleman, was elected to the Coleman board of directors. The other members of the
Coleman board of directors resigned or were removed by Sunbeam. In April 1999,
the size of the Coleman board of directors was set at three members and A.
Whitman Marchand, who is not affiliated with either Sunbeam or Coleman, was
elected to the Coleman board of directors. See "RECENT DEVELOPMENTS AFFECTING
SUNBEAM - Changes in Sunbeam's Management and Board" and "- Settlement of
Claims Relating to the M&F Transaction" and "MATERIAL CONTACTS BETWEEN COLEMAN
AND SUNBEAM AND ITS AFFILIATES - Appointments of Coleman Executive Officers to
Sunbeam's Management and Board" and "- Services Provided by MacAndrews &
Forbes."
Following the consummation of the M&F Transaction, Sunbeam prepaid an
aggregate of about $1,016 million of outstanding indebtedness of Coleman,
Coleman Worldwide, CLN Holdings and certain of Coleman's subsidiaries with a
portion of the net proceeds from the offering of the debentures and borrowings
under Sunbeam's bank credit facility. See "SOURCE AND AMOUNT OF FUNDS AND OTHER
CONSIDERATION."
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Position of Sunbeam on the Fairness of the Merger
Sunbeam's board of directors did not make a judgment as to the fairness of
the merger to the Coleman public stockholders. In reaching its determination to
approve the acquisition of Coleman, the Sunbeam board considered only the
advantages and fairness of the transaction to Sunbeam and its stockholders. At
the same time, Sunbeam noted that the merger consideration was negotiated
between unaffiliated parties and was unanimously determined by the Coleman
board, after receiving the opinion of Credit Suisse First Boston, to be fair to
the Coleman public stockholders.
The Sunbeam board did not consider the use of procedural safeguards such as
a requirement that the merger agreement be approved by a majority of the
Coleman public stockholders, the formation of a special committee of Coleman's
outside directors to negotiate the terms of the merger or the preparation of a
report regarding the fairness to the Coleman public stockholders of the merger
consideration. As noted above, at the time the merger agreement was negotiated,
Sunbeam was not an affiliate of Coleman or MacAndrews & Forbes and, accordingly,
the terms of the merger were arrived at through arm's-length negotiations
between Coleman and MacAndrews & Forbes on the one hand, and Sunbeam, on the
other. Sunbeam believed that it had no responsibility to require the adoption of
any additional procedural safeguards.
THE MERGER
The description of the merger and the merger agreement contained in this
document does not purport to be complete and is qualified in its entirety by
reference to the merger agreement, a copy of which is attached as Annex I at the
back of this document and is incorporated in this document by reference.
General
The merger will become effective when a certificate of merger is filed with
the Secretary of State of the State of Delaware. It is currently anticipated
that the certificate of merger will be filed, and the merger will become
effective, by __________, 1999, which is the twenty-first business day following
the date on which this document was first mailed to you.
Prior to the completion of the merger, the outstanding capital stock of
Camper Acquisition Corp., all of which is currently owned directly by Sunbeam,
will be contributed to Coleman Worldwide Corporation. In the merger, Camper
Acquisition Corp. which, will then
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be directly owned by Coleman Worldwide Corporation, will be merged into Coleman,
which is currently about 79% directly owned by Coleman Worldwide Corporation.
Interests of Certain Persons in the Merger
In considering the approval of the merger by the former Coleman board of
directors, you should be aware that a number of persons, including current and
former directors and executive officers of Coleman, have interests in the merger
that are different from or in addition to yours, as described below.
Coleman Options. Under the merger agreement, after the completion of the
M&F Transaction, which occurred on March 30, 1998, all of the then outstanding
options to purchase shares of Coleman common stock under Coleman's stock option
plans became fully vested and exercisable. During the period between the
completion of the M&F Transaction and the completion of the merger, Sunbeam is
obligated, under the merger agreement, to cause Coleman to maintain a
broker-dealer cashless exercise procedure for the exercise of the Coleman stock
options. Upon the completion of the merger, each outstanding Coleman stock
option that has not been exercised will be cancelled and each holder of an
unexercised Coleman stock option will be paid an amount in cash equal to the
product of (1) the total number of shares of Coleman common stock subject to the
Coleman stock option, multiplied by (2) the excess of $27.50 over the exercise
price per share of Coleman common stock subject to the Coleman stock option,
less any applicable withholding taxes.
Ronald O. Perelman, the sole stockholder of MacAndrews & Forbes and a
member of the Coleman board at the time the agreement relating to the M&F
Transaction and the merger agreement were executed, holds 500,000 Coleman stock
options, for which he will receive a net payment of $6,750,000 upon completion
of the merger. In addition, Paul E. Shapiro and Karen K. Clark, each of whom is
a current executive officer of Sunbeam and Coleman, hold 77,500 Coleman stock
options and 25,000 Coleman stock options, respectively. Upon completion of the
merger, in exchange for their respective Coleman stock options, Mr. Shapiro and
Ms. Clark will receive $823,000 and $275,005, respectively.
Severance Arrangements. The M&F Transaction constituted a "change in
control" of Coleman under the terms of some Coleman employee benefit plans and
various employment, severance, termination, consulting and retirement agreements
to which Coleman was a party. As a result, at the effective time of the M&F
Transaction, Coleman became obligated to pay all amounts provided under those
plans and agreements as a result of the change in control. Under the merger
agreement, Sunbeam agreed that after completion of the M&F Transaction it would
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honor, and cause Coleman to honor, all employment, severance, termination,
consulting and retirement agreements to which Coleman was a party on that date.
Accordingly, all rights and obligations of Coleman under these agreements have
become rights and obligations of Sunbeam and except as noted below with respect
to the former employment agreements between Coleman and Messrs. Levin and
Shapiro, Sunbeam has agreed to cause Coleman to pay all amounts provided under
these employee benefit plans and agreements as a result of the change in control
of Coleman in accordance with their respective terms and to honor, and to cause
Coleman to honor, all rights, privileges and modifications to or with respect to
any such employee benefit plans of Coleman or agreements which become effective
as a result of the change in control. However, neither Sunbeam nor Coleman has
any responsibility for Coleman's obligations under the former employment
agreements between Coleman and Jerry W. Levin, Coleman's then Chairman and Chief
Executive Officer, and Paul E. Shapiro, Coleman's then Executive Vice President
and General Counsel, except, in the case of Mr. Levin, for an incentive payment
in the amount of $1.5 million due from Coleman (and subsequently paid) related
to the sale of Coleman Safety & Security Products, Inc. to an unrelated third
party, which transaction was pending at the time the merger agreement was
signed. The former employment agreements with Messrs. Levin and Shapiro were
terminated upon completion of the M&F Transaction.
In connection with the change in control resulting from the completion of
the M&F Transaction, Sunbeam has paid, or has caused Coleman to pay, a total of
$8,004,900 in severance compensation to more than 150 former Coleman employees.
Of that amount, $7,229,231 was paid in respect of base salary paid as severance,
$467,774 was paid in respect of bonuses and incentives due to severed employees
and $307,895 was paid in respect of extra pension credits. The only principal
executive officer of Coleman to receive severance compensation as a result of
the change in control was Joseph Page, the former chief financial officer of
Coleman, who received a severance payment of $292,805. In addition, Bobby G.
Jenkins, the current Executive Vice President and Chief Financial Officer of
Sunbeam and Executive Vice President of Coleman received a severance payment of
$18,583 as a result of his resignation from Coleman following the M&F
Transaction, and prior to his being rehired by both Sunbeam and Coleman in the
capacities mentioned above.
Indemnification. The merger agreement provides that all rights to
indemnification existing in favor of any director or officer of Coleman in
office at or prior to the completion of the merger, as provided in Coleman's
Certificate of Incorporation, Coleman's By-laws, as amended, or indemnification
agreements in effect as of February 27, 1998, will survive the merger and
continue in full force and effect for a period of six years after the effective
time of the merger (and during the period from the completion of the M&F
Transaction to the completion of the merger), to the extent these rights are
consistent with Delaware law. In addition, Sunbeam agreed that, from and after
the completion of the M&F Transaction and for a period of six years following
the completion of the merger, Sunbeam or Coleman, as the surviving corporation
in
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the merger, will cause to be maintained a liability insurance policy for the
benefit of Coleman's former directors and officers providing coverage
substantially similar to the policies in effect as of February 27, 1998. Neither
Sunbeam nor Coleman will be required to pay an annual premium for such insurance
in excess of 200% of the last annual premium paid by Coleman prior to the date
of the merger agreement, but in such case will purchase as much coverage as
possible for such amount. See "THE MERGER - Continuation of Existing
Indemnification Rights."
Registration Rights Agreement. The shares of Sunbeam common stock issued to
the MacAndrews & Forbes affiliate from which Sunbeam acquired indirectly about
81% of the then outstanding Coleman common stock in the M&F Transaction were not
registered under the Securities Act. Accordingly, in connection with the
completion of the M&F Transaction, Sunbeam entered into a registration rights
agreement with the MacAndrews & Forbes affiliate, permitting the MacAndrews &
Forbes affiliate and other affiliates of Coleman to require Sunbeam to register
their shares of Sunbeam common stock under the federal and applicable state
securities laws. The registration rights agreement was subsequently amended in
August 1998 to provide that the MacAndrews & Forbes affiliate can also require
Sunbeam to register the warrant and the shares of Sunbeam common stock issuable
upon exercise of the warrant issued to the MacAndrews & Forbes affiliate in
connection with the settlement of legal claims relating to the M&F Transaction.
See "MATERIAL CONTACTS BETWEEN COLEMAN AND SUNBEAM AND ITS AFFILIATES -
Registration Rights Agreement."
Conversion of Coleman Common Stock
Upon completion of the merger, each outstanding share of Coleman common
stock - other than shares held indirectly by Sunbeam and shares, if any, with
respect to which Delaware appraisal rights are sought and perfected - will no
longer be outstanding and will automatically be cancelled. After completion of
the merger, you will no longer have any rights under the certificate
representing your shares of Coleman common stock, except the right to receive
$6.44 in cash and 0.5677 of a share of Sunbeam common stock for each share of
Coleman common stock you own when the merger is completed, a cash payment equal
to the value of any fractional shares of Sunbeam common stock you would
otherwise be entitled to receive upon surrender of the certificate, and warrants
to purchase Sunbeam common stock at a cash price of $7 per share to be issued
under a [court-approved] settlement of litigation relating to the merger. The
number of warrants you receive will be based on the number of shares of Coleman
common stock you own at the time of the merger. See "LITIGATION SETTLEMENT AND
WARRANTS."
Upon completion of the merger, all shares of Coleman common stock held
indirectly by Sunbeam through Coleman Worldwide will remain outstanding and
unchanged as a result of the merger. Each share of Coleman common stock, if any,
held in the treasury of Coleman, by any subsidiary of Coleman, by Sunbeam or by
any subsidiary of Sunbeam (other than Coleman
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Worldwide) immediately prior to the completion of the merger will be
automatically cancelled. In addition, upon completion of the merger, each
outstanding share of common stock of Camper Acquisition Corp., the wholly owned
subsidiary of Sunbeam that will be merged with Coleman in the merger, will be
automatically cancelled.
Exchange of Coleman Common Stock
The exchange of the shares of Coleman common stock you own when the merger
is completed will occur as follows:
o upon completion of the merger, Sunbeam will deposit, with an exchange
agent selected by Sunbeam, (1) certificates for the shares of Sunbeam
common stock to be issued to you in the merger; (2) cash sufficient to
pay the cash portion of the merger consideration and any fractional
share payments you are entitled to receive; and (3) warrants to
purchase Sunbeam common stock at a cash price of $7 per share to which
you are entitled under a [court-approved] settlement of litigation
relating to the merger;
o as soon as reasonably practicable after the completion of the merger,
Sunbeam will cause the exchange agent to mail a letter of transmittal
and exchange instructions to you;
o upon surrender of your Coleman common stock certificate(s) for
cancellation to the exchange agent, together with a properly completed
and duly executed letter of transmittal, you will receive, in exchange
for your Coleman certificate(s), (1) a certificate for the shares of
Sunbeam common stock you are entitled to receive in the merger, (2) a
cash payment in respect of the cash portion of the merger
consideration, after giving effect to any required withholding tax,
and any fractional share payment you are entitled to receive, and (3)
warrants to purchase Sunbeam common stock at a cash price of $7 per
share to which you are entitled under a [court-approved] settlement of
litigation relating to the merger based on the number of shares of
Coleman common stock you own when the merger is completed; your
certificate(s) will then be cancelled;
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o until you surrender your Coleman stock certificates, you will not be
entitled to vote the shares of Sunbeam common stock you are entitled
to receive in the merger or receive any dividends or distributions
with a record date after the completion of the merger with respect to
such Sunbeam common stock, although any such dividends or
distributions will accrue and be payable to you, without interest,
upon surrender of your certificate(s); it should be noted, however,
that Sunbeam does not pay, and is prohibited from paying under the
bank credit facility, cash dividends;
o any merger consideration and warrants that remain undistributed for
six months after the completion of the merger will be delivered to
Sunbeam, upon demand, and any holders of unsurrendered Coleman common
stock certificates may thereafter look only to Sunbeam, as general
creditors, for payment of the merger consideration and warrants. In no
event will Sunbeam, Coleman or the exchange agent be liable to any
holder of unsurrendered certificates for any merger consideration or
warrants that are delivered to a public official under applicable
escheat laws; and
o upon completion of the merger, the stock transfer books of Coleman
will be closed and no further transfer of shares of Coleman common
stock will be made; if, after the completion of the merger, Coleman
common stock certificates are presented to Coleman, they will be
cancelled and exchanged for the merger consideration and warrants.
You should not forward your certificates to the exchange agent until you
receive a letter of transmittal and exchange instructions.
No Fractional Shares or Warrants
No fractional shares of Sunbeam common stock or warrants will be issued in
the merger, and no dividend, stock split or other change in the capital
structure of Sunbeam will relate to any fractional shares. Any Coleman
stockholder who would otherwise be entitled to fractional shares or warrants
will not be entitled to vote or to exercise any rights of a security holder with
respect to such fractional shares.
Instead of any fractional shares of Sunbeam common stock, each Coleman
stockholder who would otherwise be entitled to a fraction of a share of Sunbeam
common stock will be paid cash, without interest, in an amount equal to the
fraction of a share of Sunbeam common stock to which such stockholder would
otherwise be entitled, multiplied by the closing sale price of one share of
Sunbeam common stock on the NYSE Composite Transactions Tape on the day of the
completion of the merger, or, if shares of Sunbeam common stock are not so
traded on that day,
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the closing sale price on the next preceding day on which the shares were traded
on the NYSE. Shares of Coleman common stock of any holder represented by two or
more certificates will be aggregated, and in no event will any holder of Coleman
common stock be paid an amount of cash for fractional shares in respect of one
or more than one share of Sunbeam common stock.
Instead of any fractional warrants, each Coleman stockholder who would
otherwise be entitled to a fraction of a warrant will receive a number of whole
warrants determined by rounding up or down to the nearest whole number.
Conditions
Under the terms of the merger agreement, the completion of the merger was
subject to the following conditions: (1) this document had to be declared
effective by the SEC, (2) the shares of Sunbeam common stock to be issued by
Sunbeam in the merger had to be listed for trading on the NYSE, and (3) the M&F
Transaction had to be completed. All of these conditions have already been
satisfied. Therefore, assuming that no court order is entered which prevents the
merger from being completed, the merger will be completed by _________, 1999,
which is the twenty-first business day following the date on which this document
was first mailed to you.
Governmental and Regulatory Approvals
Completion of the M&F Transaction was conditioned on the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. On March 4, 1998, Sunbeam and
Ronald O. Perelman, as the then ultimate parent of Coleman, filed notifications
and report forms under the HSR Act with the Federal Trade Commission and the
Antitrust Division of the Department of Justice relating to the M&F Transaction
and the merger. The applicable waiting period under the HSR Act was terminated
on March 27, 1998. However, notwithstanding the termination of the waiting
period under the HSR Act, the FTC, the Antitrust Division, a state or a private
person or entity could seek under federal or state antitrust laws, among other
things, to enjoin or rescind the M&F Transaction or the merger. Although Sunbeam
and Coleman believe that the M&F Transaction and the merger do not violate
United States antitrust laws, there can be no assurance that if such a challenge
is made, it would not be successful.
In addition to the filings under the HSR Act, Sunbeam and Coleman filed a
pre-merger notification form with the German Federal Cartel Office relating to
the M&F Transaction and the merger, which was approved by the Federal Cartel
Office on March 20, 1998. Neither Sunbeam nor Coleman is aware of any other
material approval or other action by any governmental,
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administrative or regulatory agency or authority, domestic or foreign, that
would be required in order to complete the merger.
Employee Matters
Sunbeam agreed that, from and after the completion of the M&F Transaction,
it would honor, and cause Coleman to honor, all employment, severance,
termination, consulting and retirement agreements to which Coleman was a party
on that date. Accordingly, all rights and obligations of Coleman under these
agreements became rights and obligations of Sunbeam. However, neither Sunbeam
nor Coleman has any responsibility for Coleman's obligations under the former
employment agreements between Coleman and Jerry W. Levin, Coleman's then
Chairman and Chief Executive Officer, and Paul E. Shapiro, Coleman's then
Executive Vice President and General Counsel, except in the case of Mr. Levin
for an incentive payment in the amount of $1.5 million due from Coleman (and
subsequently paid) related to the sale of Coleman Safety & Security Products,
Inc. to an unrelated third party, which transaction was pending at the time the
merger agreement was signed. The former employment agreements with Messrs.
Levin and Shapiro were terminated upon completion of the M&F Transaction.
Sunbeam agreed to cause Coleman to allow Coleman employees to participate in
Sunbeam employee benefit plans, from and after the completion of the M&F
Transaction, on substantially the same basis as similarly situated Sunbeam
employees. With respect to welfare benefit plans, Sunbeam also agreed to waive
any pre-existing condition limitations and give effect, in determining any
deductible and maximum out-of-pocket limitations, to claims incurred and amounts
paid by, and reimbursed to, those employees with respect to similar plans
maintained by Coleman. Sunbeam has, or has caused Coleman to, give Coleman
employees full credit for purposes of eligibility and vesting of benefits and
benefit accrual for service with Coleman and its affiliates prior to the
completion of the M&F Transaction under each employee benefit plan, so long as
such crediting of service did not result in duplication of benefits. See "-
Interests of Certain Persons in the Merger."
The M&F Transaction constituted a "change in control" of Coleman under some
Coleman employee benefit plans and employment, severance, termination,
consulting and retirement agreements. Except as noted above with respect to the
employment agreements of Messrs. Levin and Shapiro, Sunbeam agreed to cause
Coleman to pay all amounts provided under these employee benefit plans and
agreements as a result of the change in control of Coleman in accordance with
their respective terms and to honor, and to cause Coleman to honor, all rights,
privileges and modifications to or with respect to any such employee benefit
plans of Coleman or agreements which became effective as a result of the change
in control. See "- Interests of Certain Persons in the Merger."
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Sunbeam caused Coleman to continue Coleman's Annual Incentive Plan for
Management Employees for the remainder of 1998, and participants in the
Management Incentive Plan were not eligible to participate in Sunbeam's
incentive plan in respect of 1998. Under the terms of the Management Incentive
Plan, participants were eligible for cash bonuses payable upon the attainment of
certain performance goals, which performance goals were determined by reference
to (1) earnings before interest, taxes and amortization, (2) operating working
capital per sales dollar and (3) other quantitative goals as approved from time
to time. Cash bonuses paid were equal to a percentage of a participant's base
salary, depending on the percentage of the target attained by Coleman. Coleman
paid a total of about $2.9 million to participants in the Management Incentive
Plan with respect to 1998. Eligible participants include select employees of
Coleman and its subsidiaries who are (1) designated to participate by the Chief
Executive Officer of Coleman, (2) are employed prior to the start of the last
fiscal quarter in the plan year and (3) are not participants in another
short-term incentive program of Coleman.
Sunbeam will honor, and will cause Coleman to honor, Coleman's Executive
Severance Policy without any amendments adverse to participants. The Coleman
Executive Severance Policy applies to certain terminations of employment of
employees of Coleman and its subsidiaries who are participants in Coleman's
Management Incentive Plan or who are in the position of country general
manager/president and above. Participation in the Executive Severance Policy is
limited to those participants in the Management Incentive Plan described above.
Benefits are payable to a participant in the event of a termination of the
participant's employment by Coleman within three years following the M&F
Transaction other than for Cause (as defined in the Executive Severance Policy)
or by the participant with Good Reason (as defined in the Executive Severance
Policy). The benefits payable under the Executive Severance Policy generally
include the following:
o salary continuation for twelve, nine or six months, depending on the
participant's level of participation in the Management Incentive Plan;
o medical and/or dental coverage under COBRA until the end of the
severance period at the same contribution level in effect for active
participants, with Coleman paying the portion of the premiums it was
paying for such participant prior to the M&F Transaction;
o in the event of a termination prior to December 31, 1998, a pro rata
payment under the Management Incentive Plan through the date of such
termination;
o a lump sum cash payment in an amount equal to the aggregate benefit
that the participant would have accrued had he or she remained
employed during the
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severance period under Coleman's qualified defined benefit retirement
plans and its excess or supplemental defined benefit retirement plans,
less any actual vested benefit of the participant under such plans;
o a lump sum payment in an amount equal to the value of the
participant's accrued vacation, determined in accordance with
Coleman's vacation policy; and
o an additional payment to hold the participant harmless from the excise
taxes imposed by sections 280G and 4999 of the tax code, if the
severance payments and benefits payable under the Executive Severance
Policy exceed certain minimum thresholds.
In addition, any participant who was a party to an employment contract or
other written agreement with Coleman was entitled to choose between the
severance benefits, if any, payable under such contract and the severance
benefits payable under the Executive Severance Policy.
Since the ninety-first day following completion of the M&F Transaction,
some of the participants in the Executive Severance Policy have been entitled to
voluntarily terminate their employment with Coleman and to have such termination
deemed to be for Good Reason under the Executive Severance Policy, as a result
of the completion of the M&F Transaction.
Since the date of the M&F Transaction, Coleman has paid or become obligated
to pay about $4.2 million to participants under the Executive Severance Policy.
For the benefit of those employees of Coleman who were not participants in
the Executive Severance Policy and who did not have employment agreements with
Coleman, Sunbeam provided severance benefits under Sunbeam's Severance Pay Plan
on substantially the same basis as similarly situated Sunbeam employees. To
date, Sunbeam has made aggregate payments of about $470,000 to former Coleman
employees under the Sunbeam Severance Pay Plan. Under the terms of the Severance
Pay Plan, a participant who is a Coleman employee and whose employment is
terminated as the direct result of the closure of a facility or the elimination
of the participant's position will be entitled to receive the following
severance benefits:
o a lump sum cash payment in an amount equal to (1) six months', three
months' or six weeks' base pay, depending on the number of years of
service, in the case of an exempt employee or (2) one week of base pay
for each completed year of service, in the case of a non-exempt
employee; and
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o health coverage under COBRA until the end of the severance pay period
at the same contribution level in effect for active participants, with
Sunbeam paying the same portion of the premiums that it would pay for
active participants.
Continuation of Existing Indemnification Rights
For a period of six years after the completion of the merger, and during
the period between the completion of the M&F Transaction and the completion of
the merger, Sunbeam agreed to indemnify directors and officers of Coleman in
office at or prior to the completion of the merger in connection with any
threatened or actual legal proceeding to the fullest extent allowed by Delaware
law, the Coleman Certificate of Incorporation, the Coleman By-laws and any
indemnification agreement in effect at the date of the merger agreement,
including any provisions relating to advancement of expenses. This
indemnification does not, however, extend to any legal proceeding initiated
against Coleman by an indemnified person unless the proceeding was (1)
authorized by the Coleman board of directors or (2) brought by an indemnified
person to enforce his or her right to indemnification under the merger
agreement. In addition, the right to indemnification under the merger agreement
extends only to legal proceedings arising from:
o the fact that the indemnified person was a director or officer of
Coleman or was serving at the request of Coleman as a director,
officer, employee or agent of another entity, or
o the agreement relating to the M&F Transaction, the merger agreement or
any of the transactions contemplated by those agreements.
Moreover, the right to indemnification provided by the merger agreement
extends only to claims which pertain to matters arising, existing or occurring
prior to or at the completion of the merger. To give rise to an
indemnification right, however, the claim need not have been asserted prior to
the completion of the merger. If any claim is asserted against an indemnified
person within the period during which indemnification is provided, all rights
to indemnification under the merger agreement continue until disposition of
the claim. In the event any indemnified person becomes involved in a legal
proceeding after the completion of the merger, Sunbeam will, or will cause
Coleman to, periodically advance legal and other expenses to the indemnified
person, including the cost of any investigation and preparation incurred in
connection with the legal proceeding. However, as a condition to advancement
of expenses, the indemnified person must provide Sunbeam with an undertaking
to reimburse all amounts so advanced in the event that the indemnified person
is determined not to be entitled to indemnification.
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Sunbeam and Coleman also agreed that all rights to indemnification, and all
limitations with respect to indemnification, existing in favor of any
indemnified person, as provided in the Coleman certificate of incorporation, the
Coleman by-laws or any indemnification agreement in effect at the date of the
merger agreement, will survive the merger and will, to the extent permitted by
Delaware law, continue in full force and effect, without any amendment, for a
period of six years after the completion of the merger and during the period
from the completion of the M&F Transaction to the completion of the merger. If
any claim is asserted against any indemnified person within that period, all
rights to indemnification will continue until final disposition of the legal
proceeding. Any determination required to be made with respect to whether an
indemnified person's conduct complies with the standards set forth under
Delaware law, the Coleman certificate of incorporation, the Coleman by-laws or
any agreement, as the case may be, will be made by independent legal counsel
selected by the indemnified person and reasonably acceptable to Sunbeam.
Sunbeam also agreed that, from and after the completion of the M&F
Transaction, Sunbeam or Coleman will maintain, for a period of not less than six
years after the completion of the merger, a liability insurance policy for the
benefit of Coleman's former directors and officers providing coverage
substantially similar to the policies in place prior to the completion of the
M&F Transaction. However, neither Sunbeam nor Coleman will be required to pay an
annual premium for this insurance which exceeds 200% of the last annual premium
paid by Coleman prior to the date of the merger agreement. In the event that the
premium does exceed that amount, Sunbeam or Coleman will purchase as much
coverage as possible for such amount.
Accounting Treatment
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Sunbeam in the merger and the M&F Transaction
will be allocated to Coleman's assets and liabilities based upon their fair
market value with any excess being treated as excess of investment over net
assets acquired or "goodwill". The assets and liabilities and results of
operations of Coleman have been consolidated for financial accounting (but not
tax) purposes with the assets and liabilities and results of operations of
Sunbeam since the completion of the M&F Transaction.
Stock Exchange Listing
The NYSE has approved for listing on the NYSE the shares of Sunbeam common
stock to be issued to Coleman stockholders in the merger, subject to official
notice of issuance. Sunbeam intends to file an application with the NYSE to list
the shares of Sunbeam common stock that
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will be issued when the warrants are exercised. For a description of matters
relating to the continued listing of Sunbeam common stock on the NYSE, see
"RECENT DEVELOPMENTS AFFECTING SUNBEAM - New York Stock Exchange Listing."
Delisting and Deregistration of Coleman Common Stock
Upon completion of the merger, there will no longer be any publicly held
shares of Coleman common stock and the Coleman common stock will be delisted
from the NYSE, the Pacific Stock Exchange and the Chicago Stock Exchange and
deregistered under the Exchange Act. For a description of matters relating to
the continued listing of Coleman common stock on the NYSE, see "RECENT
DEVELOPMENTS AFFECTING COLEMAN."
Ownership of Coleman Common Stock
At the close of business on _______, 1999, there were outstanding _____
shares of Coleman common stock held by about _______ holders of record. In the
M&F Transaction, which was completed on March 30, 1998, Sunbeam became the
indirect beneficial owner of 44,067,520 shares of Coleman common stock,
representing about 81% of the then outstanding shares of Coleman common stock.
As a result of option exercises by employees and former employees of Coleman
immediately following the completion of the M&F Transaction, these shares
represent about 79% of the currently outstanding shares of Coleman common stock.
The table below shows the number of shares of Coleman common stock owned by
each of the current directors and officers of Coleman and the percentage of the
outstanding Coleman common stock which these shares represent.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of
Name of Beneficial Owner Beneficial Ownership Common Stock
------------------------ -------------------- ------------
<S> <C> <C>
Directors:
Jerry W. Levin..................................... - *
A. Whitman Marchand................................ - *
Paul E. Shapiro.................................... 77,500 (1) *
Executive Officers:
Bobby G. Jenkins................................... - *
Janet G. Kelley.................................... - *
Karen K. Clark..................................... 25,000 (1) *
William L. Phillips................................ - *
Gwen C. Wisler..................................... - *
All Directors and Current Executive Officers
as a Group (7 persons)............................. 102,500 (1) *
</TABLE>
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* Less than 1%
(1) Represents shares of common stock which these individuals have the
right to acquire upon exercise of employee stock options that are
currently exercisable and may be exercised within the next 60 days.
At its February 27, 1998 meeting, the then Coleman board of directors
unanimously approved the merger agreement. See "- Coleman's Reasons for the
Merger and Approval of the Coleman Board." Since the completion of the M&F
Transaction, however, the composition of Coleman's management and board of
directors has changed significantly. See "MATERIAL CONTACTS BETWEEN COLEMAN AND
SUNBEAM AND ITS AFFILIATES - M&F Transaction." Mr. Levin voted on February 27,
1998 as a member of the Coleman board of directors to approve the merger
agreement. However, neither Mr. Levin nor any other director or officer of
Coleman is currently making any recommendation to Coleman stockholders
regarding the merger.
Since January 1, 1996, Coleman has completed one purchase of Coleman common
stock. On March 1, 1996, Coleman purchased 50,000 shares of Coleman common stock
(or 100,000 shares, adjusted for the two-for-one stock split of Coleman common
stock on June 28, 1996) in the open market at a purchase price of $46.54 per
share ($23.26 per share, as adjusted), or an aggregate of $2.33 million. On May
23, 1997, Coleman Worldwide commenced an offer to accept for exchange its Liquid
Yield Option(TM) Notes due 2013 ("LYONs") for cash at a price equal to their
redemption price of $343.61 per $1,000 principal amount at maturity. The LYONs
were exchangeable for shares of Coleman common stock at the rate of 15.706
shares for each $1,000 principal amount at maturity of LYONs. The holders of
$545,053,000 aggregate principal amount at maturity of LYONs out of the
$561,553,000 aggregate principal amount at maturity then outstanding accepted
Coleman Worldwide's offer, which expired on June 20, 1997. On April 20, 1998,
Coleman Worldwide gave notice of its intention to redeem all LYONs remaining
outstanding on May 27, 1998 for cash at their redemption price of $343.61 per
$1,000 principal amount at maturity, unless, prior to that date, the holders of
the LYONs elected to exchange their LYONs for shares of Coleman common stock.
All of the LYONs that remained outstanding on May 27, 1998 were redeemed by
Coleman Worldwide.
Ownership Interest of Coleman Stockholders in Sunbeam After the Merger
Based on the number of shares of Sunbeam common stock and Coleman common
stock outstanding on April 30, 1999 and assuming no Coleman stockholders
exercise their Delaware law appraisal rights, upon completion of the merger
there will be about 107,564,095 shares of Sunbeam common stock outstanding, of
which the former stockholders of Coleman, including an affiliate of MacAndrews &
Forbes, will own about 19.3%. The former stockholders of Coleman
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will own about 36% of the outstanding Sunbeam common stock after the merger,
assuming the exercise of (1) the warrant issued to a MacAndrews & Forbes
affiliate in settlement of threatened legal claims related to the M&F
Transaction and (2) the warrants to be issued to the Coleman public stockholders
upon completion of the merger under a [court-approved] settlement of litigation
related to the merger.
Expenses
All costs and expenses incurred in connection with the M&F Transaction and
the merger will be paid by the party incurring such expenses.
Sunbeam and Coleman have incurred, and will incur, fees and expenses in
connection with the M&F Transaction and the merger, including filing fees in
connection with the registration of the shares to be issued in connection with
the merger and upon exercise of the warrants and other required filings, fees of
counsel, accountants' fees and printing costs. These expenses are estimated to
be as follows:
Financial advisory fees............................ $[ * ]
Legal fees and expenses ........................... [ * ]
Accounting fees and expenses....................... [ * ]
Filing fees........................................ [ * ]
Printing and mailing............................... [ * ]
Miscellaneous...................................... [ * ]
---------------
TOTAL..................................... $[ * ]
=================
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the anticipated material United
States Federal income tax consequences of the merger to a holder of Coleman
common stock (a "holder"). The discussion is based on laws, regulations, rulings
and decisions in effect on the date of mailing of this document, all of which
are subject to change, possibly with retroactive effect. This discussion deals
only with holders who hold their shares of Coleman common stock as capital
assets and does not address all aspects of United States Federal taxation that
may be relevant to particular holders in light of their personal circumstances
or to holders (1) who are not citizens or residents of the United States, (2)
who may be subject to special tax rules, such as rules relating
- --------
* To be completed by amendment.
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to financial institutions and banks, tax-exempt organizations, insurance
companies, dealers in securities, and persons who hold Coleman common stock as
part of a hedge, conversion or constructive sale transaction, straddle or other
risk reduction transaction (3) who perfect their appraisal rights under Delaware
law, or (4) who acquired their shares of Coleman common stock pursuant to the
exercise of employee stock options or other compensation arrangements with
Coleman. In addition, the discussion does not address the tax consequences of
the merger arising under the laws of any state, local or foreign jurisdiction.
Each holder of Coleman common stock is urged to consult its own tax advisor
with respect to the particular tax consequences of the merger to such holder.
The receipt of the cash, Sunbeam common stock and warrants to purchase
Sunbeam common stock in the merger is expected to be a taxable transaction for
United States Federal income tax purposes and may also be a taxable transaction
under applicable state, local, foreign and other tax laws. In general, for
United States Federal income tax purposes, a holder will recognize gain or loss
equal to the difference between (1) the sum of cash, the fair market value of
the Sunbeam common stock received in exchange for such holder's shares of
Coleman common stock, and the fair market value of the warrants to purchase
additional shares of Sunbeam common stock and (2) the adjusted tax basis of such
shares of Coleman common stock. This gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the shares have been held for more
than twelve months.
LITIGATION SETTLEMENT AND WARRANTS
Beginning on June 25, 1998, several class action lawsuits were filed in the
Court of Chancery of the State of Delaware by public stockholders of Coleman
against Coleman, Sunbeam and several of Coleman's former officers and directors.
These actions were later consolidated into a single class action lawsuit. The
class action alleges, among other things, that the consideration to be paid to
the public stockholders of Coleman in the merger is no longer fair as a result
of the decline in the market price of Sunbeam's common stock. See "BUSINESS OF
SUNBEAM - Litigation and Other Contingent Liabilities."
On October 21, 1998, Sunbeam announced that it had entered into a
memorandum of understanding to settle the class action, subject to court
approval. Under the terms of the settlement, [which has been approved by the
Delaware Court of Chancery,] Sunbeam will issue to the Coleman public
stockholders warrants to purchase about 4.98 million shares of Sunbeam common
stock at a cash exercise price of $7 per share, subject to anti-dilution
adjustments. These warrants will be issued when the merger is completed to all
Coleman stockholders of
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record as of the completion of the merger, other than those stockholders who
choose to dissent from the merger and have the fair value of their shares
appraised by a court, and to counsel for the Coleman public stockholders in the
litigation as their court-awarded fee. The warrants will be freely
transferrable and are exempt from registration under the Securities Act. The
shares of Sunbeam common stock to be issued upon exercise of the warrants will
be freely transferrable and will be registered under the Securities Act.
Sunbeam intends to file an application with the NYSE to list the shares of
Sunbeam common stock issuable upon exercise of the warrants. [In the settlement,
all members of the class (consisting of all Coleman stockholders owning shares
at any time from February 27, 1998 until the date of the merger) released
Coleman, Sunbeam, MacAndrews & Forbes and its affiliates and the former and
present directors of Coleman from all claims arising out of or relating to the
merger, other than their Delaware law appraisal rights.]
The number of warrants that each Coleman public stockholder will receive
will be based on the number of shares of Coleman common stock owned by the
stockholder at the time of the merger and will be equal to the product of (A)
4,979,663, less the number of warrants awarded by the court to plaintiffs'
counsel for the Coleman public stockholders in the litigation as their fee and
(B) a fraction, the numerator of which is equal to the number of shares of
Coleman common stock held by such stockholder immediately prior to the merger
(other than any shares with respect to which Delaware law appraisal rights have
been exercised) and the denominator of which is equal to the total number of
shares of Coleman common stock outstanding and owned by Coleman public
stockholders at the time of the merger (approximately 11,759,970 shares assuming
no further exercises of Coleman options).
No fractional warrants will be issued in the merger. A Coleman public
stockholder who would otherwise be entitled to receive fractional warrants will
receive a number of warrants determined by rounding up or down to the nearest
whole number of warrants.
General. The warrants to be issued in the merger will be issued under a
Warrant Agreement to be entered into prior to the completion of the merger by
Sunbeam and [The Bank of New York], as Warrant Agent. The description of the
Warrant Agreement contained in this document does not purport to be complete and
is qualified in its entirety by reference to the Warrant Agreement, a copy of
which, including the form of warrant certificate, is included as an exhibit to
the registration statement of which this document forms a part.
Each warrant issued in the merger will be evidenced by a warrant
certificate which will entitle the warrant holder, at any time prior to August
24, 2003, to purchase one share of Sunbeam common stock at a cash exercise price
of $7 per share. Warrants that are not exercised prior to that date will expire
and become void.
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Exercise of Warrants. In order to exercise any or all of your warrants, you
will be required to surrender to [The Bank of New York], as Warrant Agent: (1)
the warrant certificate, (2) a duly executed copy of the subscription form set
forth in the warrant certificate and (3) payment in full of the exercise price
for each share of Sunbeam common stock as to which the warrants are exercised.
Payment may be made in cash or by certified or official bank check made payable
to the order of Sunbeam Corporation.
Upon the exercise of any warrants in accordance with the Warrant Agreement,
Sunbeam will transfer the appropriate number of shares of Sunbeam common stock
to the warrant holder or to a designee specified by the warrant holder. All
shares of Sunbeam common stock issued upon the exercise of warrants will be
validly issued, fully paid and nonassessable.
Antidilution Provisions. The number of shares of Sunbeam common stock
issuable upon exercise of each warrant is subject to adjustments in the event
that Sunbeam, among other things: (1) pays a dividend or makes any other
distribution in shares of Sunbeam common stock, (2) subdivides the Sunbeam
common stock, (3) combines the Sunbeam common stock into a smaller number of
shares, (4) issues any shares of Sunbeam common stock in a reclassification
(including any reclassification in connection with a merger, consolidation or
other business combination in which Sunbeam is the continuing corporation), (5)
issues rights, options, warrants or convertible or exchangeable securities to
all holders of Sunbeam common stock entitling them to subscribe for or purchase
Sunbeam Common Stock at a price per share that is lower (at the record date for
the issuance) than the then current market value per share of Sunbeam common
stock or (6) issues or sells shares of Sunbeam common stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Sunbeam common stock, at a price per share
that is lower than the then current market value per share of the Sunbeam common
stock immediately prior to the sale or issuance. Any adjustment to the number of
shares of Sunbeam Common Stock issuable upon exercise of all warrants as
provided in clauses (5) and (6) above will be allocated among all warrants then
outstanding on a pro rata basis.
No fractional shares will be issued upon exercise of warrants. In the event
of any transaction in which Sunbeam stockholders receive stock, securities, cash
or other assets in exchange for their Sunbeam common stock, each warrant holder
will, upon exercise of the warrant at any time after the transaction, have the
right to the stock, securities, cash or other assets the warrant holder would
have been entitled to receive if the warrant had been exercised immediately
prior to the transaction.
No Stock Rights. Prior to the exercise of his or her warrants, no warrant
holder will be entitled to vote or be deemed the holder of the shares of Sunbeam
common stock issuable upon exercise of the warrants and will have no rights of a
stockholder of Sunbeam.
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APPRAISAL RIGHTS
Under Delaware law, Coleman stockholders have appraisal rights in
connection with the merger. Any stockholder who is eligible to exercise
appraisal rights and properly does so will be paid in cash the "fair value"
(exclusive of any element of value arising from the accomplishment or
expectation of the merger) for his or her shares of Coleman common stock as
deter mined by the Delaware Chancery Court. Any shares of Coleman common stock
for which a written demand for appraisal is properly filed and not withdrawn in
accordance with the procedures set forth under Delaware law, except any shares
as to which the holder effectively withdraws or loses the right to appraisal and
payment for such shares prior to the effective time of the merger, are referred
to in this document as "Dissenting Shares."
Any holder of Dissenting Shares will be paid the "fair value" of the
shares, as described below, and will not receive, upon completion of the merger,
cash, shares of Sunbeam common stock and warrants payable in the merger, as
described in "THE MERGER - Conversion of Coleman Common Stock."
Only holders of record of Coleman common stock who are eligible for
appraisal rights and comply with the applicable statutory procedures summarized
in this document will be entitled to appraisal rights under Delaware law. A
person having a beneficial interest in shares of Coleman common stock held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Delaware law and is qualified in its entirety by the
full text of Section 262 of the General Corporation Law of the State of Delaware
which is reprinted in its entirety as Annex II at the back of this document. All
references in Section 262 and in this summary to a "stockholder" or "holder" are
to the record holders of Dissenting Shares.
Under Delaware law, when a merger is approved by written consent in lieu of
a stock holders meeting under Section 228 of Delaware law, as the merger was,
each constituent corporation, either before the effective date of the merger or
within ten days after that date, must notify each holder of any class or series
of stock of the constituent corporation that is entitled to appraisal rights of
the approval of the merger and the availability of appraisal rights for any or
all shares of that class or series of stock, and must include in the notice a
copy of Section 262 of Delaware law.
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This document constitutes the required notice to the stockholders of
Coleman and the applicable statutory provisions of Delaware law are attached as
Annex II at the back of this document. Any stockholder who wishes to exercise
his or her appraisal rights or who wishes to preserve his or her right to do so
should review the following discussion and Annex II carefully, because failure
to timely and properly comply with the procedures specified will result in the
loss of appraisal rights under Delaware law.
A Coleman stockholder wishing to exercise appraisal rights must deliver to
Coleman, within twenty days after the date of mailing of this document, or by
_______, 1999, a written demand for appraisal of such holder's shares of Coleman
common stock. Written demands received after that date will be disregarded. This
demand must reason ably inform Coleman of the identity of the stockholder and of
the stockholder's intent to demand appraisal of his or her shares of Coleman
common stock. A holder of Coleman common stock wishing to exercise his or her
appraisal rights must be the holder of record of the Coleman common stock on the
date the written demand for appraisal is made and must continue to hold the
Coleman common stock until the completion of the merger. Accordingly, a Coleman
stockholder who is the holder of record of Coleman common stock on the date the
written demand for appraisal is made, but who subsequently transfers the Coleman
common stock prior to completion of the merger, will lose any right to appraisal
of such holder's shares of Coleman common stock. Similarly, any person who
acquires Coleman common stock after ________, 1999 will not be entitled to
appraisal rights.
Only a stockholder of record is entitled to assert appraisal rights for the
Coleman common stock registered in that holder's name. A demand for appraisal
should be executed by or on behalf of the holder of record, fully and correctly,
as the holder's name appears on the holder's stock certificates. If the Coleman
common stock is held of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity.
If the Coleman common stock is held of record by more than one owner, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record.
However, the agent must identify the holder of record and expressly disclose the
fact that, in executing the demand, the agent is agent for the holder. A holder
of record, such as a broker who holds Coleman common stock as nominee for
several beneficial owners, may exercise appraisal rights with respect to the
Coleman common stock held for one or more beneficial owners while not exercising
appraisal rights with respect to the Coleman common stock held for other
beneficial owners. In that case, the written demand should set forth the number
of shares of Coleman common stock as to which appraisal is sought. When no
number of shares of Coleman common stock is expressly mentioned, the demand will
be presumed to cover all shares of Coleman common stock in brokerage accounts or
other nominee forms. Those stockholders whose shares of Coleman common stock are
held in brokerage
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accounts or other nominee forms who wish to exercise appraisal rights under
Delaware law are urged to consult with their brokers or nominees to determine
the appropriate procedures for the making of a demand for appraisal.
All written demands for appraisal should be sent or delivered to The
Coleman Company, Inc., 2111 East 37th Street North, Wichita, Kansas 67219,
Attention: Corporate Secretary.
Within 120 days after the completion of the merger, but not after that
date, the surviving corporation in the merger, or any stockholder who has
complied with the statutory requirements summarized above, may file a petition
in the Delaware Court of Chancery demanding a determination of the fair value of
the Dissenting Shares. Coleman, as the surviving corporation in the merger, is
under no obligation, and Coleman has no present intention, to file a petition
for the appraisal of the fair value of the Dissenting Shares. Accordingly, it is
the obligation of stockholders wishing to assert appraisal rights to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 262 of Delaware law.
Within 120 days after the completion of the merger, any stockholder who has
complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from Coleman a statement setting
forth the aggregate number of Dissenting Shares as to which demands for
appraisal have been received and the aggregate number of holders of those
Dissenting Shares. Such statements must be mailed within ten days after a
written request therefor has been received by Coleman.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of their
Dissenting Shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should be aware that the fair value
of their Dissenting Shares as determined under Section 262 of Delaware law could
be more than, the same as or less than the value of the merger consideration
they are entitled to receive under the merger agreement if they do not seek
appraisal of their shares of Coleman common stock and that investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262 of Delaware law. The Supreme Court
of the State of Delaware has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
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The Delaware Court of Chancery will determine the amount of interest, if
any, to be paid upon the amounts to be received by stockholders whose Dissenting
Shares have been appraised. The costs of the action may be determined by the
Delaware Court of Chancery and imposed upon the parties as the Delaware Court of
Chancery deems equitable. The Delaware Court of Chancery may also order that all
or a portion of the expenses incurred by any stockholder in connection with an
appraisal, including reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the Dissenting Shares entitled to appraisal.
Any holder of Coleman common stock who has duly demanded an appraisal in
compliance with Section 262 of Delaware law will not, after the completion of
the merger, be entitled to vote the Dissenting Shares for any purpose or be
entitled to the payment of dividends or other distributions on those Dissenting
Shares.
If any stockholder who properly demands appraisal of Coleman common stock
under Section 262 of Delaware law fails to perfect, or effectively withdraws or
loses, the right to appraisal, as provided in Section 262 of Delaware law, the
shares of Coleman common stock owned by such stockholder upon completion of the
merger will be converted into the right to receive the cash, stock and warrants
referred to above. A stockholder will fail to perfect, or effectively lose or
withdraw, the right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the completion of the merger, or if the
stockholder delivers to Coleman a written withdrawal of the demand for
appraisal. Any attempt to withdraw an appraisal demand more than sixty days
after the completion of the merger will require the written approval of Coleman.
SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION
General. The total amount of funds and other consideration required by
Sunbeam to complete the merger and to pay related expenses is about $[ ]*
million in cash, 6,676,135 shares of Sunbeam common stock and warrants to
purchase about 4.98 million shares of Sunbeam common stock, assuming all
outstanding Coleman stock options are cashed out in the merger and no Coleman
stockholders exercise their Delaware law appraisal rights.
Bank Credit Facility. Sunbeam expects to obtain the cash portion of the
merger consideration and amounts necessary to pay related expenses from cash on
hand and additional borrowings under its bank credit facility. Sunbeam's bank
credit facility, as amended, provides
- --------
* To be completed by amendment.
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for aggregate borrowings of up to $1,700 million through: (1) a revolving credit
facility in an aggregate principal amount of up to $400 million, maturing on
March 30, 2005, of which $52.5 million may only be used to complete the merger
if the merger does not occur prior to August 31, 1999; (2) up to $800 million in
Tranche A term loans maturing on March 30, 2005, of which $35 million may only
be used to complete the merger; and (3) a Tranche B $500 million term loan
maturing on September 30, 2006. Absent a further extension by Sunbeam's bank
lenders of the April 15, 1999 waiver or a refinancing of the bank credit
facility, the foregoing maturities could be accelerated by Sunbeam's bank
lenders at any time after April 10, 2000.
Under the bank credit facility, interest accrues, at Sunbeam's option: (1)
at LIBOR; or (2) at the base rate of the administrative agent, which is
generally the higher of the prime commercial lending rate of the administrative
agent or the Federal Funds Rate plus 0.50%, in each case, plus, an interest rate
margin which varies depending upon the occurrence of specified events. These
events relate to the execution and delivery by Coleman and its domestic
subsidiaries of guarantees and related security documents which will become
effective upon the completion of the merger, the filing with the SEC of this
document, the completion of the merger, and the reduction of the bank lenders'
commitment and loan exposure under the bank credit facility. The interest rate
margin is currently 3.75% for LIBOR loans and 2.50% for base rate loans, but can
increase or decrease in the future. The interest rate margin will be reduced by
0.50% as soon as Coleman and its domestic subsidiaries execute and deliver to
Sunbeam's lending banks guarantees and security documents which will become
effective upon completion of the merger, so long as these documents are executed
and delivered by May 25, 1999.
Security and Guarantees. Borrowings under the bank credit facility are
secured by a pledge of the stock of Sunbeam's material subsidiaries, including
Coleman, and by a security interest in substantially all of the assets of
Sunbeam and its material domestic subsidiaries, other than Coleman and its
subsidiaries except as described below. Currently, Coleman's inventory and
related assets are pledged to secure its obligations for letters of credit
issued for its account under the bank credit facility. Additionally, as
security for Coleman's note payable to Sunbeam, Coleman pledged substantially
all of its domestic assets, other than real property. The pledge runs in favor
of Sunbeam's lending banks, to which the Coleman note has been pledged as
security for Sunbeam's obligations to them. Upon completion of the merger,
substantially all of Coleman's assets and the assets of Coleman's domestic
subsidiaries will be pledged to secure the obligations under the bank credit
facility.
Borrowings under the bank credit facility are guaranteed by a number of
Sunbeam's wholly owned material domestic subsidiaries and these subsidiary
guarantees are secured as described above. Upon completion of the merger,
Coleman and each of its domestic subsidiaries will become guarantors of the
obligations under the bank credit facility. To the extent extensions of
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credit are made by any subsidiaries of Sunbeam, the obligations of these
subsidiaries are guaranteed by Sunbeam.
Repayment and Refinancing. Sunbeam has made no decision with respect to the
repayment or refinancing of indebtedness incurred or to be incurred under the
bank credit facility and may repay this indebtedness out of its internally
generated funds or from proceeds of a subsequent financing. Any decisions with
respect to such repayment or refinancing will be made based on a review from
time to time of the advisability of particular transactions, as well as on
prevailing interest rates and financial and economic conditions.
Covenants. The bank credit facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of Sunbeam
and its subsidiaries, including Coleman, to, among other things:
o declare dividends or repurchase stock,
o prepay, redeem or repurchase debt, incur liens and engage in
sale-leaseback transactions,
o make loans and investments,
o incur additional debt,
o amend or otherwise alter material agreements or enter into restrictive
agreements,
o engage in mergers, acquisitions and asset sales,
o engage in specified transactions with affiliates,
o alter its cash management system, and
o alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios.
As a result of Sunbeam's operating losses in 1998, Sunbeam was not in
compliance with some of the covenants of its bank credit facility. Effective
June 30, 1998, Sunbeam entered into an agreement with its bank lenders which
waived Sunbeam's compliance through December 31,
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1998. On October 19, 1998, Sunbeam's bank lenders agreed to a extend this waiver
through April 10, 1999. In April 1999, the waiver was extended to April 10,
2000, and the bank credit facility was amended to, among other things:
o require Sunbeam to meet new financial tests and ratios,
o decrease the interest rates to the levels described above,
o reduce the interest margin by 0.50% and postpone until April 10, 2000
principal payments of $69,250,000 otherwise due September 30, 1999 and
principal payments of $69,250,000 otherwise due March 31, 2000, as
soon as Coleman and its domestic subsidiaries execute and deliver
guarantees and security documents which will become effective upon
completion of the merger, so long as these documents are executed and
delivered by May 25, 1999,
o provide that the following events relating to the merger will be
events of default under the bank credit facility:
o if Sunbeam fails to have the SEC declare this document effective
by October 30, 1999,
o if Sunbeam fails to complete the merger within 25 business days
after this document is declared effective by the SEC, or
o if Sunbeam has to pay more than $87.5 million in cash to complete
the merger, including any payments on account of the exercise of
any appraisal rights, but excluding related legal, accounting and
other customary fees and expenses,
o require Sunbeam and Coleman to amend Coleman's note payable to Sunbeam
and to have Coleman secure the note, which is pledged by Sunbeam to
secure the obligations under the bank credit facility, with
substantially all of Coleman's domestic assets other than real
property, including 66% of its ownership interests in its direct
foreign subsidiaries and domestic holding companies for its foreign
subsidiaries, and all of its ownership interests in its other direct
domestic subsidiaries,
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o impose restrictions on the aggregate revolving loan principal balance
permitted to be outstanding at the end of each month under the bank
credit facility,
o require Sunbeam to maintain a concentration cash management system and
to repay revolving loans, which may be reborrowed subject to
satisfaction of the bank credit facility's borrowing conditions, to
the extent that cash on hand in Sunbeam's concentration account on any
business day exceeds $15 million,
o require Sunbeam to prepay term loans under the bank credit facility on
each of September 30, 1999 and December 31, 1999 to the extent that
cash on hand in Sunbeam's concentration account plus the aggregate
amount of unused revolving loan commitments on these dates exceeds
$115 million and $125 million, respectively, but Sunbeam is not
required to prepay more than $69.3 million in the aggregate as a
result of this provision,
o require Sunbeam to reserve $52.5 million of availability under the
revolving credit facility, if the merger does not occur on or before
August 31, 1999, for use solely to pay the required cash portion of
the merger consideration,
o limit the amount that Sunbeam and its subsidiaries may spend on Year
2000 testing and remediation to $50 million in the aggregate during
the fiscal year ending December 31, 1999,
o require Sunbeam to obtain the bank lenders' consent to any litigation
settlement concerning the restatement of Sunbeam's 1996 and 1997
fiscal year and first quarter 1998 financial statements if such
settlements require the payment of money, not paid by insurance
carriers or other third parties, of more than $1 million in total,
o impose new informational reporting requirements, and
o provide Sunbeam with a $40 million foreign currency revolving loan
subfacility.
At December 31, 1998, following the scheduled repayment of a portion of
the term loan, about $1,360 million was outstanding and about $260 million was
available for borrowing under the bank credit facility.
Issuance of Sunbeam Common Stock in the Merger and upon Exercise of the
Warrants. The stock portion of the merger consideration and the shares of stock
to be issued upon exercise
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of the warrants will consist of newly issued shares of Sunbeam common stock. The
issuance of the shares of Sunbeam common stock in the merger and upon exercise
of the warrants is being registered under the registration statement of which
this document forms a part.
MATERIAL CONTACTS BETWEEN
COLEMAN AND SUNBEAM AND ITS AFFILIATES
Financial Transactions Between Coleman and Sunbeam
In connection with the M&F Transaction, Coleman repaid substantially all of
its outstanding indebtedness with the proceeds of borrowings from Sunbeam. These
borrowings, together with loans made by Sunbeam to Coleman after March 30, 1998,
were evidenced by an unsecured subordinated demand note payable by Coleman to
Sunbeam which had an unpaid principal amount of $365.1 million at December 31,
1998. The note bore interest at a floating rate equivalent to the weighted
average interest rate incurred by Sunbeam on borrowings under its bank credit
facility and on its debentures (about 7.1% per annum during 1998). The note was
pledged by Sunbeam as security for its obligations under its bank credit
facility.
In connection with the April 15, 1999 amendment to Sunbeam's bank credit
facility, the Coleman note payable to Sunbeam was revised to, among other
things:
o lower the interest rate to 4% if the three-month LIBOR quoted on the
telerate system is less than 6%, or 5% if the three-month LIBOR quoted
on the telerate system is 6% or higher,
o make the note payable on April 15, 2000 rather than on demand,
o add customary representations, warranties, covenants and events of
default, and
o provide that an event of default under Sunbeam's bank credit facility
would constitute an event of default under the Coleman note.
As security for the revised Coleman note, Coleman pledged substantially all
of its domestic assets, other than real property, including 66% of its ownership
interests in its direct foreign subsidiaries and domestic holding companies for
its foreign subsidiaries, and all of its ownership interests in its other direct
domestic subsidiaries, but Coleman's subsidiaries have not pledged their assets
or the stock of their subsidiaries. Sunbeam pledged the revised Coleman note as
security for Sunbeam's obligations to its lending banks and Sunbeam assigned to
these lending banks the security
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pledged by Coleman for the revised Coleman note. Coleman also agreed to give the
lending banks a direct pledge of the assets securing the revised Coleman note to
secure the obligations under Sunbeam's bank credit facility, subject to a cap
equal to the balance due from time to time on the revised Coleman note. The
revision of the Coleman note and the pledge of Coleman assets were approved on
behalf of Coleman by A. Whitman Marchand, Coleman's only disinterested director,
acting as a duly authorized independent committee of the Coleman board of
directors. Coleman paid Mr. Marchand $25,000 for his services as an independent
director and agreed to indemnify him to the fullest extent permitted by Delaware
law.
Since the Sunbeam bank credit facility provides that Sunbeam will not
contribute capital to Coleman or, with some exceptions, permit Coleman to borrow
money from anyone other than Sunbeam, Coleman's ability to meet its cash
operating requirements, including working capital requirements, capital
expenditures and other obligations, is dependent upon its cash flow from
operations and loans from Sunbeam. Sunbeam intends, and believes it will have
the ability, to fund any Coleman requirements for borrowed funds through April
10, 2000. All loans from Sunbeam to Coleman will be added to the Coleman note
payable to Sunbeam.
M&F Transaction
At the same time Sunbeam and Coleman entered into the merger agreement,
Sunbeam also entered into an agreement with Coleman (Parent) Holdings and CLN
Holdings, affiliates of MacAndrews & Forbes, under which the M&F Transaction
was completed on March 30, 1998. In the M&F Transaction, Coleman (Parent)
Holdings received 14,099,749 shares of Sunbeam common stock and $159,956,756 in
cash. In addition, in connection with the M&F Transaction, Sunbeam assumed about
$1,016 million of debt of Coleman and its parent corporations, which was
subsequently repaid. As a result of the M&F Transaction, CLN Holdings became a
wholly owned subsidiary of Sunbeam and Sunbeam acquired indirectly about 81% of
the then outstanding shares of Coleman common stock. Sunbeam's ownership
interest in Coleman was reduced to about 79% as a result of the exercise of
Coleman stock options immediately following the M&F Transaction. In addition, as
a result of the M&F Transaction, MacAndrews & Forbes, as the indirect parent
corporation of Coleman (Parent) Holdings, became Sunbeam's second largest
stockholder with shares representing about 14% of the currently outstanding
Sunbeam common stock. As part of the August 1998 settlement with MacAndrews &
Forbes of threatened claims related to the M&F Transaction, Coleman (Parent)
Holdings received from Sunbeam a five-year warrant to purchase an additional 23
million shares of Sunbeam common stock at a cash exercise price of $7 per share,
subject to anti-dilution adjustments. Accordingly, MacAndrews & Forbes may now
be deemed to be the beneficial owner of 29.9% of the currently outstanding
Sunbeam common stock. See "- Settlement of Claims Relating to the M&F
Transaction."
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Under the agreement relating to the M&F Transaction, upon completion of the
M&F Transaction, all the directors of Coleman resigned, the number of directors
constituting the board of directors of Coleman was fixed at five, and five
designees of Sunbeam were elected as directors of Coleman. In addition, Sunbeam
designees were appointed to senior management positions at Coleman.
Subsequently, as a result of changes in Sunbeam's management and board of
directors, Jerry W. Levin, a current executive officer and director of Sunbeam
and the Chief Executive Officer of Coleman, was reelected to the Coleman board.
In addition, Paul E. Shapiro, a current executive officer of Sunbeam and the
Executive Vice President and Chief Administrative Officer of Coleman, was
elected to the Coleman board of directors. The other members of the Coleman
board of directors resigned or were removed by Sunbeam. In April 1999, the size
of the Coleman board of directors was fixed at three members and A. Whitman
Marchand, who is not affiliated with either Sunbeam or Coleman, was elected to
the Coleman board of directors. See "RECENT DEVELOPMENTS AFFECTING SUNBEAM -
Changes in Sunbeam's Management and Board," "- Settlement of Claims Relating to
the M&F Transaction" and "MATERIAL CONTACTS BETWEEN COLEMAN AND SUNBEAM AND ITS
AFFILIATES - Services Provided by MacAndrews & Forbes."
Under the agreement relating to the M&F Transaction, Coleman (Parent)
Holdings agreed not to transfer the shares of Sunbeam common stock it received
in the M&F Transaction (other than to specified affiliates) for a period of nine
months from and after the completion of the M&F Transaction, subject to certain
exceptions. Coleman (Parent) Holdings has not transferred any such shares.
The agreement relating to the M&F Transaction has been filed as an exhibit
to the Registration Statement of which this document forms a part and is
incorporated in this document by reference.
Registration Rights Agreement
The shares of Sunbeam common stock received by Coleman (Parent) Holdings in
the M&F Transaction were not registered under the Securities Act. Accordingly,
upon completion of the M&F Transaction, Sunbeam entered into a Registration
Rights Agreement with Coleman (Parent) Holdings. Under the Registration Rights
Agreement, Coleman (Parent) Holdings can require Sunbeam to register for resale
under the federal and applicable state securities laws the shares of Sunbeam
common stock it received in the M&F Transaction.
Sunbeam has also agreed to use reasonable best efforts to permit any
registration statement filed by Sunbeam in connection with the Registration
Rights Agreement to be used by former affiliates of Coleman for resales of
Sunbeam common stock received by those affiliates in the
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merger. However, any affiliate seeking to register shares of Sunbeam common
stock for resale must agree in writing to be bound by the terms of the
Registration Rights Agreement.
The Registration Rights Agreement was amended in August 1998 to permit
Coleman (Parent) Holdings to require Sunbeam to register the warrant, and the
shares of Sunbeam common stock issuable upon exercise of the warrant, issued to
Coleman (Parent) Holdings in connection with a settlement of legal claims
relating to the M&F Transaction.
The Registration Rights Agreement, and the August 1998 amendment thereto,
have been filed as exhibits to the Registration Statement of which this document
forms a part and are incorporated in this document by reference.
Appointments of Former Coleman and MacAndrews & Forbes Officers to Sunbeam's
Management and Board
In June 1998, following the termination of Sunbeam's former management
team, Sunbeam announced that Jerry W. Levin of MacAndrews & Forbes had been
elected as Sunbeam's Chief Executive Officer. Mr. Levin and other Sunbeam
executives that were affiliated with MacAndrews & Forbes later signed three-year
employment agreements with Sunbeam. The other executives include Paul E.
Shapiro, Executive Vice President and Chief Administrative Officer of Sunbeam,
and Bobby G. Jenkins, Executive Vice President and Chief Financial Officer of
Sunbeam. In June 1998, Mr. Levin and Howard Gittis of MacAndrews & Forbes were
elected to the Sunbeam board of directors. For a description of the terms of the
employment agreements entered into by Messrs. Levin, Shapiro and Jenkins, see
"MANAGEMENT - Executive Compensation." For a further discussion of the events
leading up to the appointment of Mr. Levin as Sunbeam's Chief Executive Officer
and the election of Messrs. Levin and Gittis to the Sunbeam board of directors,
see "RECENT DEVELOPMENTS AFFECTING SUNBEAM - Changes in Sunbeam's Management and
Board."
Settlement of Claims Relating to the M&F Transaction
On August 12, 1998, Sunbeam announced that, following investigation and
negotiation by a Special Committee of the Sunbeam board, Sunbeam had entered
into a settlement agreement with the MacAndrews & Forbes affiliate, Coleman
(Parent) Holdings. The settlement agreement:
o released Sunbeam from certain threatened claims of MacAndrews & Forbes
and its affiliates arising from the M&F Transaction,
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o enabled Sunbeam to retain the services of executive personnel
affiliated with MacAndrews & Forbes or its affiliates who had been
managing Sunbeam since mid-June 1998, including Jerry W. Levin, Paul
E. Shapiro and Bobby Jenkins, and
o provided for continuing management assistance and other support by
MacAndrews & Forbes and its affiliates to Sunbeam as described below.
As part of the settlement, Coleman (Parent) Holdings received from Sunbeam
a five-year warrant to purchase 23 million shares of Sunbeam common stock at a
cash exercise price of $7 per share, subject to anti-dilution adjustments.
Accordingly, MacAndrews & Forbes may now be deemed to be the beneficial owner of
29.9% of the total number of shares of Sunbeam common stock that would be
outstanding following the exercise of the warrant. In connection with the
settlement agreement, Sunbeam and Coleman (Parent) Holdings entered into an
amendment to the registration rights agreement executed in connection with the
M&F Transaction. Under this amendment, Coleman (Parent) Holdings can require
Sunbeam to register under the federal and applicable state securities laws the
warrant received by Coleman (Parent) Holdings in the settlement and the shares
of Sunbeam common stock issuable upon exercise of the warrant. For a description
of the settlement agreement and the terms of the warrant issued to Coleman
(Parent) Holdings, see "RECENT DEVELOPMENTS AFFECTING SUNBEAM Settlement of
Claims Relating to the M&F Transaction."
The Special Committee that negotiated and approved the terms of the
settlement agreement with Coleman (Parent) Holdings, including the terms of the
warrant issued to Coleman (Parent) Holdings, consisted of four outside
directors, none of whom has any affiliation with Coleman (Parent) Holdings. The
members of the Special Committee were Howard Kristol (Chairman), Charles Elson,
Peter Langerman and Faith Whittlesey. They were assisted by independent
financial advisors and independent legal counsel.
In connection with the settlement agreement with Coleman (Parent) Holdings,
Messrs. Levin, Shapiro and Jenkins each signed three-year employment agreements
with Sunbeam. See "MANAGEMENT."
Services Provided by MacAndrews & Forbes
Under Sunbeam's August 1998 settlement agreement with Coleman (Parent)
Holdings, in addition to the services of MacAndrews & Forbes former executive
personnel who have been managing Sunbeam since mid-June 1998, MacAndrews &
Forbes agreed to provide management assistance and other support to Sunbeam in
specified areas. Sunbeam does not pay MacAndrews & Forbes and its affiliates for
these services, but does reimburse them for out-of-pocket expenses
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paid. Execution of the settlement agreement was a condition to Sunbeam's
continued employment of Messrs. Levin, Shapiro and Jenkins as officers of
Sunbeam.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements were prepared to give effect to the following "Pro Forma
Transactions":
o Sunbeam's acquisition on March 30, 1998 of about 81% of the then
outstanding shares of Coleman in exchange for 14,099,749 shares of
Sunbeam's common stock and approximately $160 million in cash;
o Sunbeam's acquisition on April 6, 1998 of all of the outstanding stock
of Signature Brands in exchange for approximately $255 million in
cash;
o Sunbeam's acquisition in the merger of the shares of Coleman common
stock held by the Coleman public stockholders, in exchange for about
6.7 million shares of Sunbeam common stock and about $87 million in
cash (including cash-outs of Coleman options);
o the initial borrowing of approximately $1,325 million under Sunbeam's
bank credit facility;
o the original offering in March 1998 of $2,014 million aggregate
principal amount at maturity of the Debentures for net proceeds of
approximately $727.6 million; and
o the use of a portion of the net proceeds from the Bank Financing and
Original Offering as described in the notes to the unaudited pro forma
condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet gives effect
to Sunbeam's acquisition in the merger of the shares of Coleman common stock
held by the Coleman public stockholders as if it had occurred on December 31,
1998. The unaudited pro forma condensed consolidated statement of operations
gives effect to the Pro Forma Transactions as if they had occurred on December
29, 1997, the beginning of Sunbeam's 1998 fiscal year. The unaudited pro forma
condensed consolidated financial statements do not include pro forma adjustments
relating to the acquisition of First Alert because the effects of that
acquisition are not significant.
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Sunbeam's consolidated historical results of operations for the year ended
December 31, 1998 include Coleman and Signature Brands from the respective
acquisition dates and have been derived from the audited financial statements of
Sunbeam as of and for the year ended December 31, 1998. The results of
operations of the acquired entities from the beginning of the period through the
respective acquisition dates have been derived from the unaudited statements of
operations of the acquired entities for the three months ended March 31, 1998.
The acquisitions have been accounted for under the purchase method of
accounting.
Reclassifications were made to the net sales, cost of goods sold and
selling, general and administrative expense as reported in the historical
financial statements of Coleman and Signature Brands. These reclassifications
were made to conform to the classifications of Sunbeam and consist of
promotional allowances and cooperative advertising expenses. Sunbeam classifies
these amounts as a deduction to arrive at net sales.
Included in the historical statement of operations of Coleman for the three
months ended March 31, 1998, are certain pretax charges for costs relating to
the acquisition of Coleman by Sunbeam in the amount of $7.1 million, a $3.6
million write-off of capitalized costs associated with the installation of a
company-wide computer software system which was abandoned following its
acquisition by Sunbeam and $2.2 million to cancel a licensing agreement with an
affiliate. Additionally, the expense of the early extinguishment of debt of $1.2
million shown as an extraordinary charge on Coleman's historical statement of
operations for the three months ended March 31, 1998, has been excluded from the
unaudited pro forma condensed consolidated statement of operations for the year
ended December 31, 1998.
The pro forma adjustments are based upon available information and certain
assumptions that Sunbeam believes are reasonable under the circumstances.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of Sunbeam and
the notes thereto, and the other financial information included elsewhere in
this document. These unaudited pro forma condensed consolidated financial
statements are provided for informational purposes only and do not purport to be
indicative of the financial position or results of operations which would have
been obtained had the Pro Forma Transactions been completed as of the dates
indicated above or the results of operations for any future period.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Sunbeam Adjustments (i) Pro Forma
----------- --------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 61,432 $ 61,432
Restricted investments 74,386 74,386
Receivables, net 361,774 361,774
Inventories 519,189 $ 4,280 523,469
Prepaid expenses and other current assets 74,187 74,187
-------------- --------------- ---------------
Total current assets 1,090,968 4,280 1,095,248
Property, plant and equipment, net 455,172 12,640 467,812
Trademarks, trade names, goodwill and other, net 1,859,377 115,719 1,975,096
-------------- --------------- ---------------
$ 3,405,517 $ 132,639 $ 3,538,156
============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term
debt $ 119,103 $ 119,103
Accounts payable 162,173 162,173
Other current liabilities 321,185 321,185
-------------- --------------- ---------------
Total current liabilities 602,461 602,461
Long-term debt, less current portion 2,142,362 $ 87,000 2,229,362
Other long-term liabilities 248,459 248,459
Deferred income taxes 100,473 36,600 137,073
Minority interest 51,325 (51,325)
Shareholders' equity:
Common stock 1,007 67 1,074
Additional paid-in capital 1,123,457 60,297 1,183,754
Accumulated deficit (809,997) (809,997)
Accumulated other comprehensive loss (54,030) (54,030)
-------------- --------------- ---------------
Total shareholders' equity 260,437 60,364 320,801
-------------- --------------- ---------------
$ 3,405,517 $ 132,639 $ 3,538,156
============== =============== ===============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
95
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Before After
Historical Signature Pro Forma Coleman Coleman Coleman
Sunbeam Brands(a) Coleman(a) Adjustments Merger Merger (i) Merger
------- --------- ---------- ----------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $1,836,871 $55,482 $244,499 $(23,346)(b) $2,098,706 $ 2,098,706
(14,800)(c)
Cost of goods sold........ 1,788,819 39,098 175,777 (10,954)(b) 1,983,594 5,760 1,989,354
(10,700) (c)
1,554 (d)
Amortization of
goodwill and
identifiable
intangibles............. 43,830 1,032 2,934 7,165 (d) 54,961 3,356 58,317
Selling, general and
administrative expense.. 674,247 20,392 74,855 (12,392)(b) 753,575 160 753,735
(3,700)(c)
173 (d)
----------- ------- ---------- ---------- ---------- ---------- ---------
Operating loss............ (670,025) (5,040) (9,067) (9,292) (693,424) (9,276) (702,700)
Interest expense, net
and other............... 126,323 4,481 10,905 12,437 (e) 154,847 7,439 162,286
701 (f)
Gain on sale of business 26,137 26,137 26,137
----------- ------- ---------- ---------- ---------- ---------- ---------
(Loss) earnings from
continuing operations
before income taxes,
minority interest and
extraordinary charge... (796,348) (9,521) 6,165 (22,430) (822,134) (16,715) (838,849)
Income taxes (benefit).... (10,130) (3,062) 7,518 (4,400)(g) (10,074) (18,300) (28,374)
Minority interest in
loss of Coleman......... (10,681) 61 (297)(h) (10,917) 10,917
----------- ------- ---------- ---------- ---------- ---------- ---------
Loss from continuing
operations before
extraordinary charge... $ (775,537) $(6,459) $ (1,414) $ (17,733) $ (801,143) $ (9,332) $(810,475)
=========== ======= ========== ========== ========== ========== =========
Basic loss per share of
common stock from
continuing operations .. $ (7.99) $ (7.96) $ (7.55)
=========== ========== =========
Weighted average
common shares
outstanding............. 97,121 3,525 (j) 100,646 $ 6,700 (j) $ 107,346
=========== ========== ========== ========== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
96
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
(in thousands, except percentages, share data and as noted)
(a) Represents the historical statements of operations of Coleman and
Signature Brands for the three months ended March 31, 1998.
(b) Represents the reclassifications made to net sales, cost of goods sold
and selling, general and administrative expense as reported in the
historical financial statements of Coleman and Signature Brands. These
reclassifications were made to conform to the classifications of
Sunbeam and consist of promotional allowances and cooperative
advertising. Sunbeam classifies these amounts as a deduction to arrive
at net sales, as follows:
Decrease in
-------------------------------------------
Selling,
General and
Cost of Administrative
Net Goods Expense
Sales Sold --------------
----- ----
Coleman.................... $(17,115) $ (10,954) $ (6,161)
Signature Brands........... (6,231) (6,231)
-------- ---------- ---------
$(23,346) $ (10,954) $ (12,392)
======== ========== =========
(c) Represents the elimination of Coleman's net sales, cost of goods sold
and selling, general and administrative expense for the two days ended
March 31, 1998. These amounts are included in the Coleman historical
statement of operations for the three months ended March 31, 1998 and
are also reflected in the Sunbeam historical statement of operations
since March 30, 1998.
(d) Represents the increase in depreciation and amortization to reflect the
pro forma effect of the acquisitions occurring at the beginning of the
period. In each acquisition, the purchase price paid has been allocated
to the fair value, as determined by independent appraisals, of tangible
and identified intangible assets acquired and liabilities assumed as
follows (in millions):
97
<PAGE>
<TABLE>
<CAPTION>
Signature
Coleman Brands
------- ------
<S> <C> <C>
Value of common stock issued..................................... $ 607
Cash paid including expenses and mandatory
redemption of debt, net of cash acquired.................. 160 $255
Cash received from sale of Coleman Spas, Inc..................... (17)
Cash received from stock option proceeds......................... (9)
------
Net cash paid and equity issued.................................. 741 255
Fair value of liabilities assumed................................ 1,455 83
------ ----
2,196 338
Fair value of assets acquired.................................... 1,113 191
------ ----
Excess of purchase price over fair value of net assets acquired.. $1,083 $147
====== ====
</TABLE>
The pro forma amounts are derived as follows:
<TABLE>
<CAPTION>
Quarterly/
Signature Depreciation
Coleman Brands Amortization
------- ------ ------------
<S> <C> <C> <C>
Increase in property, plant and equipment to reflect
fair value $50,560 $3,871 $1,727
======
Amount attributable to:
Cost of goods sold................................. $1,554
======
Selling, general and administrative expense........ $ 173
=====
</TABLE>
Amortization of goodwill and identifiable intangibles:
<TABLE>
<CAPTION>
Quarterly
Signature Depreciation/
Coleman Brands Life Amortization
------- ------ ---- ------------
<S> <C> <C> <C> <C>
Goodwill.................................. $1,083,259 $147,151 40 years $7,690
Trademarks................................ 279,920 53,900 40 years 2,086
Assembled workforce....................... 12,880 3,000 8 years 496
Patents................................... 5,600 1,800 8 years 231
------
10,503
Less historical amortization.............. (3,338)
--------
$7,165
</TABLE>
(e) Represents the net increase in interest expense to reflect the pro
forma effect of the acquisition and refinancing borrowings as if such
transactions occurred at the beginning of the period. Amounts are
derived as follows:
98
<PAGE>
<TABLE>
<CAPTION>
Quarterly Less:
Acquisition Interest on Quarterly
and Acquisition and Interest on Increase in
Refinancing Effective Refinancing Pre-Acquisition Interest
Acquisition Borrowings Rate Borrowings Borrowings Expense
- ----------- ----------- --------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Coleman............. $1,188,000 7.47% $22,186 $9,850 $12,336
Signature Brands.... 254,600 7.47% 4,755 4,654 101
-------
$12,437
=======
</TABLE>
The assumed effective interest rate was derived using the 1998
effective rates, including amortization of deferred financing costs, of
9.05% for the term loan borrowings, which represent approximately 59%
of the Company's acquisition and refinancing borrowings, and 5.20% for
the Debentures, which represent approximately 41% of the Company's
acquisition and refinancing borrowings. The effect on operations of a
1/8% variance in interest rates on the acquisition and refinancing
borrowings would be approximately $1.1 million per year and $0.3
million per quarter.
(f) Represents the net increase in interest expense to reflect the pro
forma effect of higher interest rates on the new financing compared
with the historical financing. The amount is derived as follows:
<TABLE>
<CAPTION>
Quarterly Quarterly
Average Interest at Interest at Increase in
Pre-Refinancing Effective Refinancing Pre-Refinancing Interest
Borrowings Rate Borrowings Rate Borrowings Rate Expense
--------------- ---------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Historical Sunbeam....... $242,500 7.47% $4,529 $3,828 $701
</TABLE>
(g) Represents the domestic income tax provision accrued by Coleman of
$4.4 million for the three months ended March 31, 1998. On a pro forma
basis this accrual would not have been required as a consequence of
the net operating losses generated by Sunbeam for the year ended
December 31, 1998. No adjustment is required to the Signature Brands
tax benefit since the Signature Brands loss in the first quarter of
1998 was available for carryback. No tax benefit is provided on the
pro forma adjustments since the adjustments for depreciation and
amortization are not deductible for income tax purposes and the
deferred tax asset resulting from the remaining pro forma adjustments
results in an additional valuation allowance since it is more likely
than not that such deferred tax assets will not be realized from
future taxable income.
(h) Represents approximately 21% of the loss from continuing operations
before extraordinary charge of Coleman for the three months ended March
31, 1998.
99
<PAGE>
(i) Represents the pro forma effects associated with completing the Coleman
merger and acquiring the remaining Coleman shares outstanding. The
total consideration is derived as follows:
Cash $ 87,000
Sunbeam common stock 45,225
Sunbeam warrants 15,139
--------
$147,364
========
The portion of the consideration consisting of approximately 6.7
million shares of Sunbeam common stock is valued at $6.75 per share,
the closing price of Sunbeam's common stock on October 21, 1998, the
date the Company announced the terms of the Memorandum of
Understanding. The warrants to purchase approximately 4.98 million
shares of Sunbeam common stock at $7 per share are valued at $3.04 per
share, the same value ascribed to the M&F warrants. The pro forma
allocation of the consideration is based on independent appraisals
prepared in connection with the Coleman acquisition. Allocation of the
total consideration and its effect on the pro forma condensed
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Pro Forma Effect on:
---------------------------------------------------
Amortization
of Selling,
Cost of Goodwill and General and
Goods Identifiable Administrative
Allocation Sold Intangibles Expense
---------- ------- ------------- --------------
<S> <C> <C> <C> <C>
Inventories $ 4,280 $ 4,280
Property, plant and equipment 12,640 1,480 $ 160
Trademarks 69,980 $ 1,750
Assembled workforce 3,220 403
Patents 1,400 175
Minority interest 51,325
Deferred income taxes (36,600)
Goodwill 41,119 1,028
----------- ---------- ------------ ------------
$ 147,364 $ 5,760 $ 3,356 $ 160
=========== ========== ============ ============
</TABLE>
The pro forma adjustment to deferred income taxes represents the
recording in purchase accounting of the deferred income tax effects of
the temporary differences which result from the allocation of $91.5
million of the consideration to tangible and identifiable intangible
assets. The deferred income taxes have been established based on an
estimated federal, state and foreign income tax rate of approximately
40%.
100
<PAGE>
The pro forma adjustments also reflect:
o additional interest expense of $7.439 million for the $87 million
portion of the consideration which is expected to be funded from
the Company's revolving credit facility at an interest rate of
8.55% (the rate in effect at December 31, 1998)
o the elimination of the minority interest in the loss on Coleman
in the pro forma statement of operations
o an additional income tax benefit of $18.3 million. Approximately
half of the $36.6 million of deferred income taxes established in
connection with this transaction would turnaround in the net
operating loss carryforward period. Consequently, this amount
would be available to reduce the valuation allowance established
in 1998.
(j) Represents the increase in the weighted average shares of Sunbeam
common stock outstanding as of December 31, 1998, adjusted for the
14,099,749 shares issued in connection with the acquisition of Coleman
as if it had occurred at the beginning of the period and the
approximately 6.7 million shares of Sunbeam common stock to be issued
in connection with the acquisition of the remaining Coleman shares
outstanding. Since the Coleman acquisition occurred at the end of the
first quarter, the weighted average shares outstanding would have
increased on a pro forma basis by one quarter of the 14,099,749 shares
issued, or 3,524,937 shares. The shares of common stock issuable upon
conversion of the Debentures have not been included, as they would be
anti-dilutive.
101
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF SUNBEAM
The following selected historical financial information has
been derived from the Consolidated Financial Statements of Sunbeam. This
information should be read in conjunction with the Consolidated Financial
Statements and related notes, which are included elsewhere in this document.
While reviewing the following selected historical financial
information, please note the following:
o All amounts in the table are expressed in millions,
except per share and ratio basis.
o On March 30, 1998, Sunbeam acquired approximately 81%
of the then outstanding shares of common stock of
Coleman. On April 6, 1998, Sunbeam completed the cash
acquisitions of First Alert and Signature Brands. The
acquisitions were accounted for under the purchase
method of accounting and, accordingly, the financial
position and results of operations of each acquired
entity are included in Sunbeam's Consolidated
Financial Statements from the respective dates of
acquisition.
o For the fiscal year ended December 31, 1998, Sunbeam
took an extraordinary charge of $122.4 million
related to the early extinguishments of debt and took
other charges of:
o $70.0 million related to the issuance of
warrants to a MacAndrews & Forbes affiliate;
o $62.5 million related to the write-off of
goodwill;
o $39.4 million related to fixed asset
impairments;
o $31.2 million related to compensation
expense recorded with respect to the new
employment agreements with Sunbeam's former
Chairman and Chief Executive Officer and two
other former senior officers of Sunbeam; and
o $95.8 million related to write-downs of
inventory.
102
<PAGE>
See Notes 2, 3 and 11 to Sunbeam's Consolidated
Financial Statements.
o For the fiscal year ended December 28, 1997, Sunbeam
reversed $28.0 million pre-tax liabilities no longer
required and $13.3 million tax liabilities no longer
required.
o For the fiscal year ended December 29, 1996, Sunbeam
took restructuring, asset impairment and other
charges of $239.2 million before taxes. See Notes 12
and 13 to Sunbeam's Consolidated Financial Statements
included in this document.
o The "earning (loss) from discontinued operations, net
of taxes" and "loss on sale of discontinued
operations, net of taxes" represent results from
Sunbeam's furniture business, net of taxes and the
estimated loss on disposal. See Note 13 to Sunbeam's
Consolidated Financial Statements included in this
document.
o In computing the ratio of earnings to fixed charges:
(a) earnings represent income from continuing
operations before income taxes and fixed charges
(exclusive of interest capitalized); and (b) fixed
charges consist of interest expense, capitalized
interest and the estimated interest portion of rental
expense. For the fiscal year ended December 29, 1996
and the fiscal year ended December 31, 1998,
historical earnings were insufficient to cover fixed
charges by $262.2 million and $797.1 million,
respectively. For the fiscal year ended December 31,
1998, on a pro forma basis, earnings were
insufficient to cover fixed charges by $839.6
million.
o At December 31, 1998, total assets include goodwill
and other intangible assets of $1,859.4 million.
103
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------
December December December December
January 1, 31, 29, 28, 31,
1995 1995 1996 1997 1998
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................ $ 1,044.3 $1,016.9 $ 984.2 $ 1,073.1 1,836.9
Cost of goods sold ................... 764.4 809.1 896.9 831.0 1788.8
Selling, general and administrative
expenses ........................... 128.9 137.5 221.7 152.6 718.1
Restructuring, and asset impairment
charge (benefit) ................... -- -- 110.1 (14.6) --
--------- ----------- -------- --------- --------
Operating earnings (loss) ............ $ 151.0 $ 70.3 $ (244.5) $ 104.1 (670.0)
========= ======== ======== ========= ========
Earnings (loss) from continuing
operations before extraordinary
charge ............................. $ 85.3 $ 37.6 $ (170.2) $ 52.3 $(775.5)
Earnings (loss) from discontinued
operations, net of taxes ........... 21.7 12.9 0.8 -- --
Loss on sale of discontinued operations,
net of taxes........................ -- -- (39.1) (14.0) --
Extraordinary charge .................. -- -- -- -- (122.4)
--------- -------- --------- --------- ---------
Net earnings (loss) ................... $ 107.0 $ 50.5 $ (208.5) $ 38.3 $(897.9)
========= ======== ======== ========= ========
Ratio of earnings to fixed charges .... 14.4x 4.7x -- 7.2x --
Earnings (Loss) Per Share Data:
Basic weighted average shares
outstanding ........................ 82.6 81.6 82.9 84.9 97.1
Diluted weighted average shares
outstanding ........................ 82.6 82.8 82.9 87.5 97.1
Basic earnings (loss) per share from
continuing operations before
extraordinary charge ................ $ 1.03 $ 0.46 $ (2.05)$ 0.62 $ (7.99)
Diluted earnings (loss) per share from
continuing operations before
extraordinary charge ................ 1.03 0.45 (2.05) 0.60 (7.99)
Basic earnings (loss) per share ....... 1.30 0.62 (2.51) 0.45 (9.25)
Diluted earnings (loss) per share ..... 1.30 0.61 (2.51) 0.44 (9.25)
Cash dividends declared per share ..... 0.04 0.04 0.04 0.04 0.01
Balance Sheet Data (at period end):
Working capital ....................... $ 294.8 $ 411.7 $ 359.9 $ 369.1 $ 488.5
Total assets .......................... 1,008.9 1,158.7 1,059.4 1,058.9 3,405.5
Long-term debt ........................ 124.0 161.6 201.1 194.6 2,142.4
Shareholders' equity .................. 454.7 601.0 415.0 472.1 260.4
</TABLE>
104
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF COLEMAN
The following selected consolidated historical financial information of
Coleman with respect to each year in the five-year period ended December 31,
1998 is derived from the Consolidated Financial Statements of Coleman. The
balance sheet data for each of the two years in the period ended December 31,
1998 and the statement of operations and cash flow data for each of the three
years in the period ended December 31, 1998 are included in documents
incorporated by reference in this document. The statement of operations and cash
flow data for the fiscal years ended December 31, 1995 and 1994 and balance
sheet data as of December 31, 1996, 1995 and 1994 have been derived from
Coleman's audited Consolidated Financial Statements previously filed with the
SEC but not incorporated by reference in this document. The selected
consolidated historical financial information should be read in conjunction with
the Consolidated Financial Statements and the related notes of Coleman which are
incorporated by reference in this document. See "WHERE TO FIND MORE INFORMATION"
and "INCORPORATION OF DOCUMENTS BY REFERENCE."
While reviewing the following selected historical financial information,
please note the following:
o All amounts are expressed in thousands, except per share data.
o For the fiscal year ended December 31, 1998, Coleman took restructuring
and other charges, net of tax, totaling $27.9 million which have been
recorded as follows:
o $1.1 million pre-tax charge in cost of sales
o $30.2 million pre-tax charge in selling, general and administrative
expense
o $3.4 million of net tax benefits in the provision for income tax
benefit)
o For the fiscal year ended December 31, 1997, Coleman took restructuring
and other charges, net of tax, totaling $22.5 million which have been
recorded as follows:
o $19.7 million pre-tax charge in cost of sales
o $16.7 million pre-tax charge in selling, general and administrative
expense
105
<PAGE>
o $13.9 million of net tax benefits in the provision for income tax
(benefit)
o For the fiscal year ended December 31, 1996, Coleman took restructuring
and other charges, net of tax, totaling $52.5 million which have been
recorded as follows:
o $44.0 million pre-tax charge in cost of sales
o $30.2 million pre-tax charge in selling, general and administrative
expense
o $21.7 million of net tax benefits in the provision for income tax
(benefit)
o The asset impairment charge in 1995 is related to Coleman's Brazilian
operations which had not performed to Coleman's expectations since
acquisition of this operation in 1994 and reflects charges taken in
connection with the adoption of SFAS No. 121.
o Restructuring expense in 1994 reflects primarily the non-recurring
charge taken in connection with the German Restructuring which includes
severance costs, commitments to third parties and write-downs of
leasehold improvements and other assets to estimated realizable values.
106
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues .......................................... $ 751,580 $ 933,574 $ 1,220,216 $ 1,154,294 $ 1,015,373
Cost of sales ......................................... 535,710 649,427 928,497 840,331 750,486
----------- ----------- ----------- ----------- -----------
Gross profit .......................................... 215,870 284,147 291,719 313,963 264,887
Selling, general and administrative expense ........... 128,466 174,688 291,669 266,283 270,772
Asset impairment charge ............................... -- 12,289 -- -- --
Restructuring expense ................................. 18,456 -- -- -- --
Interest expense, net ................................. 13,374 24,545 38,727 40,852 33,213
Amortization of goodwill and deferred charges ......... 6,209 7,745 10,473 11,338 19,584
Gain on sale of business .............................. -- -- -- -- (32,411)
Other expenses, net ................................... 1,138 334 1,151 1,867 170
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes, minority
interest and extraordinary item ...................... 48,227 64,546 (50,301) (6,377) (26,441)
Income tax (benefit) .................................. 14,747 24,479 (10,927) (5,227) 13,846
Minority interest ..................................... -- -- 1,872 1,386 276
----------- ----------- ----------- ----------- -----------
Earnings (loss) before extraordinary item ............. 33,480 40,067 (41,246) (2,536) (40,563)
Extraordinary loss on early extinguishment
of debt, net of income taxes ......................... (677) (787) (647) -- (17,538)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) ................................... $ 32,803 $ 39,280 $ (41,893) $ (2,536) $ (58,101)
=========== =========== =========== =========== ===========
Net earnings (loss) per common share .................. $ 0.61 $ 0.74 $ (0.79) $ (0.05) $ (1.05)
=========== =========== =========== =========== ===========
Balance Sheet Data (at end of period):
Total assets .......................................... $ 712,265 $ 844,487 $ 1,160,086 $ 1,041,764 $ 933,257
Long-term debt (including current portions) .......... 291,175 355,257 583,613 477,799 365,535
Stockholders' equity .................................. 253,363 292,342 252,945 240,469 238,615
</TABLE>
107
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements (and related notes), selected
historical financial information and unaudited pro forma consolidated condensed
statement of operations appearing elsewhere in this prospectus.
On March 30, 1998, Sunbeam, through a wholly-owned subsidiary, acquired
approximately 81% of the total number of then outstanding shares of common stock
of Coleman, from an affiliate of MacAndrews & Forbes, in exchange for 14,099,749
shares of Sunbeam's common stock and approximately $160 million in cash. In
addition, Sunbeam assumed approximately $1,016 million in debt. Immediately
afterwards, as a result of the exercise of employee stock options, Sunbeam's
indirect beneficial ownership of Coleman decreased to approximately 79% of the
total number of outstanding shares of Coleman common stock. Sunbeam's agreement
for the acquisition of the remaining publicly held Coleman shares in a merger
transaction provides that the remaining Coleman shareholders will receive:
o approximately 6.7 million shares of Sunbeam common stock - 0.5677 share
for each outstanding Coleman share; and
o approximately $87 million in cash - $6.44 for each outstanding Coleman
share and cash outs of unexercised Coleman options equal to the
difference between $27.50 per share and the exercise price of the
options.
Sunbeam expects to complete the merger during the second half of 1999, although
there can be no assurance that the merger will occur during that time. See Notes
2 and 15 to Sunbeam's Consolidated Financial Statements and "LITIGATION
SETTLEMENT AND WARRANTS" for information regarding the settlement of claims
relating to the Coleman acquisition, the terms of which involve the issuance of
warrants to purchase shares of Sunbeam's common stock at $7 per share.
On April 6, 1998, Sunbeam completed the cash acquisitions of First
Alert, a leading manufacturer of smoke and carbon monoxide detectors, and
Signature Brands, a leading manufacturer of consumer and professional products.
The First Alert and the Signature Brands acquisitions were valued at
approximately $182 million, including $133 million of cash and $49 million of
assumed debt, and $255 million, reflecting cash paid, including the required
retirement or defeasance of debt, respectively.
108
<PAGE>
The acquisitions were recorded under the purchase method of accounting
and accordingly, the financial position and results of operations of each
acquired entity are included in the Consolidated Financial Statements from the
respective dates of acquisition. The purchase prices of the acquired entities
have been allocated to individual assets acquired and liabilities assumed based
on estimates of fair values determined by independent appraisals at the dates of
acquisition.
Fiscal Year
To standardize the fiscal period ends of Sunbeam and the acquired
entities, effective with its 1998 fiscal year, Sunbeam has changed its fiscal
year end from the Sunday nearest December 31 to a calendar year. See Note 1 to
Sunbeam's Consolidated Financial Statements.
Asset Impairment and Other Charges
Goodwill
When changes in circumstances indicate that the carrying value of
goodwill may not be recoverable, Sunbeam estimates future cash flows using the
recoverability method -undiscounted future cash flows and including related
interest charges - as a basis for recording any impairment loss. An impairment
loss is then recorded to adjust the carrying value of goodwill to the
recoverable amount. The impairment loss taken is no greater than the amount by
which the carrying value of the net assets of the business exceeds its fair
value. Due to First Alert's financial performance in 1998 and its prospects for
1999 and beyond, Sunbeam determined that the goodwill relating to this
acquisition was impaired. Accordingly, based on its determination of fair value,
Sunbeam has written off the net carrying value of goodwill of $62.5 million in
the fourth quarter of 1998.
Fixed Asset Impairment and Excess and Obsolete Inventory Reserves
In the second quarter of 1998, Sunbeam decided to outsource or
discontinue a substantial number of products previously made by Sunbeam,
resulting in some facilities and equipment that will either no longer be used or
will be utilized in a significantly different manner. Accordingly, a charge of
$29.6 million was recorded in Cost of Goods Sold to write some of these assets
down to their estimated fair market value. Approximately 80% of this charge
related to machinery, equipment and tooling at Sunbeam's Mexico City and
Hattiesburg, Mississippi manufacturing plants, the estimated fair value for
which was derived through an auction process. The remainder of this charge
related to tooling and equipment at various other facilities, which either had
a nominal value or the fair market value of which was derived through an
auction process. These
109
<PAGE>
assets were taken out of service at the time of the write-down and consequently
were not depreciated further after the write-down.
Personnel at the Mexico City facility were notified in the second
quarter of 1998 that the plant was scheduled for closure at year-end 1998;
accordingly, at that time a liability of $1.8 million was recorded in Cost of
Goods Sold primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998, Sunbeam recorded in Cost of
Goods Sold an additional provision for impairment of fixed assets of $3.1
million in an acquired entity relating to assets taken out of service for which
there was no remaining value. The asset impairment resulted from management's
decision to discontinue some product lines following the acquisition. These
fixed assets were taken out of service at the time of the write-down and
consequently were not depreciated further after the write-down. In the fourth
quarter of 1998, Sunbeam recorded a $7.1 million charge as a result of
management's decision to outsource the production of some appliances. This
charge to Cost of Goods Sold primarily consists of a provision for tooling and
equipment ($6.7 million) and severance and related benefits ($0.4 million). The
tooling and equipment was written down to estimated fair value, which was
derived from comparable market data. This equipment was taken out of service and
depreciation of this equipment was discontinued at the time of the write-down.
During 1997 and the first half of 1998, Sunbeam built inventories in
anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when it became
evident that the anticipated sales volumes would not materialize, Sunbeam
recorded $58.2 million in charges to properly state this inventory at the
lower-of-cost-or-market. This inventory primarily related to some appliances,
grills and grill accessories. Sunbeam also recorded a charge of $11.0 million
for excess inventories for raw materials and work in process which will not be
used due to outsourcing the production of irons, breadmakers, toasters and some
other appliances. In addition, during 1998, Sunbeam made the decision to exit
some product lines, primarily air and water filtration products, and to
eliminate some stock keeping units ("SKUs") within existing product lines,
primarily relating to appliances, grills and grill accessories. As a result of
this decision, a $26.6 million charge was recorded to properly state this
inventory at the lower-of-cost-or-market. Total charges for excess inventories
recorded at the lower-of-cost-or-market amounted to approximately $95.8 million
at December 31, 1998. See Note 12 to Sunbeam's Consolidated Financial Statements
for asset impairment and other charges recorded in conjunction with a 1996
restructuring plan.
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Restatements
On June 30, 1998, Sunbeam announced that the audit committee of its
board of directors was initiating a review into the accuracy of Sunbeam's prior
financial statements. The audit committee's review has since been completed and,
as a result of its findings, Sunbeam has restated its previously issued
consolidated financial statements for 1996 and 1997 and the first quarter of
1998. Based upon the review, it was determined that some revenue had been
inappropriately recognized, some costs and allowances had not been accrued or
were improperly recorded, and some costs were inappropriately included in, and
subsequently charged to, restructuring, asset impairment and other costs within
the Consolidated Statement of Operations for the years ended December 29, 1996
and December 28, 1997 and the three months ended March 31, 1998. The financial
statements for the years ended December 28, 1997 and December 29, 1996 were
restated, audited and filed on Form 10-K/A with the SEC on November 9, 1998. The
accompanying Consolidated Financial Statements of Sunbeam present the restated
results.
In connection with the restatements referred to above, Arthur Andersen
advised Sunbeam that it believed there were material weaknesses in Sunbeam's
internal control. In order to address these material weaknesses, Sunbeam has
increased the number of senior financial personnel and has implemented
comprehensive review procedures of operating and financial information.
Additionally, as explained in more detail under "- Year 2000 Readiness
Disclosure" below, Sunbeam is in the process of significantly enhancing its
operating systems. Sunbeam anticipates that its systems enhancements will be
completed in 1999. See "CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE."
Year Ended December 31, 1998 Compared to Year Ended December 28, 1997
Results of operations for the year ended December 31, 1998 include the
results of Coleman from March 30, 1998 and of Signature Brands and First Alert
from April 6, 1998, the respective dates of the acquisitions. The acquired
entities generated net sales of $1,009.0 million from the acquisition dates
noted above through December 31, 1998, with corresponding gross margin of $205.1
million, or 20% of sales. Selling, General and Administrative Expense ("SG&A")
costs recorded by the acquired entities were $329.9 million in the period,
yielding an operating loss of $124.8 million.
For the acquired entities, net sales from the dates of the acquisitions
through fiscal year-end were approximately $152 million lower than the same
period in the prior year. This decline was caused by lower net sales at Coleman
($81.5 million), Signature Brands ($31.2 million) and First Alert ($39.2
million). Excluding the effects of Coleman's sale of its safety and security
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business in March 1998 and the discontinuation of its pressure washer business
during 1997, Coleman's 1998 sales would have been approximately $4 million lower
than in 1997. Sunbeam believes that Signature Brands' decline, primarily in its
coffee and tea products, resulted largely from lost distribution and
insufficient attention to the business during part of 1998. Sunbeam believes
that all of the acquired businesses were, to some extent, impacted by the
disruption that arose from the integration with Sunbeam and the related
management changes, both at the acquired companies and at Sunbeam. First Alert's
sales decline related predominantly to increased inventory positions in the
domestic channel in 1997 as compared to 1998 with the remaining decrease
primarily related to more favorable weather conditions in the fourth quarter of
1997 as compared to the same period in 1998 which affected consumer shopping
patterns. Excluding the effects from purchase accounting and the write-off of
First Alert's goodwill, as discussed in Note 2 to the Consolidated Financial
Statements, operating profit for these three companies declined by approximately
$45 million since the acquisitions in 1998 as compared to the same period in the
prior year, resulting primarily from lower net sales. Although there can be no
assurance, management anticipates that results from the acquired companies will
significantly improve during 1999 due to, among other things, the absence of the
factors causing disruption and insufficient focus at these three companies
during 1998.
Consolidated net sales for the year ended December 31, 1998 were
$1,836.9 million, an increase of $763.8 million versus the year ended December
28, 1997. After excluding:
o $1,009.0 million of sales generated by the acquired entities, as
discussed above;
o $5.5 million of sales in 1998 resulting from the change in
fiscal year end, as described in Note 1 to the Consolidated
Financial Statements;
o $12.7 million in 1998 and $31.3 million in 1997 from sales of
excess or discontinued inventory for which the inventory carrying
value was substantially equivalent to the sales value;
o $4.2 million from 1997 sales relating to divested product lines
which are not classified as discontinued operations - time and
temperature products and Counselor and Borg branded scales; and
o a $5.4 million benefit in 1997 from the reduction of cooperative
advertising accruals no longer required (cooperative advertising
costs are recorded as deductions in determining net sales);
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net sales on an adjusted basis ("Adjusted Sales") of $809.7 million decreased
approximately 22% from Adjusted Sales of $1,032.2 million in 1997. Product sales
were adversely impacted by a number of factors, with the largest being changes
in retail inventory levels from channel loading which took place in 1997.
Sunbeam believes the year-to-year effect of these inventory reductions amounted
to over $100 million. Additionally, losses in distribution of outdoor cooking
products estimated at approximately $60 million, the estimated effect of price
discounting on appliance and grill products of approximately $14 million, and
estimated higher provisions for customer returns and allowances of $30 million
contributed to the lower sales in 1998. The remaining sales decline was due in
part to exiting some product SKUs.
Domestic Adjusted Sales declined approximately 21% or $170 million from
1997. Sunbeam believes more than half of the sales decline was due to increased
retail inventory levels in 1997 versus decreased inventory positions at
customers in 1998. Excluding this effect, sales were still lower than the prior
year throughout the business, with the most significant decline occurring in
outdoor cooking products sales. During 1997, Sunbeam lost a significant portion
of its outdoor cooking products distribution, including the majority of its
grill parts and accessories products distribution. The outdoor cooking products
sales decline was attributable predominantly to this lost distribution and to
price discounting. The majority of the remaining sales decline was due to higher
provisions for customer returns and allowances.
International sales, which represented 22% of Adjusted Sales for 1998,
decreased approximately 24% compared with the Adjusted Sales for the same period
a year ago. Sunbeam believes this sales decline was primarily attributable to
decreasing customer inventory levels as compared with the prior year. Sales were
also adversely impacted by a decision to stop selling to some export
distributors in Latin America and by poor economic conditions in that region. In
addition, lost distribution in Canada contributed to the sales decline from the
prior year.
Excluding the effects of:
o the gross margin generated from the inclusion of the acquired
entities' operations in the period of $205.1 million, as
discussed above;
o $0.8 million from the impact of the change in fiscal year-end;
o $128.4 million in 1998 in charges recorded in the second and
fourth quarters related to excess inventory and fixed assets
impairments;
o $15.8 million from the benefit in 1997 from the reversal of
reserves no longer required, including $5.4 million of
cooperative advertising accruals; and
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o a $2.8 million benefit recorded in the second quarter of 1997 resulting
from capitalizing some manufacturing supplies inventories which were
previously expensed;
there was a negative gross margin of $29.4 million for 1998 versus a gross
margin of $223.5 million for 1997. Lower sales volume and unfavorable
manufacturing efficiencies from lower production levels associated with the
lower sales volumes and high inventory levels in 1998 accounted for
approximately 55% of the change between years. Approximately 55% of the
remaining decrease is attributable to lower price realization and higher costs
of customer returns and allowances in 1998 and adverse product sales mix in
1998. The adverse product sales mix was due in part to the loss of a majority of
the grill accessory products distribution as accessories generate significantly
better margins than the average margins on sales of most of Sunbeam's other
products. Costs associated with a blanket recall, higher warranty reserves and
inventory adjustments due in part to physical inventories drove the remaining
decrease in gross margin.
Excluding the effects of the following, SG&A expenses were approximately $257
million in 1998, 71% higher than the same period in 1997:
o $329.9 million of SG&A charges in the acquired entities, including the
$62.5 million goodwill write-off related to First Alert;
o $70.0 million recorded in the third quarter of 1998 related to the
issuance of a warrant;
o $2.3 million of SG&A expense in 1998 from the change in the fiscal
period;
o a $5.9 million benefit in 1998 and a $12.1 million benefit in 1997 from
the reversal of reserves no longer required;
o approximately $31 million of 1998 compensation expense recorded in
connection with new employment agreements with Sunbeam's former
Chairman and Chief Executive Officer and two other former senior
officers and approximately $3 million of severance in 1998 for some
former employees;
o $20.4 million, $6.1 million, and $4.0 million of costs recorded in 1998
related to costs associated with the restatement efforts, Year 2000
compliance efforts and a corporate office relocation, respectively; and
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o $15.8 million of restructuring related charges recorded in 1997.
This increase of approximately $108 million is due to several factors:
o Corporate administrative costs increased by approximately $47 million,
reflecting additional personnel and related relocation, travel and
other costs, as well as increased outside provider fees,
telecommunications expense and insurance.
o Higher allowances for accounts receivable in 1998, accounting for
approximately $20 million of the increase, related primarily to
collection issues with customers in the United States and in Latin
America, including several major customers who have filed and/or
threatened bankruptcy.
o Advertising, marketing and selling expenses increased by approximately
$13 million, reflecting a national television campaign for grills and
increased activity in market research, package design and sales
efforts. Higher inventory levels in 1998 and costs associated with
outsourcing small parts fulfillment led to higher distribution and
warehousing costs of approximately $12 million.
o Increased environmental reserves for divested and closed facilities
added $5 million, while settlement of a patent infringement action
resulted in additional expense of approximately $4 million.
During 1997, Sunbeam determined that the amounts accrued at December
29, 1996 for Restructuring and Asset Impairment Charges recorded in fiscal 1996
exceeded amounts ultimately required. Accordingly, the 1997 Consolidated
Statement of Operations reflects the reversal of accruals no longer required,
resulting in a Restructuring and Asset Impairment Benefit of $14.6 million. This
reversal was reflected in the third ($5.8 million) and fourth ($8.8 million)
quarters of 1997 when it became evident that such accruals were no longer
required.
Operating results for 1998 and 1997, on an adjusted basis as described
above, were a loss of approximately $286 million in 1998 and a profit of
approximately $74 million in 1997. This change resulted from the factors
discussed above.
Interest expense increased from $11.4 million for the twelve months of
1997 to $131.1 million for the same period in 1998. Approximately 70% of the
change related to higher borrowing levels in 1998 for the acquisitions, with the
remainder due to increased borrowings to fund working capital, capital
expenditures and the operating losses.
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Other income, net increased in 1998 by $4.8 million due to
approximately $8 million from the settlement of a lawsuit, and approximately $4
million of increased net gains from foreign exchange in the period. The foreign
exchange net gains were primarily from Mexico. Increased losses on sales of
fixed assets of approximately $5 million and increased expenses related to the
bank credit facility partially offset the above mentioned income. The increased
credit facility expenses largely related to unused facility fees.
The minority interest reported in 1998 relates to the minority
interest held in Coleman by public shareholders.
During 1998, the current tax provision arose largely from taxes on the
earnings of foreign subsidiaries as well as franchise taxes. Deferred tax
benefits were recognized in 1998 principally due to net operating losses
incurred subsequent to the acquisitions. These benefits were realized through
the use of deferred tax credits that were established in connection with the
acquisitions to the extent that such credits are expected to be realized in the
loss carryforward period. During 1998, Sunbeam increased the income tax
valuation allowance on deferred tax assets to $290.5 million. This increase
reflects management's assessment that it is more likely than not that these
deferred tax assets will not be realized through future taxable income. The 1997
effective tax rate was higher than the federal statutory income tax rate
primarily due to state taxes, the effects of foreign earnings and dividends
taxed at other rates and the impact of providing a valuation allowance on
deferred tax assets.
In 1998, Sunbeam prepaid debt assumed in the acquisitions and prepaid
an industrial revenue bond related to its Hattiesburg facility. In connection
with these early extinguishments of debt, Sunbeam recognized an extraordinary
charge of $122.4 million, consisting primarily of redemption premiums.
Sunbeam's discontinued furniture business, which was sold in March
1997, had revenues of $51.6 million in the first quarter of 1997 prior to the
sale and nominal earnings for that period. As a result of the sale of Sunbeam's
furniture business assets (primarily inventory, property, plant and equipment),
Sunbeam received $69.0 million in cash, retained approximately $50 million in
accounts receivable and retained some liabilities. The final purchase price for
the furniture business was subject to a post-closing adjustment based on the
terms of the sale agreement and in the first quarter of 1997, after completion
of the sale, Sunbeam recorded an additional loss on disposal of $14.0 million
net of applicable income tax benefits of $8.5 million.
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Year Ended December 28, 1997 Compared to Year Ended December 29, 1996
1996 Restructuring Plan and Other Charges and Benefits
In November 1996, Sunbeam announced the details of a restructuring
plan. The plan included:
o the consolidation of administrative functions;
o the reduction of manufacturing and warehouse facilities;
o the centralization of Sunbeam's procurement function;
o the reduction of Sunbeam's product offerings and SKUs; and
o the elimination of some businesses and product lines.
As part of the restructuring plan, Sunbeam consolidated six divisional
and regional headquarters functions into a single worldwide corporate
headquarters and outsourced some back office activities resulting in a reduction
in total back-office/administrative headcount. Overall, the restructuring plan
called for a reduction in the number of production facilities from 26 to 8 and
the elimination of over 6,000 positions from Sunbeam's workforce, including
3,300 from the disposition of some business operations and the elimination of
approximately 2,800 other positions, some of which were outsourced. Sunbeam
completed the major phases of the restructuring plan by July 1997.
In conjunction with the implementation of the restructuring plan,
Sunbeam recorded a pre-tax charge of $239.2 million in the fourth quarter of
1996. This amount is recorded as follows in the Consolidated Statements of
Operations:
o $110.1 million recorded in Restructuring and Asset Impairment
Charges, as further described below;
o $60.8 million in Cost of Goods Sold related principally to
inventory write-downs as a result of a reduction in SKUs and
costs of inventory liquidation programs;
o $10.1 million in SG&A expense, for period costs principally
relating to outsourcing and package redesign; and
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o $58.2 million ($39.1 million net of taxes) in Loss on Sale of
Discontinued Operations related to the divestiture of its
furniture business.
In 1997, upon completion of the sale of the furniture business, Sunbeam recorded
an additional pre-tax loss of $22.5 million from discontinued operations ($14.0
million net of taxes) due primarily to lower than anticipated sales proceeds
relating to the post closing adjustment that was part of the sale agreement.
Amounts included in Restructuring and Asset Impairment Charges in 1996
in the accompanying Consolidated Statements of Operations included anticipated
cash charges such as severance and other employee costs of $24.7 million, lease
obligations of $12.6 million and other exit costs associated with facility
closures and related to the implementation of the restructuring plan of $4.1
million, principally representing costs related to clean-up and restoration of
facilities for either sale or return to the landlord.
Included in Restructuring and Asset Impairment Charges in 1996 was
$68.7 million of non-cash charges principally consisting of:
o asset write-downs to net realizable value of $22.5 million for
disposals of excess facilities and equipment and product
lines;
o write-offs of redundant computer systems of $12.3 million from
the administrative back-office consolidations and outsourcing
initiatives;
o write-off of intangibles of $10.1 million relating to
discontinued product lines;
o write-off of capitalized product and package design costs and
other expenses of $9.0 million related to exited product lines
and SKU reductions; and
o losses of $14.8 million related to the divestiture of some
non-core products and businesses.
The asset write-downs of $34.8 million included equipment taken out of service
in 1996 (either abandoned in 1996 or sold in 1997) and, accordingly,
depreciation was not recorded subsequent to the date of the impairment charge.
The losses of $14.8 million related to the divestiture of non-core products and
businesses resulted from divesting the time and temperature business in March
1997 and Counselor and Borg scale product lines in May 1997 and the sale of the
textile mill in Biddeford, Maine in May 1997. These charges primarily
represented the estimated non-cash loss
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to exit these products, including fixed assets and inventory write-downs and
other costs related to exiting these product lines.
The $24.7 million for severance and other employee costs, including
COBRA and other fringe benefits, related to approximately 3,700 positions that
were planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations. See Note 13
to Sunbeam's Consolidated Financial Statements. The furniture business was sold
in 1997. In 1996 and 1997, approximately 1,200 employees and 1,800 employees,
respectively, were terminated from continuing operations. Due largely to
attrition, the remaining planned terminations were not required. In 1997,
Sunbeam determined that its severance and related employee costs were less than
originally accrued principally due to lower than expected severance and COBRA
costs and, accordingly, reversed accruals of $7.9 million in the third and
fourth quarters. At December 31, 1997, the balance accrued of $1.2 million
represented the remaining severance and related employee costs for some
employees terminated during 1997. During 1998, all amounts were expended.
The amounts accrued at December 29, 1996 for Restructuring and Asset
Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit ($5.8
million in the third quarter and $8.8 million in the fourth quarter of 1997)
related to the reversal of accruals no longer required, which were recorded as
these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan,
Sunbeam recorded additional charges totaling $129.1 million, reflected in Cost
of Goods Sold, SG&A expense, and Loss on Sale of Discontinued Operations. The
charge included in Cost of Goods Sold of $60.8 million principally represented
inventory write-downs and anticipated losses on the disposition of the inventory
as a result of the significant reduction in SKUs provided for in the
restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grill accessories and the balance related to
raw materials, work-in process and finished goods for other discontinued
products including appliances, clippers and blankets. SG&A expense included
period costs in 1997 and 1996 of $15.8 million and $10.1 million, respectively,
relating to employee relocation and recruiting, outsourcing, equipment movement
and package redesign costs expended as a result of the implementation of the
restructuring plan. The 1996 Loss on Sale of Discontinued Operations related to
the divestiture of Sunbeam's furniture business. In 1996, Sunbeam decided to
divest its furniture operations and recorded an estimated pre-tax loss of
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$58.2 million related to the sale of assets, primarily fixed assets and
inventory. In 1997, Sunbeam recorded an additional pre-tax loss of $22.5 million
due primarily to lower than anticipated sales proceeds resulting from the post
closing adjustment as provided for in the sale agreement. See Notes 12 and 13
to Sunbeam's Consolidated Financial Statements.
At December 28, 1997, Sunbeam had $5.2 million in liabilities accrued
related to the 1996 restructuring plan, including $1.2 million of severance
related costs and $4.0 million related to facility closures, which principally
represented future lease payments, net of sub-leases, on exited facilities.
During 1998, this liability was reduced by $4.0 million as a result of cash
expenditures. At December 28, 1997, Sunbeam had $3.0 million of warranty
liabilities related to the discontinued furniture operations. During 1998, $2.5
million of this liability was liquidated.
The charges and benefit described above are included in the following
categories in the 1997 and 1996 Consolidated Statements of Operations (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Restructuring and impairment (benefit) charge...................................... $(14.6) $ 110.1
Cost of goods sold................................................................. -- 60.8
Selling, general and administrative expense........................................ 15.8 10.1
Loss on sale of discontinued operations............................................ 22.5 58.2
------ -------
$ 23.7 $ 239.2
====== =======
These charges and benefit consisted of the following (in millions):
1997 1996
---- ----
Write-downs:
Fixed assets held for disposal, not in use...................................... $ -- 34.8
Fixed assets held for disposal, used until disposed............................. -- 14.8
Inventory on hand............................................................... -- 60.8
Other assets, principally trademarks and intangible assets...................... -- 19.1
------ -------
-- 129.5
------ -------
Restructuring accruals (including amounts expended in 1996):
Employee severance pay and fringes.............................................. (7.9) 24.7
Lease payments and termination fees............................................. (6.7) 12.6
Other exit activity costs, principally facility closure expenses................ -- 4.1
------ -------
(14.6) 41.4
------ -------
Other related period costs incurred:
Employee relocation; equipment relocation and installation and other............ 11.8 3.2
Transmittal fees related to outsourcing arrangements............................ -- 4.9
Package redesign................................................................ 4.0 2.0
------ -------
15.8 10.1
------ -------
Charges included in continuing operations....................................... 1.2 181.0
Loss on sale of discontinued operations......................................... 22.5 58.2
------ -------
$ 23.7 $ 239.2
====== =======
</TABLE>
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At December 29, 1996, the net realizable value of the remaining
inventory written-down as part of the restructuring and asset impairment charges
was approximately $37.3 million. During 1997, this inventory, a portion of which
was product of discontinued operations, was sold for amounts substantially
equivalent to its net carrying value.
As further discussed in Note 15 to the Consolidated Financial
Statements, during the fourth quarter of 1996, Sunbeam charged SG&A for
increases of $9.0 million in environmental reserves and $12.0 million in
litigation reserves. In the fourth quarter of 1996, Sunbeam performed a
comprehensive review of all environmental exposures in an attempt by the then
new senior management team to accelerate the resolution and settlement of
environmental claims. As a result, upon the conclusion of the review, Sunbeam
recorded additional environmental reserves of $9.0 million in the fourth quarter
of 1996. The litigation charge of $12.0 million was recorded due to an
unfavorable court ruling in January 1997, which held that Sunbeam was liable for
environmental remediation costs related to the operations of a successor
company. As a result of this ruling, Sunbeam provided for this liability in the
fourth quarter of 1996. In 1997, this case was settled and, as a result, $8.1
million of the charge was reversed into income, primarily in the fourth quarter
of 1997.
As described in Note 8 to the Consolidated Financial Statements,
Sunbeam also charged $7.7 million to SG&A expenses in 1996 for compensation
costs associated with restricted stock awards and other costs related to the
employment of the then new senior management team.
During the first, second, third and fourth quarters of 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities provided in prior years and determined to
be no longer required were reversed and taken into income. These amounts were
primarily related to:
o the litigation reserve of $8.1 million discussed above;
o inventory valuation allowances of $7.0 million;
o cooperative advertising allowances of $5.4 million;
o liabilities for exiting of facilities and plant
consolidations provided for prior to 1996 of $3.5 million;
and
o consulting fee accruals of $1.3 million.
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These liabilities were provided for by Sunbeam, principally in 1996, based upon
its best available estimate at the time of the probable liabilities. When
information became available that the amounts provided were in excess of what
was required, Sunbeam reduced the applicable reserves and recorded increases in
Net Sales of $5.4 million, reductions in Cost of Goods Sold of $10.5 million and
reductions in SG&A expenses of $12.1 million.
Additionally, effective in the second quarter of fiscal 1997, Sunbeam
changed its method of accounting to capitalize manufacturing supplies
inventories, whereas, previously these inventories were charged to operations
when purchased. This change reduced Cost of Goods Sold in fiscal 1997 by $2.8
million.
Results of Operations for 1997 Compared to 1996
Net sales for 1997 were $1,073.1 million, an increase of $88.9 million
or 9% over 1996. After excluding the following, Adjusted Sales increased 8% over
the prior year to $1,032.2 million from $953.4 million in 1996:
o $4.2 million and $30.8 million in 1997 and 1996, respectively,
related to divested product lines which were not classified as
discontinued operations (time and temperature products,
decorative bedding and Counselor and Borg branded scales);
o $31.3 million of sales in 1997 of discontinued inventory which
resulted primarily from the reduction of SKUs as part of the
1996 restructuring plan and for which the inventory carrying
value was substantially equivalent to the sales value; and
o a $5.4 million benefit from the reduction of cooperative
advertising accruals no longer required in 1997.
Adjusted Sales, on a worldwide basis, increased during 1997 primarily
from new product introductions, expanded distribution, particularly with
Sunbeam's top ten customers, international geographic expansion and increased
inventory positions at some customers. Adjusted Sales growth was approximately
19% for appliances and approximately 12% in outdoor cooking. Adjusted Sales for
health products increased approximately 5% while Adjusted Sales of personal care
products and blankets decreased approximately 13% during 1997.
Sales increases in appliances of approximately $69 million were driven
by new products, such as redesigned blenders and mixers, coffeemakers, irons,
deep fryers and toasters, and by increased distribution with large national mass
retailers, combined with higher inventory levels at
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some customers. Sales of outdoor cooking products increased approximately $30
million in 1997 attributed to increased merchandising and advertising programs,
new distribution and higher inventory levels at some customers. During 1997,
Sunbeam lost a significant portion of its outdoor cooking products distribution,
including the majority of its grill accessory products distribution.
Accessories, which accounted for just over 10% of the outdoor cooking sales
volume in 1997, generate significantly better margins than the average margins
on sales of grills. These distribution changes are expected to adversely impact
outdoor cooking sales and margins in the future, until such time as the
distribution is regained.
Sales of personal care products and blankets suffered during the
fourth quarter of 1997 as a result of lower than expected retail sell through of
electric blankets in key northern markets in late 1997 coupled with the
inability to service demand for king and queen sized blankets due to shortages
of blanket shells. Sunbeam shifted to a more level production for blankets in
1998 in order to more adequately service the seasonal demand for bedding
products. Sales of health products as well as personal care and bedding products
were impacted by increased inventory positions at customers in 1997.
International sales, which represented 21% of total revenues in 1997,
grew 25% during the year. This sales growth was driven primarily by 54 new 220
volt product introductions and a general improvement in demand in export
operations and in Mexico. Net sales growth of approximately 35% was achieved in
the Latin American export sales organization. Most of this growth came from
increased business with three exporters. In Mexico and Venezuela, sales grew 30%
and 24%, respectively. Canada accounted for the majority of the remaining
international sales growth.
Excluding the effects of:
o charges of $60.8 million to Cost of Goods Sold related to the
restructuring plan in 1996;
o the $15.9 million benefit of reducing reserves no longer
required in 1997; and
o the $2.8 million benefit in 1997 of capitalizing manufacturing
supplies inventories;
gross margin as a percent of Adjusted Sales would have been approximately 22% in
1997, an improvement of approximately 6 percentage points from 16% in 1996. This
increase reflects the results of lower overhead spending, improved factory
utilization and labor cost benefits resulting from Sunbeam's restructuring plan,
coupled with reductions in materials costs. The lower
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overhead spending resulted from a reduction in the number of facilities operated
by Sunbeam. With fewer facilities used for production purposes, the capacity of
the remaining plants was more fully utilized. The labor cost benefits were
realized principally from shifting production to Mexico. In addition, a broad
based program to obtain lower costs for materials contributed to the 1997 margin
improvement.
Excluding the impact of:
o the restructuring and asset impairment period costs to SG&A
expense of $15.8 million in 1997 and $10.1 million in 1996;
o the 1996 charges for the environmental accrual of $9.0
million, litigation accrual of $12.0 million and restricted
stock grant compensation of $7.7 million; and
o the 1997 benefit from the reversal of reserves no longer
required of $12.1 million;
SG&A improved to 14% of Adjusted Sales in 1997, down 5 percentage points from
19% in 1996. This improvement was partially the result of benefits from the
consolidation of six divisional and regional headquarters into one corporate
headquarters and one administrative operations center, reduced staffing levels,
a reduction in the number of warehouses, and Company-wide cost control
initiatives. Higher expenditures in 1996 for market research, new packaging and
other discretionary charges and higher bad debt expenses associated with some of
Sunbeam's customers also contributed to the decrease in SG&A expense from 1996
to 1997. The expense for doubtful accounts and cash discounts was $17.3 million
in 1997 as compared to $27.1 million in 1996. The principal factor in the
decrease in bad debt expenses during this period was the acceleration of the
consolidation of the U.S. retail industry and the related competitive
environment, which resulted in a number of troubled retailers and related
bankruptcies during 1996. This resulted in the significant amount of bad debt
write-offs - $19.9 million - in 1996.
Operating results for 1997 and 1996, on a comparable basis as
described above, were earnings of $74.5 million in 1997 and a loss of $34.8
million in 1996. On the same basis, operating margin increased 11 percentage
points to 7% of Adjusted Sales in 1997 versus a loss of 4% in 1996. This
improvement resulted from the factors discussed above.
Interest expense decreased from $13.6 million in 1996 to $11.4 million
in 1997 primarily as a result of lower average borrowing levels in 1997.
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The 1997 effective income tax rate for continuing operations was
higher than the federal statutory income tax rate primarily due to state taxes
plus the effect of foreign earnings and dividends taxed at other rates and the
increase to the valuation reserve for deferred tax assets, offset in part by the
reversal of tax liabilities no longer required. In the fourth quarter of 1997,
Sunbeam increased the valuation allowance by $23.2 million reflecting
management's assessment that it was more likely than not that the deferred tax
asset will not be realized through future taxable income. Of this amount, $18.9
million related to deferred tax assets, the majority of which was recognized as
a benefit in the first three quarters of 1997. The remainder related to minimum
pension liabilities and was therefore recorded as an adjustment to shareholders'
equity. This assessment was made as a result of the significant leverage
incurred by Sunbeam to finance the acquisitions and the significant decline in
net sales and earnings from anticipated levels during the fourth quarter of 1997
and the first quarter of 1998. For 1996, the effective income tax rate for
continuing operations equaled the federal statutory income tax rate.
Sunbeam's diluted earnings per share from continuing operations was
$0.60 per share in 1997 versus a loss per share from continuing operations in
1996 of $2.05. Sunbeam's share base utilized in the diluted earnings per share
calculation increased approximately 6% during 1997 as a result of an increase in
the number of shares of common stock outstanding due to the exercise of stock
options in 1997 and the inclusion of common stock equivalents in the 1997
calculation.
Sunbeam's discontinued furniture business, which was sold in March
1997, had revenues of $51.6 million in the first quarter of 1997 prior to the
sale and nominal earnings. In 1996, the discontinued furniture business had net
income of $0.8 million on revenues of $227.5 million and an estimated loss on
disposal of the business of $39.1 million, net of applicable income tax
benefits. The sale of Sunbeam's furniture business assets-primarily inventory,
property, plant and equipment - was completed in March 1997. Sunbeam received
$69.0 million in cash, retained approximately $50.0 million in accounts
receivable and retained some liabilities related to the furniture business. The
final purchase price for the furniture business was subject to a post-closing
adjustment under the terms of the sale agreement, and in the first quarter of
1997, after completion of the sale, Sunbeam recorded an additional pre-tax loss
on disposal of $22.5 million. Although the discontinued furniture business was
profitable, net income had declined from $21.7 million in 1994 to $0.8 million
in 1996. This decline, along with Sunbeam's announcement that it intended to
divest this line of business contributed to the loss on the sale. See discussion
of restructuring and asset impairment (benefit) charges in Note 12 and
discontinued operations in Note 13 to the Consolidated Financial Statements for
further information regarding sale of the furniture business.
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Summary of (Loss) Earnings from Continuing Operations
A reconciliation of operating (loss) earnings to adjusted (loss)
earnings from continuing operations for 1998, 1997 and 1996, on a comparable
basis follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating (loss) earnings, as reported............................ (670.0) $104.1 $(244.5)
Add (deduct):
Loss from acquisitions......................................... 124.8 -- --
Issuance of warrants to M&F.................................... 70.0 -- --
Restructuring, asset impairment and other related charges...... -- 1.2 181.0
Fixed asset and inventory charges.............................. 128.4 -- --
Environmental reserve increase principally related to
divested operations............................................ -- -- 9.0
Litigation reserve increase relating to divested operation..... -- -- 12.0
Restricted stock and other management compensation/severance... 34.4 -- 7.7
Reversals of accruals no longer required....................... (5.9) (28.0) --
Capitalization of manufacturing supplies inventories........... -- (2.8) --
Restatement related expenses................................... 20.4 -- --
Year 2000 and systems initiation expenses...................... 6.1 -- --
Change in fiscal year-end effect and office relocation expense. 5.5 -- --
------ ------ -------
Adjusted operating (loss) earnings from continuing operations
before income taxes, minority interest and extraordinary
charge............................................................ (286.3) 74.5 (34.8)
Interest expense............................................... 131.1 11.4 13.6
Other (income) expense, net.................................... (4.8) -- 3.7
------ ------ -------
Adjusted (loss) earnings from continuing operations before income
taxes and minority interest....................................... (412.6) 63.1 (52.1)
Adjusted income tax (benefit) expense......................... (10.1) 56.3 (18.2)
Minority interest.............................................. (10.7) -- --
------ ------ -------
Adjusted (loss) earnings from continuing operations............ $(391.8) $ 6.8 $ (33.9)
======= ====== =======
</TABLE>
After consideration of the adjustments above, 1998 and 1996 results
from continuing operations reflect losses and 1997 continuing operations are
marginally profitable. Due to a variety of factors, including increased
inventory positions at some customers and manufacturing and sourcing
activities during 1997 and the first half of 1998 which increased Sunbeam's
inventory position, the results for each of 1998 and 1997 are not indicative
of future results. Results for 1999 are expected to be impacted by the
continuing effects of Sunbeam's excess inventory position, as well as costs
related to Year 2000 compliance efforts.
Foreign Operations
Approximately 80% of Sunbeam's business is conducted in U.S. dollars,
including domestic sales, U.S. dollar denominated export sales, primarily to
Latin American markets, Asian sales and the majority of European sales.
Sunbeam's non-U.S. dollar denominated sales are made principally by
subsidiaries in Europe, Canada, Japan, Latin America and Mexico. Mexico
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reverted to a hyperinflationary status for accounting purposes in 1997;
therefore, translation adjustments related to Mexican net monetary assets are
included as a component of net (loss) earnings. Mexico is no longer considered
hyperinflationary as of January 1, 1999. This change in Mexico's
hyperinflationary status is not expected to have a material effect on
Sunbeam's financial results. Translation adjustments resulting from Sunbeam's
non-U.S. denominated subsidiaries have not had a material impact on Sunbeam's
financial condition, results of operations or cash flows.
While revenues generated in Asia have traditionally not been
significant, economic instability in this region is expected to have a
negative effect on earnings. Economic instability and the political
environment in Latin America have also affected sales in that region. It is
anticipated that sales in and exports to these regions will continue to
decline so long as the economic environments in those regions remain
unsettled.
On a limited basis, Sunbeam selectively uses derivatives - foreign
exchange option and forward contracts - to manage foreign exchange exposures
that arise in the normal course of business. No derivative contracts are
entered into for trading or speculative purposes. The use of derivatives has
not had a material impact on Sunbeam's financial results. See Note 4 to the
Consolidated Financial Statements.
Exposure to Market Risk
Qualitative Information
Sunbeam uses a variety of derivative financial instruments to manage
its foreign currency and interest rate exposures. Sunbeam does not speculate
on interest rates or foreign currency rates. Instead, it uses derivatives when
implementing its risk management strategies to reduce the possible effects of
these exposures.
With respect to foreign currency exposures, Sunbeam is most vulnerable
to changes in rates between the United States dollar/Japanese yen, Canadian
dollar, German deutschmark, Mexican peso and Venezuelan bolivar exchange
rates. Sunbeam principally uses forward and option contracts to reduce risks
arising from firm commitments, intercompany sales transactions and
intercompany receivable and payable balances. Sunbeam generally uses interest
rate swaps to fix some of its variable rate debt. Sunbeam manages credit risk
related to these derivative contracts through credit approvals, exposure
limits and threshold amounts and other monitoring procedures.
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Quantitative Information
Below are tables of information related to Sunbeam's investments in
market risk sensitive instruments. All of the instruments in the following
tables have been entered into by Sunbeam for purposes other than trading
purposes.
Interest Rate Sensitivity. The table below provides information about
Sunbeam's derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates, including interest rate swaps
and debt obligations.
For debt obligations, the table presents principal cash flows by
expected maturity date and related (weighted) December 31, 1998 average
interest rates. Included in the debt position are the debentures, which carry
no intervening cash flows but mature in 2018. For interest rate swaps, the
table presents notional amounts and weighted average interest rates for the
contracts at the current time. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts.
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------------------------------------
December Fair
31, 1998 1999 2000 2001 2002 2003 Thereafter Total Value (1)
-------- ---- ---- ---- ---- ---- ---------- ----- --------
(US$ Equivalent in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic Liabilities
Debentures (2).............. $ 779 $ - $ - $ $ - $ - $2,014 $2,014 $ 240
Other....................... 80 71 1 1 1 1 5 80 79
Total fixed rate debt
(US$)................ 859 71 1 1 1 1 2,019 2,094 319
Average interest rate.. 5.64% - - - - - - - -
Variable rate debt:
US$.................. $ 1,357 $ 3 $1,354(3) $ - $ - $ - $ - $1,357 $ 1,357
Average interest rate.. 8.47%
Interest Rate Derivatives
Interest rate swaps:
Variable to fixed
(US$).............. $ 325 $ - $ - $150 $ - $ 175 $ - $ 325 $ (7)
Average pay rate.... 5.70%
Average receive rate 5.21%
</TABLE>
-----------
(1) The fair value of fixed rate debt is estimated using either reported
transaction values or discounted cash flow analysis. The carrying value
of variable rate debt is assumed to approximate market value based on
the periodic adjustments of the interest rates to the current market
rates in accordance with the terms of the agreements. The fair value of
the interest rate swaps is based on estimates of the cost of
terminating the swaps.
(2) The total amount of debentures maturing in future periods exceeds the
balance as of December 31, 1998 due to the accretion of the debentures.
See Note 3 to Sunbeam's Consolidated Financial Statements.
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(3) Represents bank credit facility debt. See "- Liquidity and Capital
Resources" and Note 3 to the Consolidated Financial Statements.
Exchange Rate Sensitivity. The table below provides information about
Sunbeam's derivative financial instruments, other financial instruments and
forward exchange agreements by functional currency and presents such information
in U.S. dollar equivalents. The table summarizes information on instruments and
transactions that are sensitive to foreign currency exchange rates, including
foreign currency variable rate credit lines, foreign currency forward exchange
agreements and foreign currency purchased put option contracts. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For foreign currency forward
exchange agreements and foreign currency put option contracts, the table
presents the notional amounts and weighted average exchange rates by expected
(contractual) maturity dates. These notional amounts generally are used to
calculate the contractual payments to be exchanged under the contract. None of
the instruments listed in the table have maturity dates beyond 1999.
<TABLE>
<CAPTION>
December 31,
1998 Fair Value
-------------------------------
(US$ Equivalent in Millions)
<S> <C> <C>
On Balance Sheet Financial Instruments
US$ Functional Currency
Short-term debt:
Variable rate credit lines (Europe, Japan and Asia)................ $ 45.8 45.8
Weighted average interest rate..................................... 2.8%
US$ Functional Currency
Forward Exchange Agreements
(Receive US$/pay DM)
Contract amount.................................................... $ 12.0 $ 12.2
Average contractual exchange rate.................................. 1.62
(Receive US$/pay JPY)
Contract amount.................................................... $ 14.9 $ 14.2
Average contractual exchange rate.................................. 116.11
(Receive US$/pay GBP)
Contract amount.................................................... $ 4.0 $ 4.1
Average contractual exchange rate.................................. 1.68
Purchased Put Option Agreements
(Receive US$/pay DM)
Contract amount.................................................... $ 18.4 $ 0.1
Average strike price............................................... 1.80
(Receive US$/pay JPY)
Contract amount.................................................... $ 12.4 $ 0.2
Average strike price............................................... 125.0
(Receive US$/pay GBP)
Contract amount.................................................... $ 1.5 --
Average strike price............................................... 1.62
</TABLE>
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Euro Conversion
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The transition period for the
introduction of the Euro is between January 1, 1999 and January 1, 2002.
Sunbeam has been preparing for the introduction of the Euro and continues to
evaluate and address the many issues involved, including the conversion of
information technology systems, recalculating currency risk, strategies
concerning continuity of contracts, and impacts on the processes for preparing
taxation and accounting records. Based on the work to date, Sunbeam believes
the Euro conversion will not have a material impact on its results of
operations.
Seasonality
Sunbeam's sales, prior to the acquisitions, did not exhibit substantial
seasonality; however, sales have been strongest during the fourth quarter of
the calendar year. Additionally, sales of outdoor cooking products are
strongest in the first half of the year, while sales of appliances, personal
care and blanket products are strongest in the second half of the year. After
considering the seasonality of the acquired businesses, Sunbeam's
consolidated sales are not expected to exhibit substantial seasonality;
however, sales are expected to be strongest during the second quarter of the
calendar year. Furthermore, sales of a number of products, including warming
blankets, vaporizers, humidifiers, grills, First Alert products, camping and
generator products may be impacted by unseasonable weather conditions.
Liquidity and Capital Resources
In order to finance the acquisition of Coleman, First Alert and
Signature Brands and to refinance substantially all of the indebtedness of
Sunbeam and the three acquired entities, Sunbeam consummated an offering of
debentures at a yield to maturity of 5% - approximately $2,014 million
principal amount at maturity - in March 1998, which resulted in approximately
$730 million of net proceeds and entered into its new bank credit facility.
The debentures are exchangeable for shares of Sunbeam's common stock at
an initial conversion rate of 6.575 shares for each $1,000 principal amount at
maturity of the debentures, subject to adjustments upon occurrence of
specified events. The debentures are subordinated in right of payment to all
existing and future senior indebtedness of Sunbeam. The debentures are not
redeemable by Sunbeam prior to March 25, 2003. On or after such date, the
debentures are redeemable for cash with at least 30 days notice, at the option
of Sunbeam. Sunbeam is required to purchase debentures at the option of the
holder as of March 25, 2003, March 25, 2008 and
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March 25, 2013, at purchase prices equal to the issue price plus accrued
original discount to such dates. Sunbeam may, at its option, elect to pay any
such purchase price in cash or common stock or any combination thereof.
However, the bank credit facility prohibits Sunbeam from redeeming or
repurchasing debentures for cash. Sunbeam was required to file a registration
statement with the SEC to register the debentures by June 23, 1998. This
registration statement was filed on February 4, 1999 and the SEC has not
declared the registration statement effective. Sunbeam's failure to file the
registration statement by June 23, 1998 did not constitute default under the
terms of the debentures. As part of the normal review process by the SEC, a
number of comments have been made by the staff of the division of Corporation
Finance relating to the registration statement and the restated 1996 and 1997
financial statements included therein. Sunbeam expects to resolve these
comments with the SEC. From June 23, 1998 until the registration statement is
declared effective, Sunbeam is required to pay to the debenture holders cash
liquidated damages accruing, for each day during such period, at a rate per
annum equal to 0.25% during the first 90 days and 0.50% thereafter multiplied
by the total of the issue price of the debentures plus the original issue
discount thereon on such day. Sunbeam made its first payment of approximately
$500,000 to the debenture holders on September 25, 1998 and an additional $2
million was paid on March 25, 1999.
Concurrent with the acquisitions, Sunbeam replaced its $250 million
syndicated unsecured five-year revolving credit facility with the bank credit
facility. The bank credit facility provided for aggregate borrowings of up to
$1,700 million. As a result of operating losses incurred in fiscal 1998, among
other things, Sunbeam was not in compliance with some covenants set forth in
the bank credit facility. Sunbeam and its lenders entered into agreements as
of June 30, 1998, October 19, 1998 and April 10, 1999, in each case providing
for waivers of compliance with such covenants under the bank credit facility.
Effective April 15, 1999, Sunbeam and its lenders entered into an agreement
which waived compliance with such covenants through April 10, 2000 and
provided for new financial covenants. The following description of the bank
credit facility reflects the terms of the bank credit facility as amended
through April 15, 1999.
The bank credit facility provided for aggregate borrowings of up to
$1,700 million through:
o a revolving credit facility in an aggregate principal amount of
up to $400.0 million maturing March 30, 2005, $52.5 million of
which may only be used to complete the merger if the merger is
not completed prior to August 31, 1999;
o $800.0 million in term loans maturing on March 30, 2005, of
which $35.0 million may only be used to complete the merger; and
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o a $500.0 million term loan maturing September 30, 2006.
As of December 31, 1998, approximately $1,360 million was outstanding and
approximately $260 million was available for borrowing under the bank credit
facility.
Under the bank credit facility, interest accrues, at Sunbeam's option:
o at the London Interbank Offered Rate ("LIBOR"); or
o at the base rate of the administrative agent which is generally
the higher of the prime commercial lending rate of the
administrative agent or the Federal Funds Rate plus 0.50%;
in each case plus an agreed upon interest margin which is currently 3.75% for
LIBOR borrowings and 2.50% for base rate borrowings. The applicable interest
margin is subject to downward adjustment upon the occurrence of specified
events.
Borrowings under the bank credit facility are secured by a pledge of
the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material domestic subsidiaries, other than Coleman and its material
subsidiaries except as described below. Currently, Coleman's inventory and
related assets are pledged to secure its obligations for letters of credit
issued for its account under the bank credit facility. Additionally, as
security for Coleman's note payable to Sunbeam, Coleman pledged substantially
all of its domestic assets, other than real property, including 66% of the
stock of its direct foreign subsidiaries and domestic holding companies for
its foreign subsidiaries, and all of the stock of its other direct domestic
subsidiaries, but not the assets of Coleman's subsidiaries. The pledge runs in
favor of Sunbeam's lending banks, to which the Coleman note has been pledged
as security for Sunbeam's obligations to them. Upon completion of the merger,
substantially all of Coleman's assets and the assets of Coleman's domestic
subsidiaries will be pledged to secure the obligations under the bank credit
facility.
In addition, borrowings under the bank credit facility are guaranteed
by a number of Sunbeam's wholly owned material domestic subsidiaries and these
subsidiary guarantees are secured as described above. Upon completion of the
merger, Coleman and each of its United States subsidiaries will become
guarantors of the obligations under the bank credit facility. To the extent
borrowings are made by any subsidiaries of Sunbeam, the obligations of such
subsidiaries are guaranteed by Sunbeam.
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The bank credit facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of
Sunbeam and its subsidiaries, including Coleman, to, among other things:
o declare dividends or repurchase stock;
o prepay, redeem or repurchase debt, incur liens and engage in
sale-leaseback transactions;
o make loans and investments;
o incur additional debt;
o amend or otherwise alter material agreements or enter into
restrictive agreements;
o make capital and Year 2000 compliance expenditures;
o engage in mergers, acquisitions and asset sales;
o engage in transactions with specified affiliates;
o settle specified litigation;
o alter its cash management system; and
o alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios.
The bank credit facility provides for events of default customary for
transactions of this type, including nonpayment, misrepresentation, breach of
covenant, cross-defaults, bankruptcy, material adverse change arising from
compliance with ERISA, material adverse judgments, entering into guarantees
and change of ownership and control. It is also an event of default under
the bank credit facility if Sunbeam's registration statement in connection
with the merger is not declared effective by the SEC on or before October
30, 1999 or if the merger does not occur within 25 business days of the
effectiveness of the registration statement or if the cash consideration -
including any payments on account of the exercise of any appraisal rights,
but excluding related legal, accounting and other customary fees and
expenses - to consummate the
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merger exceeds $87.5 million. Although there can be no assurance, Sunbeam
anticipates that it will satisfy these conditions. Unless waived by the bank
lenders, the failure to satisfy these requirements, as with the occurrence of
any other event of default, would permit the bank lenders to accelerate the
maturity of all outstanding borrowings under the bank credit facility.
The bank credit facility also includes provisions for the deferral of
the 1999 scheduled term loan payments of $69.3 million, subject to delivery of
collateral documents and the filing of an amendment to Sunbeam's registration
statement relating to the merger. If these conditions are met, and there are
no events of default, the scheduled loan payments will be extended until April
10, 2000. Sunbeam anticipates that it will satisfy these conditions and,
accordingly, has classified these amounts as long-term in the Consolidated
Balance Sheet.
As of December 31, 1998, Sunbeam had cash and cash equivalents of $61.4
million, working capital excluding cash and cash equivalents of $427.1 million
and total debt of $2,300 million. Cash used in operating activities during
1998 was $190.4 million compared to $6.0 million used in operating activities
in 1997. This change is primarily attributable to lower earnings after giving
effect to non-cash charges partially offset by improvements in working
capital. During 1998, $184.2 million in cash was generated by reducing
receivables, including through the revolving trade accounts receivable
securitization program described below, and reducing inventories, which was
partially offset by a $68.2 million reduction in accounts payable levels. In
the fourth quarter of 1998, cash provided by operating activities totaled
$34.3 million, principally due to cash generated by reducing receivables and
inventories of $181.9 million. The decrease in cash provided by operations
from 1996 to 1997 is primarily attributable to increased inventory levels in
1997 and spending in 1997 related to the restructuring initiatives accrued for
in 1996, largely offset by an increase in cash generated by earnings in 1997
and an income tax refund (net of payments) in 1997. Cash used in operating
activities reflects proceeds of $200.0 million in 1998 and $58.9 million in
1997 from Sunbeam's revolving trade accounts receivable securitization
program, described below.
Cash used in investing activities in 1998 reflects $522.4 million for
the acquisitions. In 1997, cash provided by investing activities reflected
$91.0 million in proceeds from the sales of divested operations and other
assets. Capital spending totaled $53.7 million in 1998 and was primarily for
manufacturing efficiency initiatives, equipment and tooling for new products,
and management information systems hardware and software licenses. The new
product capital spending principally related to the air and water
filtration products which were discontinued in the second quarter of 1998,
electric blankets, grills, clippers and appliances. Capital spending in
1997 was $60.5 million and was primarily attributable to manufacturing
capacity expansion, cost reduction initiatives and equipment to manufacture
new products. The new product capital spending in 1997 principally related
to appliances and included costs related to blenders, toasters, stand
mixers, slow cookers and a soft serve ice cream product. Capital spending
in 1996 was
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$75.3 million, including $14.5 million related to the discontinued furniture
business, and was primarily attributable to equipment for new product
development and cost reduction initiatives. Sunbeam anticipates 1999 capital
spending to be approximately 3% of net sales, primarily related to new product
introductions, capacity additions, some facility rationalization initiatives
and systems hardware and software. As discussed above, Sunbeam's capital and
Year 2000 compliance expenditures are limited under the terms of the bank
credit facility.
Cash provided by financing activities totaled $766.2 million in 1998
and reflects:
o the net proceeds from the sale of debentures of $729.6 million;
o the cancellation and repayment of all outstanding balances under
Sunbeam's $250 million September 1996 revolving credit facility;
o the repayment of debt in connection with the acquisitions;
o the early extinguishment of the $75.0 million Hattiesburg
industrial revenue bond; and
o net borrowings under the bank credit facility.
In addition, cash provided by financing activities during 1998 includes $19.6
million of proceeds from the exercise of stock options:
During 1997, cash provided by financing activities of $16.4 million
reflected
o net borrowings of $5.0 million under Sunbeam's September 1996
revolving credit facility;
o $12.2 million of debt repayments related to the divested
furniture business and other assets sold; and
o $26.6 million in cash proceeds from the exercise of stock
options.
In 1996, cash provided by financing activities of $45.3 million was
primarily from increased revolving credit facility borrowings of $30.0 million
to support working capital and capital spending requirements, $11.5 million in
new issuances of long-term debt and $4.6 million in proceeds from the sale of
treasury shares to some executives of Sunbeam.
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In December 1997, Sunbeam entered into a revolving trade accounts
receivable securitization program, which as amended expires in March 2000, to
sell without recourse, through a wholly-owned subsidiary, up to a maximum of
$70 million in trade accounts receivable. Sunbeam, as agent for the purchaser
of the receivables, retains collection and administrative responsibilities for
the purchased receivables. For the year ended December 31, 1998, Sunbeam sold
approximately $200 million of accounts receivable under this program. At
December 31, 1998, Sunbeam had reduced accounts receivable by $20.0 million
for receivables sold under this program. Sunbeam expects to continue to
utilize the securitization program to finance a portion of its accounts
receivable. See Note 5 to the Consolidated Financial Statements.
At December 31, 1998, standby and commercial letters of credit
aggregated $82.3 million and were predominately for insurance, pension,
environmental, workers' compensation, and international trade activities. In
addition, as of December 31, 1998, surety bonds with a contract value of $26.5
million were outstanding largely as a result of litigation judgments that are
currently under appeal.
For additional information relating to the debentures, the bank credit
facility and the repayment of debt, see Note 3 to the Consolidated Financial
Statements.
Sunbeam expects to acquire the remaining equity interest in Coleman in
a merger transaction in which the existing Coleman minority shareholders will
receive 0.5677 share of Sunbeam's common stock and $6.44 in cash for each
share of Coleman common stock outstanding. In addition, unexercised options
under Coleman's stock option plans will be cashed out at a price per share
equal to the difference between $27.50 and the exercise price of such options.
Sunbeam expects to issue approximately 6.7 million shares of common stock and
expend approximately $87 million in cash, including cash paid to option
holders, to complete the Coleman transaction. See Notes 2 and 15 to the
Consolidated Financial Statements. Although there can be no assurance, it is
anticipated that the merger will occur in the second half of fiscal 1999.
Sunbeam is a party to various environmental proceedings, substantially
all related to previously divested operations and to Coleman sites. In
management's opinion, the ultimate resolution of these environmental matters
will not have a material adverse effect upon Sunbeam's financial condition,
results of operations or cash flows. See Note 15 to the Consolidated Financial
Statements.
Sunbeam believes its borrowing capacity under the bank credit facility,
cash flow from the combined operations of Sunbeam and its acquired companies,
existing cash and cash equivalent balances, and its receivable securitization
program will be sufficient to support
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working capital needs, capital expenditure and Year 2000 compliance spending,
and debt service through April 10, 2000. However, if Sunbeam is unable to
obtain a further waiver of the covenant and ratio requirements prior to April
10, 2000, Sunbeam expects it would, at that time, be in default of the
requirements under the bank credit facility and, as noted above, the lenders
could then require the repayment of all amounts then outstanding under the
bank credit facility.
By letter dated June 17, 1998, the staff of the Division of Enforcement
of the SEC advised Sunbeam that it was conducting an informal inquiry into
Sunbeam's accounting policies and procedures and requested that Sunbeam
produce documents. On July 2, 1998, the SEC issued a Formal Order of Private
Investigation, designating officers to take testimony and pursuant to which a
subpoena was served on Sunbeam requiring the production of documents. On
November 4, 1998, Sunbeam received another SEC subpoena requiring the
production of additional documents. Sunbeam has provided numerous documents
to the SEC staff and continues to cooperate fully with the SEC staff. Sunbeam
cannot predict the term of such investigation or its potential outcome.
Sunbeam is involved in significant litigation, including class and
derivative actions, relating to events which led to the restatement of its
consolidated financial statements, the issuance of the MacAndrews & Forbes
warrants, the sale of the debentures and the employment agreements, attorneys'
fees and expenses of Messrs. Dunlap and Kersh. Sunbeam intends to vigorously
defend each of the actions, but cannot predict the outcome and is not
currently able to evaluate the likelihood of Sunbeam's success in each case or
the range of potential loss. However, if Sunbeam were to lose these suits,
judgments would likely have a material adverse effect on Sunbeam's financial
position, results of operations and cash flows. Additionally, Sunbeam's
insurance carriers have filed various suits requesting a declaratory judgment
that the directors' and officers' liability insurance policies for excess
coverage was invalid and/or had been properly canceled by the carriers or have
advised Sunbeam of their intent to deny coverage under such policies. Sunbeam
intends to pursue recovery from all of its insurers if damages are rewarded
against Sunbeam or its indemnified officers and/or directors under any of the
foregoing actions. Sunbeam's failure to obtain such insurance recoveries
following an adverse judgment against Sunbeam on any of the foregoing
actions could have a material adverse effect on Sunbeam's financial
position, results of operations and cash flows.
Sunbeam and its subsidiaries are also involved in various lawsuits from
time to time that Sunbeam considers to be ordinary routine litigation
incidental to its business. In the opinion of Sunbeam, the resolution of these
routine matters, and of matters relating to prior operations, individually or
in the aggregate, will not have a material adverse effect on the financial
position, results of operations or cash flows of Sunbeam.
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For additional information relating to litigation, see "BUSINESS -
Litigation and Other Contingent Liabilities."
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP
98-1 requires computer software costs associated with internal use software to
be expensed as incurred until certain capitalization criteria are met. Sunbeam
has adopted SOP 98-1 effective January 1, 1999. Adoption of this statement is
not expected to have a material impact on Sunbeam's consolidated financial
position, results of operations, or cash flows. Actual charges incurred due to
systems projects may be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting
on the Cost of Start-up Activities ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. Sunbeam has adopted SOP 98- 5 beginning January 1, 1999.
Adoption of this statement is not expected to have a material impact on
Sunbeam's consolidated financial position, results of operations, or cash
flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. Sunbeam will adopt SFAS No. 133 for the 2000 fiscal
year. Sunbeam has not yet determined the impact SFAS No. 133 will have on its
consolidated financial position, results of operations or cash flows.
Year 2000 Readiness Disclosure
Sunbeam is preparing for the impact of the Year 2000 on its operations.
Year 2000 issues could include potential problems in the information
technology ("IT") and non-IT systems that Sunbeam uses in its operations and
problems in Sunbeam's products. Year 2000 system failures could affect routine
but critical operations such as forecasting, purchasing, production, order
processing, inventory control, shipping, billing and collection. In addition,
system failures could affect Sunbeam's security, payroll operations, or
employee safety. Sunbeam may also be exposed to potential risks from third
parties with whom Sunbeam interacts who fail to adequately address their own
Year 2000 issues.
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Sunbeam's Approach to Year 2000 Issues
While Sunbeam's Year 2000 readiness planning has been underway for over
one year, during the third quarter of 1998 Sunbeam established a
cross-functional project team consisting of senior managers, assisted by three
external consulting firms which were retained to provide consulting services
and to assist Sunbeam in implementing its Year 2000 strategy. This team is
headed by Sunbeam's Chief Financial Officer who reports directly to Sunbeam's
Chief Executive Officer on this issue. The audit committee of the board of
directors is advised periodically on the status of Sunbeam's Year 2000
readiness program.
The Year 2000 project team has developed a phased approach to identify
and resolve Year 2000 issues with many of these activities conducted in
parallel. Sunbeam's approach and the anticipated timing of each phase are
described below.
Phase 1 - Inventory and Assessment. During the first phase of Sunbeam's
Year 2000 readiness program, Sunbeam established a Year 2000 program
management office to centralize the management of all of Sunbeam's Year 2000
projects. Through this office, Sunbeam developed a corporate-wide, uniform
strategy for assessing and addressing the Year 2000 issues.
Sunbeam has completed an inventory of its hardware and software
systems, manufacturing equipment, electronic data interchange,
telecommunications and other technical assets potentially subject to Year 2000
problems, such as security systems and controls for lighting, air
conditioning, ventilation and facility access. This inventory was then entered
into Sunbeam's Year 2000 database along with a determination of the item's
level of criticality to operations. For those inventory items anticipated to
have a significant effect on the business if not corrected, Sunbeam's Year
2000 program envisions repair or replacement and testing of such items. All
information relative to each item is being tracked in Sunbeam's Year 2000
database. Sunbeam completed most of this phase during the third and fourth
quarters of 1998. Sunbeam has completed a review of the readiness of
embedded microprocessors in its products and determined that none of
Sunbeam's products have Year 2000 date sensitive systems.
Phase 2 - Correction and Testing. The second phase of Sunbeam's Year
2000 readiness program is structured to replace, upgrade or remediate, as
necessary, those items identified during Phase 1 as requiring corrective
action.
Sunbeam relies on its IT functions to perform many tasks that are
critical to its operations. Significant transactions that could be impacted by
not being ready for any Year 2000 issues include, among others:
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o purchases of materials;
o production management;
o order entry and fulfillment;
o payroll processing; and
o billing and collections.
Systems and applications that have been identified by Sunbeam to date
as not currently Year 2000 ready and which are critical to Sunbeam's
operations include:
o financial software systems, which process:
o order entry;
o purchasing;
o production management;
o general ledger;
o accounts receivable; and
o accounts payable functions;
o payroll applications; and
o critical applications in Sunbeam's manufacturing and
distribution facilities, such as warehouse management
applications.
In 1997, Sunbeam began implementing a uniform international business and
accounting information system to improve internal reporting processes. Based
upon representations from the manufacturer that the current version of this
uniform information system is Year 2000 ready, Sunbeam has been actively
upgrading its business sites that currently utilize this uniform system to the
Year 2000 ready version. A small number of other business locations are
replacing their current non-Year 2000 ready systems with this new uniform
system.
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Sunbeam is also actively replacing and/or upgrading legacy business
systems that are not Year 2000 ready, including those that use localized
business system packages which were not candidates to be replaced by the
uniform business and accounting information system. With respect to Sunbeam's
non-IT systems, including time and attendance, security, and in-line
manufacturing hardware, Sunbeam is actively analyzing these items to assess
any Year 2000 issues. To date, no material issues have been discovered, and
Sunbeam will continue to review, test and correct, if necessary, such items.
Sunbeam plans to complete the corrective work described above with
respect to its systems by the end of the second quarter of 1999 with final
testing and implementation of such systems occurring in the second and third
quarters of 1999.
Phase 3 - Customers, Suppliers and Business Partners. The third phase
of Sunbeam's Year 2000 readiness program which was initiated during the third
and fourth quarters of 1998 is designed to assess and interact with Sunbeam's
customers, suppliers, and business partners. As part of this effort, Sunbeam
surveyed 1,100 vendors and suppliers determined to be critical to Sunbeam.
Based on the survey, Sunbeam believes that there is only a low to medium risk
of Year 2000 issues for approximately one-third of its vendors; however, a
small number - less than 3% - of vendors have been identified as high risk,
and almost two-thirds of the vendors did not respond fully to the survey.
Sunbeam will continue its vendor evaluation and assessment process through
1999, including direct contact with high and medium risk vendors and vendors
who have not responded fully to Sunbeam's survey. Sunbeam has not
independently verified the responses of vendors and does not anticipate
undertaking such independent verification process.
Beginning in the second quarter of 1999, Sunbeam began contacting its
major customers to confirm their preparations for Year 2000 issues. Sunbeam
has already responded to numerous customer inquiries and believes that all of
Sunbeam's major customers have established programs to deal with Year 2000
issues. In order to improve Sunbeam's communication with its customers,
suppliers and business partners, Sunbeam has set up a Sunbeam Year 2000
telephone number and is in the process of providing Year 2000 information
on a Company web site.
Phase 4 - Contingency Planning. This phase will involve contingency
planning for unresolved Year 2000 issues, particularly any issues arising with
third party suppliers. Sunbeam's Year 2000 readiness program is ongoing and
its ultimate scope, as well as the consideration of contingency plans, will
continue to be evaluated as new information becomes available. As a
precautionary measure, Sunbeam plans to establish a contingency plan for
addressing any effects of the Year 2000 on its operations, whether due to
Sunbeam's systems or those of third parties not being ready for any Year 2000
issues. Sunbeam expects to complete such contingency plan by September 30,
1999; such contingency plan will address alternative processes, such as manual
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procedures, electronic spreadsheets, potential alternative service providers,
and plans to address Year 2000 readiness issues as they arise.
The Risks of Sunbeam's Year 2000 Approach
The independent consultants assisting Sunbeam in its Year 2000
readiness program have reviewed and concurred with Sunbeam's approach, have
assisted in developing cost estimates and have monitored costs for the largest
single component (upgrade or installation of Sunbeam's uniform system) of
Sunbeam's Year 2000 program. As a result, although Sunbeam did not engage an
independent third party to verify the program's overall approach or total
cost, Sunbeam believes that Sunbeam's exposure in this regard is mitigated. In
addition, through the use of external third-party diagnostic tools which
helped to identify potential Year 2000 issues in one significant business
operation, Sunbeam believes that it has also mitigated its risk by validating
and verifying key program components.
Management believes that, although there are significant systems that
are being modified or replaced, Sunbeam's information systems environment will
be made Year 2000 ready prior to January 1, 2000. Sunbeam's failure to timely
complete such corrective work could have a material adverse impact on Sunbeam.
With respect to customers, suppliers and business partners, the failure
of some of these third parties to become Year 2000 ready could also have a
material adverse impact on Sunbeam. For example, the failure of some of
Sunbeam's principal suppliers to have Year 2000 ready internal systems could
impact Sunbeam's ability to manufacture and/or ship its products or to
maintain adequate inventory levels for production.
At this time, Sunbeam believes that the most likely "worst-case"
scenario relating to Year 2000 involves potential disruptions in areas in
which Sunbeam's operations must rely on third parties, such as suppliers,
whose systems may not work properly after January 1, 2000. While such system
failures could either directly or indirectly affect important operations of
Sunbeam and its subsidiaries in a significant manner, Sunbeam cannot at
present estimate either the likelihood or the potential cost of such failures.
Subject to the nature of the goods or services provided to Sunbeam by third
parties whose operations are not made ready for Year 2000 issues, the impact
on Sunbeam's operations could be material if appropriate contingency plans
cannot be developed prior to January 1, 2000.
The nature and focus of Sunbeam's efforts to address the Year 2000
problem may be revised periodically as interim goals are achieved or new
issues are identified. In addition, it is important to note that the
description of Sunbeam's efforts and assessments necessarily involves
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estimates and projections with respect to activities required in the future.
These estimates and projections are subject to change as work continues, and
such changes may be substantial.
The Costs to Address Sunbeam's Year 2000 Issues
Through December 31, 1998, Sunbeam had expended approximately $19
million to address Year 2000 issues of which approximately half was recorded
as capital expenditures and the remainder as SG&A expense. Sunbeam's current
assessment of the total costs to address and remedy Year 2000 issues and
enhance its operating systems, including costs for the acquired companies, is
approximately $60 million. The amount to be incurred for Year 2000 issues
during 1999 of approximately $41 million represents over 50% of Sunbeam's
total 1999 budget for information systems and related support, including Year
2000 costs. A large majority of these costs are expected to be incremental
expenditures that will not recur in the Year 2000 or thereafter. Fees and
expenses related to third party consultants, who are involved in the program
management office as well as the modification and replacement of software,
represent approximately 75% of the total estimated cost. The balance of the
total estimated cost relates primarily to software license fees and new
hardware, but excludes the costs associated with company employees. Sunbeam
expects these expenditures to be financed through operating cash flows or
borrowings, as applicable. A significant portion of these expenditures will
enhance Sunbeam's operating systems in addition to resolving the Year 2000
issues. As Sunbeam completes its assessment of the Year 2000 issues, the
actual expenditures incurred or to be incurred may differ materially from the
amounts shown above. The bank credit facility does not permit Sunbeam to spend
more than $50 million on Year 2000 testing and remediation during 1999.
Because Year 2000 readiness is critical to the business, Sunbeam has
redeployed some resources from non-critical system enhancements to address
Year 2000 issues. In addition, due to the importance of IT systems to
Sunbeam's business, management has deferred non-critical systems
enhancements as much as possible. Sunbeam does not expect these
redeployments and deferrals to have a material impact on Sunbeam's
financial condition, results of operations or cash flows.
Effects of Inflation
For each of the three years in the period ended December 31, 1998,
Sunbeam's cost of raw materials and other product remained relatively stable.
To the extent possible, Sunbeam's objective is to offset the impact of
inflation through productivity enhancements, cost reductions and price
increases.
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CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On November 20, 1998, the audit committee recommended and Sunbeam's
board approved the appointment of Deloitte & Touche as its independent
auditors for 1998, to replace Arthur Andersen, Sunbeam's former auditor.
Arthur Andersen is continuing to provide certain professional services to
Sunbeam.
On June 25, 1998, Sunbeam announced that Arthur Andersen would not
consent to the inclusion of its opinion on Sunbeam's 1997 financial statements
in a registration statement Sunbeam was planning to file with the SEC. On June
30, 1998, Sunbeam announced that the audit committee of its board of directors
would conduct a review of Sunbeam's prior financial statements and that,
therefore, those financial statements should not be relied upon. Sunbeam also
announced that Deloitte & Touche had been retained to assist the audit
committee and Arthur Andersen in their review of Sunbeam's prior financial
statements. On August 6, 1998, Sunbeam announced that the audit committee had
determined that Sunbeam would be required to restate its financial statements
for 1997, the first quarter of 1998 and possibly 1996, and that the
adjustments, while not then quantified, would be material. On October 20, 1998
Sunbeam announced the restatement of its financial results for a six-quarter
period from the fourth quarter of 1996 through the first quarter of 1998. On
November 12, 1998, Sunbeam filed a Form 10- K/A for the year ended December
28, 1997, which contains an unqualified opinion by Arthur Andersen on
Sunbeam's restated consolidated financial statements as of December 29, 1996
and December 28, 1997 and for each of the three years in the period ended
December 28, 1997.
Arthur Andersen's report on Sunbeam's financial statements for the two
fiscal years of Sunbeam ended December 28, 1997 contained no adverse opinion
or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with its
audits for those periods and through November 20, 1998, there were no
disagreements with Arthur Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
Arthur Andersen would have caused Arthur Andersen to make reference thereto
in their report on the financial statements for such years. Sunbeam has not
consulted with Deloitte & Touche on any matter that was either the subject
of a disagreement or a reportable event between Sunbeam and Arthur
Andersen.
In connection with the restatements referred to above, in a letter
dated October 16, 1998, Arthur Andersen advised Sunbeam that there existed the
following conditions that Arthur Andersen believed to be material weaknesses
in Sunbeam's internal controls:
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"In our opinion, [Sunbeam's] design and effectiveness of its internal
control were inadequate to detect material misstatements in the
preparation of [Sunbeam's] 1997 annual (before audit) and quarterly
financial statements."
As part of its audit of Sunbeam's 1997 consolidated financial
statements that led to the restatement of these financial statements, Arthur
Andersen was required to consider Sunbeam's internal controls in determining
the scope of its audit procedures. Arthur Andersen has advised management of
its concerns regarding Sunbeam's internal controls. Management is addressing
these concerns and although Sunbeam has not yet fully implemented all
additional planned controls, management believes that the interim measures
Sunbeam has adopted to prevent material misstatements in its financial
statements will be effective until the remainder of the additional controls
can be implemented.
BUSINESS OF SUNBEAM
General
Sunbeam is a leading designer, manufacturer and marketer of branded
consumer products. Sunbeam's primary business is the manufacturing, marketing
and distribution of durable household and outdoor leisure consumer products
through mass market and other distribution channels in the United States and
internationally. Sunbeam also sells its products to professional and
commercial end users such as small businesses, health care providers, hotels
and other institutions. Sunbeam's principal products include household kitchen
appliances; health monitoring and care products for home use; scales for
consumer and professional use for weight management and business uses;
electric blankets and throws; clippers and trimmers for consumer,
professional and animal uses; smoke and carbon monoxide detectors; outdoor
barbecue grills; camping equipment such as tents, lanterns, sleeping bags
and stoves; coolers; backpacks and book bags; and portable generators and
compressors.
Sunbeam was organized in 1989 as Sunbeam-Oster Company, Inc., and in
September 1990, Sunbeam acquired the assets and assumed certain liabilities,
through a reorganization, of Allegheny International, Inc., an entity
operating as a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code since 1988. In August 1992, Sunbeam completed a public
offering of 20,000,000 shares of its common stock. In May 1995, Sunbeam
changed its name from Sunbeam-Oster Company, Inc. to Sunbeam Corporation.
In 1998 Sunbeam acquired an indirect controlling interest in Coleman
and all the outstanding common stock of Signature Brands and First Alert.
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Products and Operations
Sunbeam's operations are managed through four groups: Household,
Outdoor Leisure, International and Corporate. The Household and Outdoor
Leisure operating groups encompass the following products:
o In the Household group:
(1) Appliances - including mixers, blenders, food steamers,
breadmakers, rice cookers, coffee makers, toasters, irons and
garment steamers;
(2) Health products - including vaporizers, humidifiers, air
cleaners, massagers, hot and cold packs and blood pressure
monitors;
(3) Scales;
(4) Personal care - including hair clippers and trimmers and related
products for the professional beauty, barber and veterinarian
trade and sales of products to commercial and institutional
channels;
(5) Blankets - including electric blankets, heated throws and
mattress pads; and
(6) First Alert - including smoke and carbon monoxide detectors,
fire extinguishers and home safety equipment.
o In the Outdoor Leisure group:
(1) Outdoor recreation products - including tents, sleeping bags,
coolers, camping stoves, lanterns and outdoor heaters;
(2) Outdoor cooking products - including gas and charcoal outdoor
grills and grill parts and accessories;
(3) Powermate products - including portable power generators and air
compressors; and
(4) Eastpak products - including backpacks and bags.
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Sunbeam's International group is managed through the following regional
subdivisions:
(1) Europe - manufacture, sales and distribution of
Campingaz(Registered) products and sales and distribution in
Europe, Africa and the Middle East of other Sunbeam products;
(2) Latin America - manufacture, sales and distribution throughout
Latin America of small appliances, and sales and distribution of
personal care products, professional clippers and related
products, camping products and Powermate products;
(3) Japan - sales and distribution of primarily outdoor recreation
products;
(4) Canada - sales and distribution of substantially all Sunbeam's
products; and
(5) East Asia - sales and distribution in all areas of East Asia
other than Japan of substantially all Sunbeam's products.
Sunbeam's Corporate group provides certain management, accounting,
legal, risk management, treasury, human resources, tax and management
information services to all operating groups and also includes the operation
of Sunbeam's retail stores and the conduct of Sunbeam's licensing activities.
See Note 14 to the Consolidated Financial Statements for financial data
concerning Sunbeam's operating segments.
Household
Sunbeam's Household group includes appliances, health products, scales,
personal care products, blankets and First Alert products. Net sales of
Household group products accounted for approximately 50%, 73% and 74% of
Sunbeam's consolidated net sales in 1998, 1997 and 1996, respectively. Except
as discussed below, there were no Household group products or group of similar
products with sales that accounted for 10% or more of consolidated net sales
in any of the last three fiscal years.
Appliances. Small kitchen appliances include Mixmaster(Registered)
stand mixers, hand mixers, Osterizer(Registered) blenders, food processors,
rice cookers, food steamers, toasters, can openers, breadmakers, waffle
makers, ice cream makers, frying pans, deep fryers and culinary accessories,
which are sold primarily under the Sunbeam(Registered) and Oster(Registered)
brand names. In addition, Sunbeam sells coffee makers under the Mr.
Coffee(Registered), Sunbeam and Oster brand names and, with respect to coffee
and tea products, the Mr. Coffee brand name. Other brand names or trademarks
used in
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marketing include: Toast Logic(Registered), Details(Registered) by Mr.
Coffee for high end coffeemakers sold in department and specialty stores, Mrs.
Tea(Trademark), and Iced Tea Pot(Trademark), Oster Designer(Registered) and
Pause N Serve(Registered). Sunbeam holds the number one or two market
positions in coffee makers, mixers, and breadmakers. Appliances also encompass
garment care appliances consisting of irons and steamers. Sunbeam manufactures
a portion of its appliances in its United States and Mexico plants and sources
the balance of its appliance products from domestic and foreign manufacturers.
Health. Sunbeam markets many of its health products under the
Sunbeam(Registered) name and the trademark Health at Home(Registered). These
products include heating pads, bath scales, blood pressure and other
health-monitoring instruments, massagers, vaporizers, humidifiers and dental
care products. Sunbeam assembles and/or manufactures its vaporizers,
humidifiers and heating pads at its United States and Mexico facilities.
Sunbeam's other personal health products are sourced from manufacturers
primarily located in China.
Scales. Sunbeam also designs, manufactures and markets scales for
consumer, office and professional use. Sunbeam manufactures a complete line of
analog and digital floor scales, waist-high and eye-level scales for use in
weight monitoring by consumers. These consumer scales are sold under the brand
names Health o Meter(Registered), Sunbeam, Counselor(Registered) and
Borg(Registered). Other trademarks used in marketing the scales are
BigFoot(Registered) and Precious Metals(Registered). Sunbeam also markets
professional scales such as traditional balance beam scales, pediatric scales,
wheelchair ramp scales, chair and sling scales and home healthcare scales
using the Pro Series(Registered) and Pro Plus Series(Registered) trademarks in
addition to the Health o Meter brand. Sunbeam's line of scales also includes
letter and parcel scales for office use, marketed under the
Pelouze(Registered) brand name. Sunbeam has a commanding share of the office
scale market with its Pelouze scales. Sunbeam's Pelouze food scales include
analog and digital portion control scales, thermometers and timers for
commercial and non-commercial applications. Sunbeam manufactures approximately
one-half of its scales at a United States plant and sources the remaining
scales from both domestic and foreign suppliers.
Personal Care. Sunbeam's personal care products include a broad line of
hair clippers and trimmers for animals and humans which are sold through
retail channels. Sunbeam holds the number one or two position in its clipper
and trimmer product lines. Sunbeam also markets a line of professional
barber, beauty and animal grooming products, including electric and battery
clippers, replacement blades and other grooming accessories sold to both
conventional retailers and through professional distributors. These products
are manufactured at Sunbeam's United States and Mexico facilities.
Blankets. Sunbeam's blanket products include electric blankets,
Cuddle-Up(Registered) heated throws and heated mattress pads. Sunbeam holds
the number one market position in each of
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electric blankets, heated throws and heated mattress pads. These products are
manufactured at Sunbeam's United States and Mexico facilities. In 1996, sales
of electric blankets accounted for approximately 12% of consolidated net
sales.
First Alert. Sunbeam is a leading manufacturer and marketer of a broad
range of residential safety products, including residential use ionization and
photoelectric smoke detectors in which Sunbeam has the leading market share.
Other products include carbon monoxide detectors, fire extinguishers,
rechargeable flashlights and lanterns, electric and electromechanical timers,
night lights, radon gas detectors, fire escape ladders and motion sensing
lighting controls. Sunbeam's smoke detectors are battery-operated and carbon
monoxide detectors are available in both plug in and battery operated units
and in a combination unit. These products are marketed primarily under the
First Alert(Registered) brand name. Sunbeam also uses the brand names Family
Gard(Registered) and Sure Grip(Registered) for certain of its products.
Sunbeam markets certain of these products under the BRK(Registered) brand for
the electrical wholesale markets. Sunbeam manufactures its smoke and carbon
monoxide detectors in its Mexico plant, manufactures fire extinguishers in its
United States plant and sources other products from domestic and foreign
suppliers.
In 1996, Sunbeam's furniture business accounted for approximately 23%
of consolidated net sales. See Note 13 to the Consolidated Financial
Statements for information relating to the divestiture of Sunbeam's furniture
business.
Outdoor Leisure
Sunbeam's Outdoor Leisure group includes products for outdoor
recreation and outdoor cooking, as well as the Powermate and Eastpak product
lines. Net sales of the Outdoor Leisure group accounted for approximately
50%, 25% and 26% of Sunbeam's consolidated net sales in 1998, 1997 and
1996, respectively. Except as discussed below, there were no other Outdoor
Leisure products or groups of similar products with sales that accounted
for 10% or more of consolidated net sales in any of the last three fiscal
years.
Outdoor Recreation. Principal outdoor recreation products include a
comprehensive line of lanterns and stoves for outdoor recreational use,
fuel-related products such as disposable fuel cartridges, a broad range of
coolers and jugs, sleeping bags, backpacks, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. These
products are used predominantly in outdoor recreation, but many products have
applications in emergency preparedness and some are also used in home
improvement projects. The products are distributed predominantly through mass
merchandisers, home centers and other retail outlets. Sunbeam believes it is
the leading manufacturer of lanterns and stoves for outdoor recreational use
in the world. Sunbeam's liquid fuel appliances include single and dual
fuel-powered lanterns
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and stoves and a broad range of propane- and butane-fueled lanterns and
stoves. These products are manufactured at Sunbeam's facilities located in the
United States and are marketed under the Coleman(Registered) and Peak
One(Registered) brand names.
Sunbeam manufactures and sells a wide variety of insulated coolers and
jugs and reusable ice substitutes, including personal coolers for camping,
picnics or lunch box use; large coolers; beverage coolers for use at work
sites and recreational and social events; and soft-sided coolers. Sunbeam's
cooler products are manufactured predominantly at Sunbeam's facilities located
in the United States and are marketed under the Coleman brand name worldwide.
Sunbeam designs, manufactures or sources, and markets textile products,
including tents, sleeping bags, backpacks and rucksacks. Sunbeam's tents and
sleeping bags are marketed under the Coleman and Peak One brand names. Sunbeam
manufactures and markets aluminum- and steel-framed, portable, outdoor,
folding furniture under the Coleman and Sierra Trails(Registered) brand names.
These products are manufactured predominantly at Sunbeam's facilities located
in the United States. Sunbeam designs and markets electric lighting products
that are manufactured by others and sold under the Coleman, Powermate and
Job-Pro(Registered) brand names. These products include portable electric
lights such as hand held spotlights, flashlights and fluorescent lanterns and
a line of rechargeable lanterns and flashlights. Sunbeam designs, sources and
markets a variety of small accessories for camping and outdoor use, such as
cookware and utensils. These products are manufactured by third-party vendors
to Coleman's specifications and are marketed under the Coleman brand name.
Outdoor Cooking. Sunbeam is a leading supplier of outdoor barbecue
grills. Sunbeam has one of the leading market share positions in the gas grill
industry. Outdoor barbecue grills consist of gas, electric and charcoal models
which are sold by Sunbeam primarily under the Sunbeam and
Grillmaster(Registered) brand names. Sunbeam's outdoor cooking products also
include smokers and replacement parts for grills and various accessories such
as cooking utensils, grill cleaning products and barbecue tools. Almost all of
Sunbeam's grills are manufactured at Sunbeam's United States facility. Sunbeam
sources practically all of its accessories and a portion of its replacement
parts from various manufacturers, many of which are in East Asia. A licensee
of Sunbeam produces gas barbecue grills under the Coleman name. In 1997 and
1996, sales of gas grills accounted for approximately 13% and 19%,
respectively, of consolidated net sales.
Powermate. Sunbeam's principal Powermate products include portable
generators and portable and stationary air compressors. Sunbeam is a leading
manufacturer and distributor of portable generators in the United States.
Generators are used for home improvement projects, small businesses, emergency
preparedness and outdoor recreation. These products are manufactured by
Sunbeam at its United States facilities using engines manufactured by third
parties, are marketed under the Coleman Powermate(Registered) brand name and
are distributed predominantly through mass merchandisers and home center
chains. Sunbeam also produces
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advanced, light-weight generators incorporating proprietary technology.
Sunbeam's air compressors are manufactured at its facilities located in the
United States, are marketed under the Coleman Powermate brand name and are
distributed predominantly through mass merchandisers and home center chains.
Eastpak. Sunbeam designs, manufactures and distributes book bags,
backpacks and related goods throughout the United States under the Eastpak and
Timberland(Registered) brand names. Sunbeam manufactures the majority of its
products in its plants located in Puerto Rico.
International
Sunbeam markets a variety of products outside the United States. While
Sunbeam sells many of the same products domestically and internationally, it
also sells products designed specifically to appeal to foreign markets.
Sunbeam, through its foreign subsidiaries, has manufacturing facilities in
France, Indonesia, Italy, Mexico, and Venezuela, and sales administration
offices, warehouse and distribution facilities in Canada, Europe, the Mideast,
Asia and Latin America. Sunbeam also sells its products directly to
international customers in certain other markets through Sunbeam sales
managers, independent distributors and commissioned sales representatives. The
products sold by the international group are sourced from Sunbeam's
manufacturing operations or from vendors primarily located in Asia.
International sales accounted for approximately 23%, 21% and 19% of Sunbeam's
consolidated net sales in 1998, 1997 and 1996, respectively. Sunbeam's
international operations are managed through the following geographic areas:
Europe. Sunbeam's European operations are managed from Brussels and the
sales are dominated by the product lines acquired by Sunbeam as part of the
Coleman acquisition, including the Campingaz product lines and Eastpak
products. Sunbeam's European office also manages the sale and distribution of
Sunbeam products throughout Africa and the Middle East.
Japan. Sunbeam's sales in Japan are almost exclusively sales of
camping equipment such as tents, stoves, lanterns, sleeping bags and
accessories.
Latin America. The activities of Sunbeam outside the United States were
primarily focused in Mexico and Latin America prior to the 1998 acquisition of
Coleman. Sunbeam enjoys a strong market position in a number of product lines
in Latin America. The Oster brand has the leading market share in small
appliances in a number of Latin American countries. Sunbeam's sales in Latin
America are derived primarily from household appliances, particularly the
Oster blender and the recently introduced Oster arepa maker.
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Canada. Sunbeam sells substantially all of its products in Canada
through a distribution sales office located in Toronto.
East Asia. During 1998, Sunbeam's sales in East Asia were hampered by
the economic downturn particularly in South Korea where Sunbeam had developed
a strong market for Eastpak bags, and in Indonesia where Sunbeam sells
Campingaz products. Sunbeam has established a sales office in Australia, from
which it sells primarily clippers and appliances, and distributes First Alert
products in Australia and New Zealand. Sales offices have also been
established in Manila and Hong Kong.
Sunbeam has sales and facilities in countries where economic growth has
slowed, primarily Japan, Korea and Latin America. The economies of other
foreign countries important to Sunbeam's operations could also suffer
instability in the future. The following are among the factors that could
negatively affect Sunbeam's operations in foreign markets: (1) access to
markets; (2) currency devaluation; (3) new tariffs; (4) changes in monetary
policies; (5) inflation; and (6) governmental instability. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Foreign Operations."
Corporate
Retail. Sunbeam sells many of its products through its retail outlet
stores which are operated under the Sunbeam, Oster and Camp
Coleman(Registered) names. In addition, Sunbeam currently has 37 retail outlet
stores in the United States and Canada which primarily carry discontinued,
overstock and refurbished products for retail sale to consumers. Net sales
from retail stores were not significant in any of the last three fiscal years.
Licensing. Sunbeam licenses the Sunbeam name and the Coleman name and
logo under two types of licensing arrangements: general merchandise licenses
and licenses to purchasers of businesses divested by Sunbeam. Sunbeam's
general merchandise licensing activities involve licensing the Sunbeam and/or
Coleman name and logo, for a royalty fee, to certain companies that
manufacture and sell products that complement Sunbeam's product lines. Revenue
from licensing activities in 1998 in the amount of $4 million was generated
primarily from the license of the Coleman name. In addition, Sunbeam licenses
trade names from third parties for use in connection with Sunbeam's products.
Revenue from licensing activities was not significant in 1997 and 1996.
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Competition
The markets in which Sunbeam operates are generally highly competitive,
based primarily on product quality, product innovation, price and customer
service and support, although the degree and nature of such competition vary
by location and product line. Sunbeam believes that no other company produces
and markets the breadth of household appliance, camping and outdoor recreation
products marketed by Sunbeam.
Sunbeam competes with various manufacturers and distributors with
respect to its household appliances. Primary competitors in the kitchen
appliance area have been Black & Decker (which recently sold its appliance
division to Windmere), Hamilton Beach/Procter Silex, West Bend, Melita,
Salton-Maxim, Cuisinart, Regal, Krups, Kitchen Aid, Braun and Rival. Sunbeam's
primary competitor in the consumer scale market is Metro Corporation.
Sunbeam's health care products compete with those of numerous small
manufacturers and distributors, none of which dominates the home health care
market. Sunbeam has no domestic competitors for its electric blankets and
heated throws and enjoys a market share in excess of 90% for these products.
Sunbeam's primary competitors for retail clippers and trimmers are Wahl and
Conair; the primary competitors in the professional products lines are Wahl
and Andis. Sunbeam enjoys a leading market share with respect to its smoke and
carbon monoxide detectors where Ranco, American Sensor, Nighthawk and Siebe
are the primary competitors. Sunbeam competes with Micro General with respect
to its Pelouze scales.
Sunbeam's Outdoor Leisure products compete with numerous products sold
by other manufacturers. Lanterns and stoves compete with, among others,
products offered by Century Primus, American Camper and Dayton Hudson
Corporation, while Desa & Schau and Mr. Heater are the primary competitors
for heaters. The primary competitors for Sunbeam's portable furniture are a
variety of import companies. Sunbeam's insulated cooler and jug products
compete with products offered by Rubbermaid Incorporated, Igloo Products Corp.
and The Thermos Company. Sunbeam's sleeping bags compete with, among others,
American Recreation, Slumberjack, Academy Broadway Corp. and MZH Inc., as well
as certain private label manufacturers. In the tent market, Sunbeam competes
with, among others, Wenzel, Eureka and Mountain Safety Research, as well as
certain private label manufacturers. Sunbeam competes with W.C. Bradley, Meco,
Fiesta, Ducane, Weber and Keanall for sales of outdoor grills and accessories.
Sunbeam's backpack products compete with, among others, American Camper,
JanSport, Nike, Outdoor Products, The North Face, and Kelty, as well as
certain private label manufacturers. Sunbeam's competition in the electric
light business includes, among others, Eveready and Rayovac Corporation.
Sunbeam's camping accessories compete primarily with Coughlan's. Sunbeam's
primary competitors in the generator business are Generac Corporation, Honda
Motor Co., Ltd., Kawasaki and Yamaha. Primary competitors in the air
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compressor business include DeVilbiss and Campbell Hausfield. In addition,
Sunbeam competes with various other entities in international markets.
Customers
Sunbeam markets its products through virtually every category of
retailer including mass merchandisers, catalog showrooms, warehouse clubs,
department stores, catalogues, Sunbeam-owned outlet stores, television
shopping channels, hardware stores, home improvement centers, office products
centers, drug and grocery stores, and pet supply retailers, as well as
independent distributors and military post exchange outlets. In 1998, Sunbeam
sold products to virtually all of the top 100 U.S. retailers, including
Wal-Mart/Sam's Club, Kmart, Price Costco, Target Stores and Home Depot.
Sunbeam's largest customer, Wal-Mart, accounted for approximately 18%, 20% and
19% of consolidated net sales in 1998, 1997 and 1996, respectively. Sunbeam
has the majority of its U.S. customer sales on electronic data interchange
(EDI) systems.
Backlog
The amount of backlog orders at any point in time is not a significant
factor in Sunbeam's business.
Patents and Trademarks
Sunbeam believes that an integral part of its strength is its ability
to capitalize on the Sunbeam(Registered), Coleman(Registered),
Oster(Registered), Eastpak(Registered), Mr. Coffee(Registered), Health o
Meter(Registered), First Alert(Registered) and Campingaz(Registered)
trademarks which are registered in the United States and in numerous foreign
countries. Widely recognized throughout North America, Latin America and
Europe, these registered trademarks, along with Powermate(Registered),
Pelouze(Registered), Peak One(Registered), Osterizer(Registered),
Mixmaster(Registered), Toast Logic(Registered), Steammaster(Registered),
Oskar(Registered), Grillmaster(Registered) and "Blanket with a
Brain(Registered)" brands are important to the success of Sunbeam's products.
Other important trademarks within Sunbeam include Oster Designer(Registered),
Cuddle-Up(Registered) and A5(Registered). The loss of any single trademark
would not have a material adverse effect on Sunbeam's business; however, the
Sunbeam, Coleman and Mr. Coffee trademarks are integral to certain of
Sunbeam's continuing operations and Sunbeam aggressively monitors and protects
these and other brands.
Sunbeam holds numerous design and utility patents covering a wide
variety of products, the loss of any one of which would not have a material
adverse effect on Sunbeam's business taken as a whole.
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Research and Development
New products and improvements to existing products are developed based
upon the perceived needs and demands of consumers. Research and development
expenditures are expensed as incurred. The amounts charged to operations for
the fiscal years ended 1998, 1997 and 1996 were $18.7 million, $5.7 million
and $6.5 million, respectively.
Employees
As of December 31, 1998, Sunbeam had approximately 14,196 full-time and
part-time employees of which 6,848 are employed domestically. Sunbeam is a
party to collective bargaining agreements with its hourly employees located at
the Aurora, Illinois, Glenwillow, Ohio and Bridgeview, Illinois plants.
Sunbeam's Canadian warehouse employees are represented by a union, as are all
of the production employees at Sunbeam's operations in France and Italy.
Sunbeam has had no material labor-related work stoppages and, in the opinion
of management, relations with its employees are generally good.
Seasonality
Sunbeam's sales, prior to the 1998 acquisitions, have not traditionally
exhibited substantial seasonality; however, sales have been strongest during
the fourth quarter of the calendar year. Additionally, sales of outdoor
cooking products are strongest in the first half of the year, while sales of
appliances, personal care and blanket products are strongest in the second
half of the year. After considering the seasonality of the acquired
businesses, Sunbeam's consolidated sales are not expected to exhibit
substantial seasonality; however, sales are expected to be strongest during
the second quarter of the calendar year. Furthermore, sales of a number of
products, including warming blankets, vaporizers, humidifiers, grills, First
Alert products, camping and generator products, may be impacted by
unseasonable weather conditions.
Raw Materials/Suppliers
The raw materials used in the manufacture of Sunbeam's products are
available from numerous suppliers in quantities sufficient to meet normal
requirements. Sunbeam's primary raw materials include aluminum, steel, plastic
resin, copper, electrical components, various textiles or fabrics and
corrugated cardboard for cartons. Sunbeam also purchases a substantial number
of finished products. Sunbeam is not dependent upon any single supplier for a
material amount of such sourced products.
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Properties
Sunbeam's principal properties as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
BUILDING SQUARE OWNED/
LOCATION PRINCIPAL USE FOOTAGE LEASED
-------- ------------- ------- ------
<S> <C> <C> <C>
UNITED STATES
-------------
Aurora, IL First Alert offices, manufacture of fire extinguishers 236,000 Leased
Boca Raton, FL Corporate headquarters 100,626 Leased
Bridgeview, IL Offices and manufacture of scales 157,000 Owned
Glenwillow, OH Manufacture of Mr. Coffee products, distribution
warehouse and offices 458,000 Leased
Hattiesburg, MS Manufacture of molded plastic parts, humidifiers,
vaporizers, warehouse/distribution, and offices 725,000 Owned
Haverhill, MA Office and warehouse/distribution 111,750 Leased
Kearney, NE Manufacture/assembly of portable generators; office and
warehouse 155,000 Leased (1)
Lake City, SC Manufacture of sleeping bags 168,000 Owned
Maize, KS Manufacture of propane cylinders and machined parts 232,760 Leased
McMinnville, TN Manufacture of clippers, trimmers and blades 169,400 Leased
Neosho, MO Manufacture of outdoor barbecue grills 669,700 Owned
New Braunfels, TX Manufacture of insulated coolers and other plastic
products 338,000 Owned
Pocola, OK Manufacture of outdoor folding furniture and warehouse 186,000 Owned
Springfield, MN Manufacture of air compressors 166,000 Owned
Waynesboro, MS Manufacture of electric blankets 853,714 Leased
Wichita, KS Manufacture of lanterns and stoves and insulated coolers
and jugs; research and development and design
operations; office and warehouse 1,197,000 Owned
Morovis and Orocovis Manufacture of daypacks, sports bags, and related
Puerto Rico products; office and warehouse 110,000 Leased
INTERNATIONAL
-------------
Acuna, Mexico Manufacture of appliances 110,000 Owned
Barquisimeto, Venezuela Manufacture of appliances 75,686 Owned
Brussels, Belgium European headquarters 14,721 Leased
Centenaro di Lonato, Italy Manufacture of butane lanterns, stoves, heaters and
grills; office and warehouse 77,000 Owned
Juarez, Mexico Manufacture of smoke and carbon monoxide detectors 109,000 Leased
Matamoros, Mexico Manufacture of controls 91,542 Owned
Mississauga, Canada Sales and distribution office 19,891 Leased
St. Genis Laval, France Manufacture of lanterns and stoves, filling of gas
cylinders, and assembly of grills; office and
warehouse. 2,070,000 Owned (2)
Tlalnepantla, Mexico Manufacture of appliances 297,927 Owned
</TABLE>
(1) The owned facilities at Kearney, Nebraska reside on land leased under
three leases that expire in 2007 with options to extend each for three
additional ten-year periods.
(2) The warehouse portion of St. Genis Laval, France is leased for terms
that expire in 2004; the remaining facility is owned.
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Sunbeam also maintains leased sales and administrative offices in the
United States, Europe, Asia and Latin America, among other sites. Sunbeam
leases various warehouse facilities and/or accesses public warehouse
facilities as needed on a short term lease basis. Sunbeam also maintains gas
filling plants in Indonesia, the Philippines and the United Kingdom. Sunbeam
also leases a total of 173,570 square feet for the operation of its retail
outlet stores. Sunbeam management considers Sunbeam's facilities to be
suitable for Sunbeam's operations, and believes that Sunbeam's facilities
provide sufficient capacity for its production requirements.
Litigation and Other Contingent Liabilities
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of Sunbeam common stock in the U.S. District Court for the Southern
District of Florida against Sunbeam and some of its present and former
directors and former officers alleging violations of the federal securities
laws as discussed below. After that date, approximately fifteen similar class
actions were filed in the same Court. One of the lawsuits also named as
defendant Arthur Andersen, Sunbeam's independent accountants for the period
covered by the lawsuit.
On June 16, 1998, the court entered an order consolidating all these
suits and all similar class actions subsequently filed (collectively, the
"Consolidated Federal Actions") and providing time periods for the filing of a
consolidated amended complaint and defendants' response thereto. On June 22,
1998, two groups of plaintiffs made motions to be appointed lead plaintiffs
and to have their selection of counsel approved as lead counsel. On July 20,
1998, the court entered an order appointing lead plaintiffs and lead counsel.
This order also stated that it shall apply to all subsequently filed actions
which are consolidated with the other actions. On August 28, 1998, plaintiffs
in one of the subsequently filed actions filed an objection to having their
action consolidated pursuant to the June 16, 1998 order, arguing that the
class period in their action differs from the class periods in the originally
filed consolidated actions. On December 9, 1998, the court entered an order
overruling plaintiffs' objections and affirming its prior order appointing
lead plaintiffs and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class
action complaint against Sunbeam, some of its present and former directors and
former officers, and Arthur Andersen. The consolidated amended class action
complaint alleges that, in violation of section 10(b) of the Exchange Act and
SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding Sunbeam's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of Sunbeam
common stock and call options, and that, in violation of section 20(a) of the
Exchange Act, the individual defendants exercised influence and control over
Sunbeam, causing Sunbeam to make material misrepresentations and omissions.
The consolidated amended complaint seeks an unspecified award of money
damages. On February 5, 1999, plaintiffs moved for an order certifying a
class
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consisting of all persons and entities who purchased Sunbeam common stock or
who purchased call options or sold put options with respect to Sunbeam common
stock during the period April 23, 1997 through June 30, 1998, excluding the
defendants, their affiliates, and employees of Sunbeam. Defendants' response
to the motion for class certification was filed on May 6, 1999. On March 8,
1999, all defendants who had been served with the consolidated amended class
action complaint moved to dismiss it. Under the Private Securities Litigation
Reform Act of 1995, all discovery in the consolidated action is stayed pending
resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the
Circuit Court for the Fifteenth Judicial Circuit in and for Palm Beach County,
Florida against Sunbeam and some of its present and former directors and
former officers. The action alleged that the individual defendants breached
their fiduciary duties and wasted corporate assets when Sunbeam granted stock
options at an exercise price of $36.85 to three of its officers and directors
who were subsequently terminated by Sunbeam on or about February 2, 1998. On
June 25, 1998, all defendants filed a motion to dismiss the complaint for
failure to make a pre-suit demand on Sunbeam's board of directors. On October
22, 1998, the plaintiff amended the complaint against all but one of the
defendants named in the original complaint. On February 19, 1999, plaintiffs
filed a second amended derivative complaint nominally on behalf of Sunbeam
against some of its present and former directors and former officers and
Arthur Andersen. The second amended complaint alleges, among other things,
that Messrs. Dunlap and Kersh caused Sunbeam to employ fraudulent accounting
procedures in order to enable them to secure new employment contracts, and
seeks an award of damages and other declaratory and equitable relief. The
plaintiff has agreed that defendants need not respond to the second amended
complaint until May 14, 1999. As described below, Sunbeam and the plaintiffs
moved the court for an injunction against Messrs. Dunlap and Kersh with
respect to the arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court
of Chancery of the State of Delaware in New Castle County by minority
stockholders of Coleman against Coleman, Sunbeam and certain of Sunbeam's and
Coleman's present and former officers and directors. An additional class
action was filed on August 10, 1998, against the same parties. The complaints
in these class actions allege, in essence, that the existing exchange ratio
for the proposed merger is no longer fair to Coleman public stockholders as a
result of the decline in the market value of Sunbeam common stock. On October
21, 1998, Sunbeam announced that it had entered into a memorandum of
understanding to settle, subject to court approval, the class actions. Under
the terms of the proposed settlement, if approved by the court Sunbeam will
issue to Coleman public stockholders and plaintiffs' counsel in this action,
warrants to purchase about 4.98 million shares of Sunbeam common stock at $7
per share, subject to anti-dilution adjustments. These warrants will
generally have the same terms as the warrant issued to the MacAndrews &
Forbes affiliate
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and will be issued when the merger is consummated, which is now expected to
occur during the second half of 1999. Issuance of these warrants will be
accounted for as additional purchase consideration. There can be no assurance
that the court will approve the settlement as proposed.
During the months of August and October 1998, purported class action
and derivative lawsuits were filed in the Court of Chancery of the State of
Delaware in New Castle County and in the U. S. District Court for the Southern
District of Florida by stockholders of Sunbeam against Sunbeam, MacAndrews &
Forbes and some of Sunbeam's present and former directors. These complaints
allege that the defendants breached their fiduciary duties when Sunbeam
entered into a settlement agreement with the MacAndrews & Forbes affiliate
that sold Sunbeam a controlling interest in Coleman. In the settlement
agreement the MacAndrews & Forbes affiliate released Sunbeam from threatened
claims arising out of Sunbeam's acquisition of its interest in Coleman, and
MacAndrews & Forbes agreed to provide management support to Sunbeam. Under the
settlement agreement the MacAndrews & Forbes affiliate was granted a five-year
warrant to purchase up to an additional 23 million shares of Sunbeam's common
stock at an exercise price of $7 per share, subject to anti-dilution
provisions. The plaintiffs have requested an injunction against the issuance
of stock to MacAndrews & Forbes upon the exercise of its warrant and
unspecified money damages. These complaints also allege that the rights of the
public stockholders have been compromised, as the settlement would normally
require stockholder approval under the rules and regulations of the NYSE. The
audit committee of Sunbeam's board of directors determined that obtaining such
stockholder approval would have seriously jeopardized the financial viability
of Sunbeam which is an allowable exception to the NYSE stockholder approval
requirements. By order of the Court of Chancery dated January 7, 1999, the
derivative actions filed in that court were consolidated, and Sunbeam has
moved to dismiss these actions. The action filed in the U.S. District Court
for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial
District Court of Galveston County, Texas alleging various claims in violation
of the Texas Securities Act and Texas Business and Commercial Code as well as
common law fraud as a result of Sunbeam's alleged misstatements and omissions
regarding Sunbeam's financial condition and prospects during a period
beginning May 1, 1998 and ending June 16, 1998, in which the plaintiffs
engaged in transactions in Sunbeam common stock. Sunbeam is the only named
defendant in this action. The complaint requests recovery of compensatory
damages, punitive damages and expenses in an unspecified amount. This action
was removed to the U.S. District Court for the Southern District of Texas and
subsequently has been transferred to the Southern District of Florida, the
forum for the Consolidated Federal Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of
certain purchasers of the debentures in the U.S. District Court of the
Southern District of Florida against Sunbeam and
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some of Sunbeam's former officers and directors, alleging violations of the
federal securities laws and common law fraud. The complaint alleges that
Sunbeam's offering memorandum used for the marketing of the debentures
contained false and misleading information regarding Sunbeam's financial
position and that the defendants engaged in a plan to inflate Sunbeam's
earnings for the purpose of defrauding the plaintiffs and others. This action
has been transferred to the Southern District of Florida, where the
Consolidated Federal Actions are pending, and the parties have negotiated a
proposed coordination plan in order to coordinate proceedings in this action
with those in the Consolidated Federal Actions.
Sunbeam has been named as a defendant in an action filed in the
District Court of Tarrant County, Texas, 48th Judicial District, on November
20, 1998. Sunbeam was served in this action through the Secretary of State of
Texas on January 15, 1999. The plaintiffs in this action are purchasers of the
debentures. The plaintiffs allege that Sunbeam violated the Texas Securities
Act and the Texas Business & Commercial Code and committed state common law
fraud by materially misstating the financial position of Sunbeam in connection
with the offering and sale of the debentures. The complaint seeks rescission,
as well as compensatory and exemplary damages in an unspecified amount.
Sunbeam has specially appeared to assert an objection to the Texas court's
exercise of personal jurisdiction over Sunbeam, and a hearing on this
objection took place on April 15, 1999. The court issued a letter ruling
advising the parties that it would grant Sunbeam's special appearance and
sustain the challenge to personal jurisdiction. The plaintiffs have moved for
reconsideration of this decision. Plaintiffs have also moved for partial
summary judgment on their Texas Securities Act claims, but in light of the
court's decision on the special appearance, the hearing on the summary
judgment motion has been canceled.
On April 12, 1999, a class action lawsuit was filed in the U.S.
District Court for the Southern District of Florida. The lawsuit was filed on
behalf of persons who purchased debentures during the period of March 20, 1998
through June 30, 1998, inclusive, but after the initial offering of such
debentures. The complaint asserts that Sunbeam made material omissions and
misrepresentations that had the effect of inflating the market price of the
debentures. The complaint names as defendants Sunbeam, its former auditor,
Arthur Andersen, and two former Sunbeam officers, Messrs. Dunlap and Kersh.
The plaintiff is an institution which allegedly acquired in excess of
$150,000,000 face amount of the debentures and now seeks unspecified money
damages. Sunbeam was served on April 16, 1999 in connection with this pending
lawsuit. Sunbeam will request that this action be coordinated with the
Consolidated Federal Actions.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their
respective employment agreements with Sunbeam. Messrs. Dunlap and Kersh are
requesting a finding by the arbitrator that Sunbeam terminated their
employment without cause and that they should be awarded the
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corresponding benefits provided by their respective employment agreements. On
March 12, 1999, Sunbeam asked the Circuit Court for the Fifteenth Judicial
Circuit in and for Palm Beach County, Florida to issue an injunction
prohibiting Messrs. Dunlap and Kersh from pursuing their arbitration
proceedings against Sunbeam on the ground that the simultaneous litigation of
the action filed in that court on April 7, 1998, described above, and the
arbitration proceedings would subject Sunbeam to the threat of inconsistent
adjudications with respect to certain rights to compensation asserted by
Messrs. Dunlap and Kersh. On March 19, 1999, the plaintiff in the April 7,
1998 action discussed above moved for a similar injunction on the ground that
the arbitration proceedings threatened irreparable harm to Sunbeam and its
stockholders. On March 26, 1999, Messrs. Dunlap and Kersh filed a response in
opposition to the motions for injunctive relief. The court held a hearing on
the motions for injunctive relief on April 21, 1999, and as a result of
Sunbeam's motion, the arbitrations were suspended until May 10, 1999.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the
Court of Chancery of the State of Delaware seeking an order directing Sunbeam
to advance attorneys' fees and other expenses incurred in connection with
various state and federal class and derivative actions and an investigation
instituted by the SEC. The complaint alleges that such advancements are
required by Sunbeam's by-laws and by a forebearance agreement entered into
between Sunbeam and Messrs. Dunlap and Kersh in August, 1998. Sunbeam filed
its answer to the complaint and the Court of Chancery has scheduled a trial of
this summary proceeding to be held on June 15, 1999.
Sunbeam intends to vigorously defend each of the foregoing lawsuits
other than those as to which a memorandum of understanding to settle has been
reached, but cannot predict the outcome and is not currently able to evaluate
the likelihood of Sunbeam's success in each case or the range of potential
loss. However, if Sunbeam were to lose these lawsuits, judgments would likely
have a material adverse effect on Sunbeam's financial position, results of
operations and cash flow.
On July 2, 1998, the American Insurance Company filed suit against
Sunbeam in the U.S. District Court for the Southern District of New York
requesting a declaratory judgment of the court that the directors' and
officers' liability insurance policy for excess coverage issued by
American Insurance Company was invalid and/or had been properly canceled by
American Insurance Company. Sunbeam's motion to transfer such action to the
federal district court in which the Consolidated Federal Actions are
currently pending was recently denied. The case is now in discovery. On
October 20, 1998, an action was filed by Federal Insurance Company in
the U.S. District Court for the Middle District of Florida requesting the same
relief as that requested by American in the previously filed action as to
additional coverage levels under Sunbeam's directors' and officers' liability
insurance policy. This action has been transferred to the United States
District Court for the Southern District of Florida and is currently in
discovery.
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On December 22, 1998, an action was filed by Executive Risk Indemnity, Inc. in
the Circuit Court of the Seventeenth Judicial Circuit in and for Broward
County, Florida requesting the same relief as that requested by American and
Federal in their previously filed actions as to additional coverage levels
under Sunbeam's directors' and officers' liability insurance policy. On April
15, 1999 Sunbeam filed an action in the United States District Court for the
Southern District of Florida against National Union Fire Insurance Company of
Pittsburgh, PA, Gulf Insurance Company and St. Paul Mercury Insurance Company
requesting, among other things, a declaratory judgment that National Union is
not entitled to rescind its liability insurance policy to Sunbeam and a
declaratory judgment that Sunbeam is entitled to coverage from these insurance
companies for the various lawsuits described herein under liability insurance
policies issued by each of the defendants. Sunbeam intends to pursue recovery
from all of its insurers if damages are awarded against Sunbeam or its
indemnified officers and/or directors under any of the foregoing actions.
Sunbeam's failure to obtain such insurance recoveries following an adverse
judgment in any of the actions described above could have a material adverse
effect on Sunbeam's financial position, results of operations and cash flows.
By letter dated June 17, 1998, the staff of the Division of Enforcement
of the SEC advised Sunbeam that it was conducting an informal inquiry into
Sunbeam's accounting policies and procedures and requested that Sunbeam
produce certain documents. On July 2, 1998, the SEC issued a Formal Order of
Private Investigation, designating SEC officers to take testimony and pursuant
to which a subpoena was served on Sunbeam requiring the production of certain
documents. On November 4, 1998, another SEC subpoena requiring the production
of additional documents was received by Sunbeam. Sunbeam has provided numerous
documents to the SEC staff and continues to cooperate fully with the SEC
staff.
The SEC has not commenced any civil or administrative proceedings as a
result of its investigation, and Sunbeam cannot predict at this time whether
the SEC will seek to impose any monetary or other penalties against Sunbeam.
Under these circumstances, Sunbeam cannot estimate the term of the
investigation or its outcome.
Sunbeam and its subsidiaries are also involved in various lawsuits
arising from time to time which Sunbeam considers to be ordinary routine
litigation incidental to its business. In the opinion of Sunbeam, the
resolution of these routine matters, and of certain matters relating to prior
operations, individually or in the aggregate, will not have a material adverse
effect upon the financial position, results of operations or cash flows of
Sunbeam.
As of December 31, 1998 and December 28, 1997, Sunbeam had established
accruals for litigation matters, including legal fees, of $31.2 million and
$9.9 million, respectively. Sunbeam believes, based on existing information,
that anticipated probable costs of litigation matters existing as of December
31, 1998 have been adequately reserved to the extent determinable.
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Environmental Matters
Sunbeam's operations, like those of comparable businesses, are subject
to certain federal, state, local and foreign environmental laws and
regulations in addition to laws and regulations regarding labeling and
packaging of products and the sales of products containing certain
environmentally sensitive materials. Sunbeam believes it is in substantial
compliance with all environmental laws and regulations which are applicable to
its operations. Compliance with environmental laws and regulations involves
certain continuing costs; however, such costs of ongoing compliance have not
resulted, and are not anticipated to result, in a material increase in
Sunbeam's capital expenditures or to have a material adverse effect on
Sunbeam's results of operations, financial condition or competitive position.
In addition to ongoing environmental compliance at its operations,
Sunbeam also is actively engaged in environmental remediation activities many
of which related to divested operations. As of December 31, 1998, Sunbeam has
been identified by the United States Environmental Protection Agency ("EPA")
or a state environmental agency as a potentially responsible party ("PRP") in
connection with seven sites subject to the federal Superfund Act and five
sites subject to state Superfund laws comparable to the federal law
(collectively the "Environmental Sites"), exclusive of sites at which Sunbeam
has been designated (or expects to be designated) as a de minimis (less than
1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the
site at their expense. Liability under the Superfund Act is joint and several
and is imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, Sunbeam recognizes its responsibility to determine
whether other PRPs at a Superfund site are financially capable of paying their
respective shares of the ultimate cost of remediation of the site. Whenever
Sunbeam has determined that a particular PRP is not financially responsible,
it has assumed for purposes of establishing reserve amounts that such PRP will
not pay its respective share of the costs of remediation. To minimize
Sunbeam's potential liability with respect to the Environmental Sites, Sunbeam
has actively participated in steering committees and other groups of PRPs
established with respect to such sites. Sunbeam currently is engaged in active
remediation activities at 12 sites, seven of which are among the Environmental
Sites referred to above, and five of which have not been designated as
Superfund sites under federal or state law.
Sunbeam has established reserves to cover the anticipated probable
costs of remediation, based upon periodic reviews of all sites for which
Sunbeam has, or may have, remediation responsibility. The amount of such
reserves was $25 million at December 31, 1998 and $24
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million at December 28, 1997. Sunbeam continues to pursue the recovery of some
environmental remediation costs from certain of its liability insurance
carriers; however, such potential recoveries have not been offset against
potential liabilities and have not been considered in determining Sunbeam's
environmental reserves.
Sunbeam is not a party to any other administrative or judicial
proceeding to which a governmental authority is a party and which involves
potential monetary sanctions, exclusive of interest and costs, of $100,000 or
more.
Sunbeam believes, based on existing information for sites where costs
are estimable, that the costs of completing environmental remediation of all
sites for which Sunbeam has a remediation responsibility have been adequately
reserved and that the ultimate resolution of these matters will not have a
material adverse effect upon Sunbeam's financial condition, results of
operations or cash flows.
Due to uncertainty over remedial measures to be adopted at some sites,
the possibility of changes in environmental laws and regulations and the fact
that joint and several liability with the right of contribution is possible at
federal and state Superfund sites, Sunbeam's ultimate future liability with
respect to sites at which remediation has not been completed may vary from the
amounts reserved as of December 31, 1998.
Regulatory Matters
Sunbeam is subject to various laws and regulations in connection with
its business operations, including but not limited to laws related to
relations with employees, maintenance of safe manufacturing facilities, truth
in packaging and advertising, regulation of medical products and safety of
consumer products. Sunbeam does not anticipate that its business or operations
will be materially adversely affected by compliance with any of these
provisions.
MANAGEMENT
Directors and Executive Officers of Sunbeam, Camper Acquisition Corp. and
Coleman
The following tables set forth information regarding the directors and
executive officers of Sunbeam, Camper Acquisition Corp. (the wholly owned
Sunbeam subsidiary that will be merged with Coleman in the merger) and
Coleman, respectively. The name, age, present principal occupation or
employment and five-year employment history of each individual is set forth in
each individual's biography below. The term of office of each of the directors
of
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Sunbeam, Camper Acquisition Corp. and Coleman will expire after a period of
one year from their previous date of election or at the time each such
director's successor is duly elected and shall have qualified. Unless
otherwise indicated in each individual's biography, the business address of
each of the directors and executive officers is: 2381 Executive Center Drive,
Boca Raton, Florida 33431. Each of the directors and executive officers is a
citizen of the United States.
Current Sunbeam Directors and Executive Officers
Name Age Position
---- --- --------
Jerry W. Levin 55 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Paul E. Shapiro 58 Executive Vice President and Chief
Administrative Officer
Bobby G. Jenkins 37 Executive Vice President and Chief
Financial Officer
Karen K. Clark 38 Senior Vice President, Finance
Janet G. Kelley 46 Senior Vice President, General Counsel
and Secretary
Jack D. Hall 53 President, International Operations
Philip E. Beekman 67 Director Nominee
Charles M. Elson 39 Director
Howard Gittis 65 Director
John H. Klein 53 Director
Howard G. Kristol 61 Director
Peter A. Langerman 45 Director
Faith Whittlesey 60 Director
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Current Camper Acquisition Corp. Directors and Executive Officers
Name Age Position
---- --- --------
Jerry W. Levin 55 President, Chief Executive Officer and Director
Paul E. Shapiro 58 Executive Vice President, Chief Administrative
Officer and Director
Bobby G. Jenkins 37 Executive Vice President
Ronald R. Richter 54 Vice President and Treasurer
Janet G. Kelley 46 Vice President, General Counsel and Secretary
Current Coleman Directors and Executive Officers
Name Age Position
---- --- --------
Jerry W. Levin 55 Chairman, Chief Executive Officer and Director
Paul E. Shapiro 58 Executive Vice President, Chief Administrative
Officer and Director
Bobby G. Jenkins 37 Executive Vice President
Karen K. Clark 38 Vice President, Finance
Janet G. Kelley 46 Vice President, General Counsel and Secretary
William L. Phillips 46 Vice President and General Manager
Gwen C. Wisler 39 Senior Vice President and Chief Financial
Officer
A. Whitman Marchand 62 Director
Jerry W. Levin was appointed Chief Executive Officer, President and a
director of Sunbeam in June 1998 and was elected Chairman of the Sunbeam board
in March 1999.
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Mr. Levin was also appointed to serve as Chief Executive Officer and a
director of Coleman and Camper Acquisition Corp., a wholly owned subsidiary of
Sunbeam, in June 1998. Mr. Levin previously held the position of Chairman and
Chief Executive Officer of Coleman from February 1997 until its acquisition by
Sunbeam in March 1998. Mr. Levin was also the Chairman of Coleman from 1989 to
1991. Mr. Levin was Chairman of the board of Revlon, Inc. from November 1995
until June 1998, Chief Executive Officer of Revlon, Inc. from 1992 until
January 1997, and President of Revlon, Inc. from 1991 to 1995. Mr. Levin has
been Executive Vice President of MacAndrews & Forbes since March 1989. For 15
years prior to joining MacAndrews & Forbes, Mr. Levin held various senior
executive positions with the Pillsbury Company. Mr. Levin is also a member of
the boards of directors of Revlon, Inc., Ecolab, Inc., U.S. Bancorp and
Meridian Sports Incorporated. For a description of certain arrangements
entered into by Sunbeam and MacAndrews & Forbes relating to the appointment of
Mr. Levin as an officer of Sunbeam, see "MATERIAL CONTACTS BETWEEN COLEMAN AND
SUNBEAM AND ITS AFFILIATES - Appointments of Coleman Executive Officers to
Sunbeam's Management and Board" and "- Services Provided by MacAndrews &
Forbes."
Paul E. Shapiro joined Sunbeam as Executive Vice President and Chief
Administrative Officer in June 1998. Mr. Shapiro was appointed Executive Vice
President and Chief Administrative Officer and a director of Coleman in June
1998. Mr. Shapiro previously held the position of Executive Vice President and
General Counsel of Coleman from July 1997 until its sale in March 1998. Before
joining Coleman, he was Executive Vice President, General Counsel and Chief
Administrative Officer of Marvel Entertainment Group, Inc. Marvel and several
of its subsidiaries filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code in 1996. Mr. Shapiro served as an
executive officer of Marvel at the time of such filing. He had previously
spent over 25 years in private law practice and as a business executive, most
recently as a shareholder in the law firm of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel. Mr. Shapiro is also a member of the board of
directors of Toll Brothers, Inc. For a description of arrangements entered
into by Sunbeam and MacAndrews & Forbes relating to the appointment of Mr.
Shapiro as an officer of Sunbeam, see "MATERIAL CONTACTS BETWEEN COLEMAN AND
SUNBEAM AND ITS AFFILIATES - Appointments of Coleman Executive Officers to
Sunbeam's Management and Board" and "- Services Provided by MacAndrews &
Forbes."
Bobby G. Jenkins joined Sunbeam as Executive Vice President and Chief
Financial Officer in June 1998. Mr. Jenkins was appointed Executive Vice
President of Coleman in August 1998. Mr. Jenkins previously held the
position of Chief Financial Officer of Coleman's Outdoor Recreation
division from September 1997 to May 1998. Mr. Jenkins was Executive Vice
President and Chief Financial Officer of Marvel from December 1993 through
June 1997. Mr. Jenkins served as an executive officer of Marvel at the time
of the 1996 Chapter 11 filings of Marvel and several of its subsidiaries.
Mr. Jenkins was Assistant Vice President of Finance at
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Turner Broadcasting System from August 1992 to November 1993. Prior to that,
Mr. Jenkins was with Price Waterhouse, last serving as Senior Audit Manager.
For a description of arrangements entered into by Sunbeam and MacAndrews &
Forbes relating to the appointment of Mr. Jenkins as an officer of Sunbeam,
see "MATERIAL CONTACTS BETWEEN COLEMAN AND SUNBEAM AND ITS AFFILIATES -
Appointments of Coleman Executive Officers to Sunbeam's Management and Board"
and "- Services Provided by MacAndrews & Forbes."
Karen K. Clark joined Sunbeam in April 1998 as Vice President,
Operations Finance. Ms. Clark served as Vice President, Finance from June
1998 to April 1999 and has served as Senior Vice President, Finance since
that date. She was appointed Vice President, Finance of Coleman, in June
1997. She was Corporate Controller for Precision Castparts Corp. from 1994
to 1997 and prior to that held various positions in public accounting and
industry.
Janet G. Kelley joined Sunbeam in March 1994. Ms. Kelley served as
Vice President, General Counsel and Secretary from April 1998 to April 1999
and has served as Senior Vice President, General Counsel and Secretary
since that date. Ms. Kelley became Vice President, General Counsel and
Secretary of Coleman in August 1998. Ms. Kelley was Vice President,
Associate General Counsel and Secretary of Coleman from March 1998 until
August 1998. From 1994 to 1998, Ms. Kelley served as Group Counsel and
Associate General Counsel of Sunbeam. Prior to joining Sunbeam, she was a
partner in the law firm of Wyatt, Tarrant & Combs in Louisville, Kentucky.
Jack D. Hall joined Sunbeam in October 1998 as President, International.
Prior to joining Sunbeam, Mr. Hall held various positions with Revlon,
Inc., most recently serving as Executive Vice President, Worldwide Sales
and Marketing Development. Prior to joining Revlon, he spent six years with
International Playtex Inc. in a variety of sales positions.
William L. Phillips was appointed Vice President and general manager of
Coleman in August 1998. Mr. Phillips serves as the President of Coleman's
Outdoor Recreation division, and was Vice President and General Manager for
the hard goods business of Coleman's Outdoor Recreation division until August
1998. From 1985 to 1998, Mr. Phillips held various positions in the sales and
marketing area of Coleman, and has been with Coleman since 1978.
Ronald R. Richter joined Sunbeam in March 1998 as Vice President and
Treasurer. From July 1996 to March 1998, Mr. Richter was a Group Vice
President at ABN AMRO NV, a Dutch multinational bank. Prior to that, he held
various positions at Continental Bank and Bank of America since 1972 and was a
Managing Director of Bank of America from 1992 until 1996.
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Gwen C. Wisler was appointed Executive Vice President and Chief
Financial Officer of Coleman in March 1999, and was Senior Vice President and
Chief Financial Officer from July 1998 to March 1999. Ms. Wisler was appointed
Senior Vice President and Chief Financial Officer - Outdoor Leisure Group and
International for Sunbeam in March 1999, and was Senior Vice President and
Chief Financial Officer - Outdoor Leisure Group for Sunbeam from July 1998 to
March 1999. Ms. Wisler joined Coleman in January 1997 as Vice President and
Chief Financial Officer - International. Prior to that, Ms. Wisler was Vice
President and Chief Accounting Officer for New World Communications Group
Incorporated from February 1994 to January 1997, and Chief Financial Officer
for Cobb Partners from May 1993 to February 1994.
Philip E. Beekman is a nominee for Director and is expected to stand for
election to the board of directors at Sunbeam's 1999 Annual Meeting of
Stockholders. Mr. Beekman is President of Owl Hollow Enterprises Inc., a
position he has held since July 1994. From December 1986 to July 1994, he
was Chairman and Chief Executive Officer of Hook SUPERX, a retail drug
store chain. Mr. Beekman also is a member of the Boards of Directors of
General Chemical Group, Inc., Linens 'N Things, Inc. and The Kendle
Company.
Charles M. Elson has been a director of Sunbeam since his election to
the Sunbeam board in September 1996. Mr. Elson was a director of Coleman
from March 30, 1998 until June 24, 1998. Mr. Elson has been a Professor of
Law at Stetson University College of Law since 1990 and serves as Of
Counsel to the law firm of Holland & Knight (since May 1995). He was a
Visiting Professor at the University of Maryland School of Law from August
1998 to December 1998. Mr. Elson is also a member of the American Law
Institute and the Advisory Council and Commissions on Director Compensation,
Director Professionalism, CEO Succession and Audit Committees of the National
Association of Corporate Directors. He is trustee of Talledega College and a
Salvatori Fellow of the Heritage Foundation. Mr. Elson also is a director of
Nuevo Energy Company. Mr. Elson's business address is Stetson University
College of Law, 1401 61st Street South, St. Petersburg, Florida 33707.
Howard Gittis was elected to the Sunbeam board in June 1998.
Mr. Gittis has been a director, Vice Chairman and Chief Administrative
Officer of MacAndrews & Forbes and several of its affiliates since 1985.
Mr. Gittis also is a member of the board of directors of Golden State
Bancorp Inc., Golden State Holdings Inc., Jones Apparel Group, Inc., Loral
Space & Communications Ltd., M & F Worldwide Corp., Panavision Inc., Revlon
Consumer Products Corporation, Revlon, Inc., REV Holdings Inc. and
Rutherford-Moran Oil Corporation.
John H. Klein was elected to the Sunbeam board in February 1999. Mr.
Klein is Chairman and Chief Executive Officer of BiLogix, Inc. and Strategic
Business and Technology Solutions LLC and Chairman of CyBear, positions he has
held since mid-1998. From April 1996 to May 1998, he was Chairman and Chief
Executive Officer of MIM Corporation, a provider of
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pharmacy benefit services to medical groups. Prior to that, he served as
President of IVAX North American Multi-Source Pharmaceutical Group (from
January 1995) and as President and Chief Executive Officer of Zenith
Laboratories, a generic pharmaceutical manufacturer (from May 1989 to 1995).
Howard G. Kristol has been a director of Sunbeam since his election to
the Sunbeam board in August 1996. Mr. Kristol has been a partner in the law
firm of Reboul, MacMurray, Hewitt, Maynard & Kristol since 1976. Mr.
Kristol's business address is Reboul, MacMurray, Hewitt, Maynard & Kristol,
45 Rockefeller Plaza, New York, New York 10111.
Peter A. Langerman has been a director of Sunbeam since 1990 and served
as the Chairman of the Sunbeam board from May 1996 until July 1996 and from
June 1998 until March 1999. Since November 1998, Mr. Langerman has been
President and Chief Executive Officer of Franklin Mutual Advisers, Inc., a
registered investment advisor and a wholly owned subsidiary of Franklin
Resources, Inc., a diversified financial services organization. Previously,
Mr. Langerman had (since November 1996) served as Senior Vice President and
Chief Operating Officer of Franklin Mutual Advisers, Inc. Mr. Langerman was
a Senior Vice President of Heine Securities Corporation, an investment
advisory service company, from 1986 to November 1996, and a Vice President
of Mutual Series Fund from 1988 until its acquisition by Franklin
Resources, Inc. in 1996. He has been a director of Franklin Mutual Series
Fund, Inc. (previously Mutual Series Fund Inc.) since 1988. Franklin Mutual
Series Fund, Inc. is currently the Company's largest shareholder. Mr.
Langerman's business address is Franklin Mutual Advisers, Inc., 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078.
A. Whitman Marchand was elected to the Coleman board in April 1999. Mr.
Marchand was Managing Director and Group Head for the Special Loan Group of
Bankers Trust Company from 1982 to 1998. Prior to 1982, Mr. Marchand held
various positions within the national banking department at Bankers Trust,
including head of the Real Estate Investment Trust Group. Mr. Marchand is also
a member of the board of directors of RainTree Healthcare Corporation.
Faith Whittlesey has been a director of Sunbeam since her election to
the Sunbeam board in December 1996. Mrs. Whittlesey has served as the Chief
Executive Officer of the American Swiss Foundation, a charitable and
educational foundation, since 1991. She is also a member of the board of
directors of Valassis Communications, Inc., a publishing and printing company.
Mrs. Whittlesey's business address is American Swiss Foundation, Charitable
and Educational Foundation, 232 East 66th Street, New York, New York 10021.
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Compensation of Sunbeam Directors
The Amended and Restated Sunbeam Corporation Stock Option Plan (the
"Option Plan") provides that each director of Sunbeam who is not an employee
of Sunbeam or an affiliate of Sunbeam ("Outside Directors"), is automatically
granted 1,500 shares of restricted Sunbeam common stock upon his or her
initial election or appointment to the Sunbeam board and upon each subsequent
re-election to the Sunbeam board of directors (prorated in case of an election
or appointment at any time other than at an annual meeting of stockholders).
Such restricted Sunbeam common stock vests immediately upon the Outside
Director's acceptance of his or her election or appointment.
In addition to the grant of restricted stock, effective as of June 29,
1999, Outside Directors will be paid a $10,000 annual retainer and $1,000 for
each meeting of the board of directors or its committees that they attend,
whether in person or by telephone.
Sunbeam directors do not receive any other fees, but are reimbursed for
all ordinary and necessary out-of-pocket expenses incurred by them in
attending meetings of the Sunbeam board or its committees. Pursuant to
Sunbeam's by-laws and Delaware law, Sunbeam is either providing a defense, or
reimbursing certain current and former directors of Sunbeam for defense costs
incurred by them, in connection with pending litigation against Sunbeam in
which certain of such directors have been named as defendants. See "BUSINESS -
Litigation and Other Contingent Liabilities."
In addition to the foregoing, during 1998, the Chairman of the special
committee of the Sunbeam board of directors, Mr. Kristol, was paid $50,000 for
his services on the committee and the other members of the committee
(Messrs. Langerman and Elson and Mrs. Whittlesey) each were paid $35,000
for their services on the committee.
Compensation of Sunbeam Executives
Summary Compensation Table
The following table sets forth for the years ended December 31, 1998,
December 28, 1997 and December 29, 1996, the compensation for services
rendered to Sunbeam in all capacities of those persons who, during 1998:
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(1) served as chief executive officer of Sunbeam;
(2) were among the four most highly compensated executive
officers of Sunbeam, other than the CEO, as of Sunbeam's fiscal year
end; and
(3) were among the four most highly compensated executive
officers during 1998, but who were not executive officers of Sunbeam as
of year end.
The individuals referred to in clauses (1), (2) and (3) are collectively
referred to as the "Named Executives." Each of Messrs. Levin, Shapiro and
Jenkins and Ms. Clark joined Sunbeam during 1998. The employment of each of
Messrs. Dunlap and Kersh was terminated by Sunbeam in June 1998; Mr. Fannin's
employment terminated by mutual agreement in August 1998.
<TABLE>
<CAPTION>
Annual Compensation Award
---------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(1)
---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Current Officers
Jerry W. Levin,
Chairman and Chief Executive Officer ........ 1998 $ 541,667 $ 541,667 $ 122,549(5)
Paul E. Shapiro,
Executive Vice President &
Chief Administrative Officer ................ 1998 339,298 243,750 --
Bobby G. Jenkins,
Executive Vice President &
Chief Financial Officer ..................... 1998 238,986(6) 239,102(7) 55,540(8)
Janet G. Kelley,
Senior Vice President & General Counsel ... 1998 218,000 112,500 --
1997 144,500 30,000 --
1996 140,000 19,463 --
Karen K. Clark,
Senior Vice President, Finance ............ 1998 190,157(6) 180,124(7) 133,457(10)
Former Officers
Albert J. Dunlap,
Former Chairman & Chief Executive Officer . 1998 12,772,756(12) 0 13,917,409(13)
1997 1,115,385(12) 0 282,888(13)
1996 507,054(12) 0 63,850(13)
<CAPTION>
Long Term Compensation
----------------------
Securities
Underlying
Restricted Options/SARs All Other
Name and Principal Position Stock(2) Award(3) Compensation(4)
------- -------- ---------------
<S> <C> <C> <C>
Current Officers
Jerry W. Levin,
Chairman and Chief Executive Officer ........ $ 0 2,750,000 $ 980
Paul E. Shapiro,
Executive Vice President &
Chief Administrative Officer ................ 0 600,000 588
Bobby G. Jenkins,
Executive Vice President &
Chief Financial Officer ..................... 0 450,000 18,633(9)
Janet G. Kelley,
Senior Vice President & General Counsel ... 0 146,250 363
0 5,000 0
0 42,500 0
Karen K. Clark,
Senior Vice President, Finance ............ 0 175,000(11) 0
Former Officers
Albert J. Dunlap,
Former Chairman & Chief Executive Officer . 0 3,750,000 840(14)
0 0 4,750(14)
12,500,000 2,500,000 4,750(14)
</TABLE>
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<TABLE>
<CAPTION>
Annual Compensation Award
---------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(1)
---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer ................................... 1998 428,154(15) 0 2,123,267(17)
1997 425,000 0 --
1996 190,384 125,000(16) 240,598(17)
David C. Fannin,
Former Executive Vice President & Chief
Legal Officer ............................. 1998 449,891(18) 0 315,067(19)
1997 313,233 0 --
1996 272,112 0 --
<CAPTION>
Long Term Compensation
----------------------
Securities
Underlying
Restricted Options/SARs All Other
Name and Principal Position Stock(2) Award(3) Compensation(4)
------- -------- ---------------
<S> <C> <C> <C>
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer ................................... 5,527,500 1,125,000 653(14)
0 0 4,750(14)
1,812,500 500,000 2,098(14)
David C. Fannin,
Former Executive Vice President & Chief
Legal Officer ............................. 1,105,500 750,000(20) 1,261,546(22)
0 0 4,750(14)
191,250 175,000(21) 4,750(14)
</TABLE>
-----------------
(1) Does not include perquisites or other personal benefits, securities or
property, the aggregate value of which is less than $50,000 or 10% of the
Named Executive's salary and bonus.
(2) Represents the value of the restricted Sunbeam common stock holdings of
Messrs. Dunlap, Kersh and Fannin, as follows: The restricted Sunbeam
common stock holdings granted in 1996 were valued based on the 1996
grants and the closing market price of $12.500, $18.125 and $19.125 per
share as of the respective grant dates of July 18, 22 and 29, 1996 for
each of Messrs. Dunlap, Kersh and Fannin. The restricted 1998 common
stockholdings were valued based on the market price of $36.875 as of
February 1, 1998, the date of such grants to Messrs. Kersh and Fannin.
Mr. Dunlap's 1998 employment agreement provided for the grant of 300,000
shares of non-restricted Sunbeam common stock and also provided that, of
the 1,000,000 shares of restricted Sunbeam common stock granted to him in
1996, 133,334 were canceled and the remaining 866,666 were fully vested.
Mr. Kersh's 1998 employment agreement provided that of the 100,000 shares
of restricted Sunbeam common stock granted to him in 1996, 26,667 shares
were canceled and the remaining 73,333 shares were fully vested. In
addition, Mr. Kersh's 1998 employment agreement provided for the grant of
150,000 shares of restricted Sunbeam common stock of which 37,500 shares
were to vest on grant and the remaining shares were to vest in equal
increments on the first, second and third anniversary of the grant date
if he remained employed by Sunbeam through such dates or upon the
occurrence of certain events. Sunbeam is currently involved in disputes
with Messrs. Dunlap and Kersh over some of the stock grants made to them.
See "- Employment Agreement with Mr. Dunlap - Dispute with Mr. Dunlap"
and "- Employment Agreements with Messrs. Kersh and Fannin - Dispute with
Mr. Kersh" for information concerning disputes between Sunbeam and
Messrs. Dunlap and Kersh over equity grants and other matters. Under Mr.
Fannin's agreement with Sunbeam in connection with his termination, all
unvested shares of restricted Sunbeam common stock granted to him in 1998
and held by him were canceled, leaving him with 14,883 shares of vested
Sunbeam common stock, which were previously restricted. Dividends were
paid on all restricted shares prior to Sunbeam's discontinuance of
dividend payments in the second quarter of 1998. At December 31, 1998,
none of the other Named Executives held restricted Sunbeam common stock.
(3) The option grants to Messrs. Levin, Shapiro and Jenkins were provided for
in their respective employment agreements and are subject to stockholder
approval at Sunbeam's 1999 annual meeting of stockholders.
(4) For 1998, represents premiums paid by Sunbeam for term life insurance
coverage for Messrs. Levin, Shapiro, Dunlap and Kersh and Ms. Kelley.
(5) Includes $82,616 for reimbursement of country club fees, the value of a
Sunbeam-provided automobile, relocation expenses of $37,560 and taxes
paid by Sunbeam on the value of such relocation expenses.
(6) Includes each of Mr. Jenkins's and Ms. Clark's salary from Coleman from
the date of the acquisition of the MacAndrews & Forbes affiliate's
interest in Coleman by Sunbeam to their respective terminations of
employment with Coleman and their respective
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salaries from Sunbeam, from the date of employment by Sunbeam. In the
case of Mr. Jenkins, includes $12,327 paid for accrued vacation in 1998
upon Mr. Jenkin's termination from employment with Coleman.
(7) Includes the entire amount of bonuses paid to Mr. Jenkins and Ms. Clark
in 1999 for services rendered to Coleman and Sunbeam during 1998.
(8) Includes a car allowance, reimbursement of relocation expenses of $37,692
and taxes paid by Sunbeam on such relocation payments.
(9) Severance payments made to Mr. Jenkins in connection with the termination
of his employment with Coleman.
(10) Includes reimbursement of relocation expenses of $64,506, taxes paid by
Sunbeam on such relocation payments, a car allowance and bonuses of
$40,467 paid upon acceptance of employment with Sunbeam and relocation.
(11) Includes 75,000 options granted to Ms. Clark during 1998 which were
subsequently canceled in exchange for 50,000 options granted under
Sunbeam's stock option repricing program.
(12) For 1998, includes $11,887,500 which represents the value of the 300,000
shares of Sunbeam common stock granted to Mr. Dunlap in connection with his
1998 employment agreement, based upon the closing market price on the grant
date of $39.625. Also includes $51,923, $115,385 and $51,923 paid in 1998,
1997 and 1996, respectively, in lieu of vacation. See "- Employment
Agreement with Mr. Dunlap - Dispute with Mr. Dunlap" for information
concerning disputes between Sunbeam and Mr. Dunlap over equity grants and
other matters.
(13) For 1998, includes $13,698,561 for taxes paid by Sunbeam on the value of
the vesting of restricted Sunbeam common stock granted to Mr. Dunlap and
other Sunbeam benefits, including health and dental care premiums, spouse
travel costs and security costs, amounts reimbursed for financial and legal
consulting services and the value of a Sunbeam-provided automobile. The
1997 and 1996 amounts include $14,355 and $17,250, respectively, for the
value of a Sunbeam-provided automobile, $115,665 and $27,345, respectively,
for taxes paid by Sunbeam on the value of such automobile and other
Sunbeam-provided benefits, including financial consulting services, health
and dental care premiums and membership in a country club and $41,348 as
reimbursement for financial planning services in 1997.
(14) Sunbeam adopted an Executive Benefit Replacement Plan (the "Replacement
Plan") in 1994 to restore the amount of benefits payable to certain highly
compensated employees of Sunbeam who would otherwise be subject to certain
limitations on the amount of benefits payable under Sunbeam's 401(k)
Savings and Profit Sharing Plan. The Replacement Plan was terminated as of
December 31, 1998. Amounts of "All Other Compensation" include amounts
accrued for Messrs. Dunlap, Kersh and Fannin, respectively, in 1997 and
1996 under the Replacement Plan, including Sunbeam's profit sharing
allocation. Each of Messrs. Dunlap, Kersh and Fannin was paid the amount of
their respective accounts in the Replacement Plan in connection with the
termination of their employment with Sunbeam. Does not include amounts
which the 1998 employment agreements with Messrs. Dunlap and Kersh provided
would be payable to them upon termination other than for "Cause," as
defined in the respective employment agreements. Sunbeam has taken the
position that such amounts are not payable by Sunbeam. See " - Employment
Agreement with Mr. Dunlap - Dispute with Mr. Dunlap" and "- Employment
Agreements with Messrs. Kersh and Fannin Dispute with Mr. Kersh" for
information concerning disputes between Sunbeam and Messrs. Dunlap and
Kersh.
(15) Includes $61,298 paid in lieu of vacation. See "- Employment Agreements
with Messrs. Kersh and Fannin - Dispute with Mr. Kersh" for information
concerning disputes between Sunbeam and Mr. Kersh.
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<PAGE>
(16) One-time bonus paid when Mr. Kersh's employment began.
(17) For 1998, represents taxes paid by Sunbeam on the value of the vesting of
restricted Sunbeam common stock granted to Mr. Kersh. For 1996, represents
a discount on the purchase price of shares of Sunbeam common stock from
Sunbeam in the amount of $239,800 and premiums paid by Sunbeam for health
and dental insurance coverage.
(18) Includes $77,808 paid in lieu of vacation for the years 1996, 1997 and 1998
in accordance with Mr. Fannin's termination agreement.
(19) Represents taxes paid by Sunbeam on the value of the vesting of restricted
Sunbeam common stock granted to Mr. Fannin.
(20) All of these options have been canceled pursuant to Mr. Fannin's
termination agreement.
(21) Includes options awarded in exchange for the cancellation of certain
outstanding options, a portion of which were granted in 1995. Shares
underlying option grants previously made which were canceled in exchange
for new option awards are also included.
(22) Includes the following amounts payable under Mr. Fannin's termination
agreement: (a) $825,000 severance payment of which $575,001 was paid in
1998 and the balance of which is payable in monthly installments of
$16,667; (b) consulting payments of $250,000, of which $41,667 was paid in
1998 and the balance of which is payable in monthly installments of
$13,889; (c) $50,000 payable for the three year extension of Mr. Fannin's
non-compete agreement, of which $8,334 was paid in 1998 and the balance of
which is payable in equal monthly installments of $2,778; (d) $7,785 for
health and dental care premiums paid or payable, of which $1,795 was paid
in 1998; and (e) $127,801, which represents the total amount of Mr.
Fannin's account in the Replacement Plan. See "- Subsequent Arrangements
with Messrs. Dunlap, Kersh and Fannin."
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the options to
purchase shares of Sunbeam common stock granted to the Named Executives during
1998. The option grants made to Messrs. Levin, Shapiro and Jenkins are subject
to approval of Sunbeam's stockholders at the 1999 annual meeting. The option
grants made to Messrs. Dunlap, Kersh and Fannin were approved by the
stockholders of Sunbeam at the 1998 annual meeting of the stockholders held on
May 12, 1998. All other option grants were provided for by the Option Plan. See
"- Employment Agreement with Mr. Dunlap - Dispute with Mr. Dunlap" and
"Employment Agreements with Messrs. Kersh and Fannin - Dispute with Mr. Kersh"
for information concerning disputes between Sunbeam and Messrs. Dunlap and Kersh
over equity grants and other matters.
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<PAGE>
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to Grant Date
Underlying Employees Exercise or Market Grant
Options in Base Price Price Expiration Date
Name Granted(1) Fiscal Year ($/Share) ($/Share) Date Value(7)
---- ------------ ------------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current Officers
Jerry W. Levin........................ 1,750,000(2) 10.6% $ 7.00 $ 6.88 8/11/2008 $ 6,457,500
500,000(2) 3.0% 10.50 6.88 8/11/2008 1,470,000
500,000(2) 3.0% 14.00 6.88 8/11/2008 1,205,000
Paul E. Shapiro....................... 600,000(2) 3.6% 7.00 6.88 8/11/2008 2,214,000
Bobby G. Jenkins...................... 450,000(2) 2.7% 7.00 6.88 8/11/2008 1,660,500
Janet G. Kelley....................... 75,000(3) .5% 38.34 38.34 2/18/2008 1,296,000
11,250(3) .1% 24.03 24.03 5/18/2008 129,375
60,000(2) .4% 7.00 5.94 12/15/2008 161,800
Karen K. Clark........................ 75,000(3)(4) .5% 25.08 25.08 5/11/2008 906,750
50,000(2) .3% 7.50 7.50 8/30/2008 208,000
50,000(2) .3% 7.50 7.50 8/30/2008 208,000
Former Officer
Albert J. Dunlap...................... 3,750,000(5) 22.7% 36.85 36.85 2/01/2008 78,600,000
Russell J. Kersh...................... 1,125,000(6) 6.8% 36.85 36.85 2/01/2008 23,580,000
David C. Fannin....................... 750,000(6) 4.5% 36.85 36.85 2/01/2008 15,720,000
</TABLE>
- -----------
(1) All options have a term of ten years from their respective grant dates.
(2) These options become exercisable at a predetermined date as specified in
the employees' respective employment agreements. See "- Employment
Agreement with Mr. Levin - Equity Grants" and "- Employment Agreements with
Executives Shapiro, Jenkins, Kelley and Clark - Equity Grants."
(3) These options become exercisable over three years in equal annual
increments commencing on the first anniversary of the grant date.
(4) These options have been canceled in exchange for one of the grants of
50,000 options set forth in the table above.
(5) Mr. Dunlap's employment agreement provided that one-third of these options
vested as of the grant date and that an additional one-third of such
options were to vest on each of the first and second anniversaries of the
grant dates.
(6) The options granted to Messrs. Kersh and Fannin provided for vesting in
equal installments on the grant date and the first, second and third
anniversaries of the grant date. The entire option grant to Mr. Fannin was
canceled upon the termination of his employment by mutual agreement.
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<PAGE>
(7) Grant date values were calculated using the Black-Scholes options pricing
model which has been adjusted to take dividends into account for the period
prior to announced discontinuance of dividends. Use of this model should
not be viewed in any way as a forecast of the future performance of the
common stock. The estimated present value of each stock option as set forth
above is based on the following inputs:
<TABLE>
<CAPTION>
Valuation Dates 2/01/98 2/19/98 5/12/98 5/19/98 8/12/98 8/31/98 12/16/98
--------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Risk Free Interest Rate....... 5.51% 5.57% 5.79% 5.72% 5.37% 4.95% 4.60%
Stock Price Volatility........ 36.10% 36.00% 40.30% 40.30% 49.60% 49.80% 52.80%
Dividend Yield................ 0.10% 0.10% 0.20% 0.20% 0.00% 0.00% 0.00%
</TABLE>
The model assumes: (a) an expected option term of six years; (b) a
risk-free interest rate based on closing six-year U.S. Treasury strip yield on
the date of valuation; and (c) no forfeitures. Stock price volatility is
calculated using weekly stock prices for a period of five years ended as of the
valuation date and believed to reflect volatility in the absence of unusual
corporate transactions. Notwithstanding the fact that these options are, with
limited exceptions, non-transferable, no discount for lack of marketability was
taken.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to option exercises
occurring during 1998 and the number of options held by the Named Executives at
Sunbeam's fiscal year end. The option grants to Messrs. Levin, Shapiro and
Jenkins are subject to approval of the stockholders at the 1999 annual meeting.
Sunbeam and Messrs. Dunlap and Kersh are disputing the amounts and benefits paid
and payable to each of them under their respective employment agreements, and
Sunbeam is contesting the validity of options granted to them. The following
table includes the entire amount of the options granted by Sunbeam which Messrs.
Dunlap and Kersh assert are vested. See "- Employment Agreement with Mr. Dunlap
- - Dispute with Mr. Dunlap" and "- Employment Agreement with Messrs. Kersh and
Fannin - Dispute with Mr. Kersh" for information concerning disputes between
Sunbeam and Messrs. Dunlap and Kersh over equity grants and other matters.
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<PAGE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options Held at In-The-Money Options at
Shares December 31, 1998 December 31, 1998
Acquired Value ----------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Officers
Jerry W. Levin................. 0 0 0 2,750,000 0 0
Paul E. Shapiro................ 0 0 0 600,000 0 0
Bobby G. Jenkins............... 0 0 0 450,000 0 0
Janet G. Kelley................ 0 0 52,766 173,484 0 0
Karen K. Clark................. 0 0 0 100,000 0 0
Former Officers
Albert J. Dunlap............... 0 0 6,250,000 0 0 0
Russell A. Kersh............... 0 0 1,625,000 0 0 0
David C. Fannin................ 0 0 200,000 0 0 0
</TABLE>
Employment Agreement with Mr. Levin
On August 12, 1998, Sunbeam entered into an employment agreement with Mr.
Levin (the "Levin Agreement") in which Sunbeam has agreed to employ Mr. Levin as
Chief Executive Officer, and Mr. Levin has agreed to serve in such capacity, for
an initial period ending June 14, 2001.
Compensation
Under the Levin Agreement, Mr. Levin will be paid a base salary at an
annual rate of not less than $1,000,000. Effective April 1, 1999, Mr. Levin's
base compensation was increased to $1,150,000. Additionally, Mr. Levin was paid
a guaranteed bonus for 1998 of $541,667 and, thereafter, is eligible to receive
a performance-based target annual bonus of 100% of his base salary and, if
specified performance objectives are met, up to a bonus of 200% of his base
salary under Sunbeam's incentive plan subject to a maximum award of $2,000,000.
Mr. Levin participates in the other benefit plans available generally to
employees or other senior executives of Sunbeam. Sunbeam also reimburses Mr.
Levin for the cost of membership in a country club.
Equity Grants
Mr. Levin received grants effective as of August 12, 1998 of options to
purchase 1,750,000 shares of Sunbeam common stock at a price of $7.00 per share;
500,000 shares of Sunbeam common stock at a price of $14.00 per share; and
500,000 shares of Sunbeam common stock at a price of $10.50 per share (the
"Levin Options") which grants are subject to stockholder approval at the 1999
annual meeting. The term of each of the Levin Options is ten years, and
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they will vest and become exercisable in full on June 14, 2001 if Mr. Levin
remains employed by Sunbeam as of such date. In addition, effective March 29,
1999, Mr. Levin received grants of options under the Option Plan to purchase
250,000 shares of Sunbeam common stock at $5.57 per share. These options will
vest equally on the first, second and third anniversaries of the grant date.
Upon the occurrence of a "Change in Control" of Sunbeam as defined in the Option
Plan, all of the options granted to Mr. Levin will vest in full.
Termination and Change in Control Provisions
Sunbeam may terminate Mr. Levin's employment under the Levin Agreement due
to his disability, or for Cause. As defined in the Levin Agreement, "Cause"
means (1) gross neglect of his duties, (2) his conviction for a felony or any
lesser crime or offense involving the property of Sunbeam, (3) willful
misconduct in connection with the performance of any material portion of his
duties, (4) willful breach of any material provision of the Levin Agreement, or
(5) any conduct on Mr. Levin's part which would make his continued employment
materially prejudicial to the best interests of Sunbeam. In addition, he may
terminate his employment following a Company Breach upon 60 days' written notice
to Sunbeam. As defined in the Levin Agreement, "Company Breach" means (1) any
material breach of the Levin Agreement by Sunbeam, including the failure to
obtain stockholder approval of the grant of the Levin Options, or (2) a "Change
in Control" of Sunbeam, as defined in the Levin Agreement.
The Levin Agreement provides that, if Sunbeam terminates Mr. Levin's
employment for Cause or if he voluntarily terminates his employment, all
obligations, other than accrued obligations, of Sunbeam will cease and all
unvested Levin Options will be immediately forfeited. If a Company Breach
occurs, and Mr. Levin terminates the Levin Agreement, Sunbeam is obligated to
continue to pay Mr. Levin's base salary and target bonus for the balance of the
term and continue his benefits until his reemployment. In addition, all of the
Levin Options vest and remain exercisable for three years.
The Levin Agreement provides that, if Mr. Levin's employment is terminated
due to his death or his continued disability for six months, his legal
representatives or designated beneficiary, or Mr. Levin, will receive continued
payments in an amount equal to 60% of base salary until the longer of 12 months
or the end of the term in effect at the time of his death or termination due to
disability. The Levin Options will become vested and remain exercisable for
three years thereafter.
Employment Agreements with Executives Shapiro, Jenkins, Kelley and Clark
Sunbeam entered into employment agreements with Messrs. Shapiro and Jenkins
and Ms. Clark in August 1998 and with Ms. Kelley in December 1998. Messrs.
Shapiro and Jenkins, Ms.
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Kelley and Ms. Clark are referred to as the "Executives". The agreements with
Messrs. Shapiro and Jenkins are for an initial period of approximately three
years ending on June 14, 2001; the agreement with Ms. Clark has a term ending on
June 14, 2000; and the agreement with Ms. Kelley has a term ending on December
31, 2000. The Executives' agreements are referred to individually as an
"Executive Agreement" and collectively as the "Executive Agreements."
Compensation
Under the Executive Agreements, Messrs. Shapiro and Jenkins, Ms. Kelley and
Ms. Clark will be paid a base salary at annual rates not less than $600,000,
$365,000, $275,000 and $270,000 respectively. Effective April 1, 1999, the
annual base salary for each of Messrs. Shapiro and Jenkins has been increased to
$750,000 and $425,000, respectively. Additionally, under the Executive
Agreements, Messrs. Shapiro and Jenkins and Ms. Kelley and Ms. Clark were paid a
guaranteed bonus for 1998 equal to $243,750, $118,625, $112,500 and $73,125,
respectively, and, thereafter, are eligible to receive a performance-based
annual target bonus equal to 75%, 60%, 50% and 50% of their respective annual
salaries. The Executives also participate in the other benefit plans available
generally to employees or other senior executives of Sunbeam.
Equity Grants
Under the Executive Agreements, Messrs. Shapiro and Jenkins and Ms. Kelley
and Ms. Clark also received grants effective as of June 15, 1998, June 15, 1998,
December 16, 1998 and August 31, 1998, respectively, of options to purchase
600,000 shares, 450,000 shares, 60,000 shares and 50,000 shares, respectively,
of Sunbeam common stock at a price of $7.00 per share (the "Executive Options").
The grants to Messrs. Shapiro and Jenkins are subject to stockholder approval at
the 1999 annual meeting. The term of each of the Executive Options is ten years,
and they will vest and become exercisable in full on June 14, 2001, June 14,
2001, December 31, 2000 and June 14, 2000, respectively, if the Executive
remains employed as of such date. Mr. Jenkins was also granted an option,
effective March 29, 1999, to acquire 100,000 shares of Sunbeam common stock at a
purchase price of $5.57 per share. This option will vest in equal increments on
the first, second and third anniversaries of the grant date. Upon the occurrence
of a "Change in Control" of Sunbeam, as defined in the Option Plan, the
Executive Options will vest in full. In addition, under her employment
agreement, Ms. Clark exchanged 75,000 options she had previously received upon
joining Sunbeam for 50,000 options with an exercise price of $7.00 per share, as
part of Sunbeam's option exchange program.
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Termination and Change in Control Provisions
Sunbeam may terminate an Executive's employment under his or her Executive
Agreement due to disability, or for Cause. As defined in the Executive
Agreements, "Cause" means (1) gross neglect of duties, (2) conviction for a
felony or any lesser crime or offense involving the property of Sunbeam, (3)
willful misconduct in connection with the performance of any material portion of
the Executive's duties, (4) willful breach of any material provision of the
agreement by Executive, or (5) any conduct on the Executive's part which would
make continued employment materially prejudicial to the best interests of
Sunbeam. The Executive may terminate his or her employment under the Executive
Agreement at any time. In addition, he or she may terminate his or her
employment for Company Breach upon 60 days' written notice to Sunbeam. As
defined in the Executive Agreements, "Company Breach" means any material breach
of the Executive Agreement by Sunbeam. In the case of the agreements with
Messrs. Shapiro and Jenkins, a material breach includes the failure to obtain
stockholder approval of the grants of the Executive Options to Messrs. Shapiro
and Jenkins and a "Change of Control" of Sunbeam, as defined in their respective
Executive Agreements.
The Executive Agreements provide that, if Sunbeam terminates an Executive's
employment for Cause or if the Executive voluntarily terminates his or her
employment, all obligations, other than accrued obligations of Sunbeam will
cease and all unvested Executive Options shall be immediately forfeited. If a
Company Breach occurs, and an Executive terminates his or her Executive
Agreement, Sunbeam is obligated to continue to pay the Executive's base salary
and target bonus for the balance of the term and continue the Executive's
benefits until his reemployment. In addition, all of the Executive Options will
vest and remain exercisable for three years.
The Executive Agreements provide that, if an Executive's employment is
terminated due to death, his or her legal representatives or designated
beneficiary will receive continued payments in an amount equal to 60% of base
salary until the longer of 12 months or the end of the term in effect at the
time of death. Upon an Executive's death, the Executive Options will be vested
upon such death and will remain exercisable for three years thereafter.
Employment Agreement with Mr. Dunlap
As of February 1, 1998, Sunbeam entered into an employment agreement with
Mr. Dunlap (the "Dunlap Agreement") in which Sunbeam agreed to continue to
employ Mr. Dunlap as Chairman of the board of directors and Chief Executive
Officer, and Mr. Dunlap agreed to serve in such capacities, for a period of
three years ending January 31, 2001, and for successive one-year renewal periods
unless advance notice of termination was given by either party by no later than
August 1 of the immediately preceding year. The Dunlap Agreement was not
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<PAGE>
renewable beyond January 31, 2003. The Dunlap Agreement replaced and superseded
Mr. Dunlap's prior employment agreement.
Dispute with Mr. Dunlap. On June 13, 1998, the Sunbeam board of directors
terminated Mr. Dunlap as Chairman and Chief Executive Officer. Mr. Dunlap has
asserted claims for breach of the Dunlap Agreement, and Sunbeam intends to
vigorously contest such claims, including claims regarding the validity of
grants of Sunbeam common stock and stock options to him. Nothing in this
prospectus should be construed to support his claims or to limit or otherwise
affect Sunbeam's claims against Mr. Dunlap, including claims with respect to his
entitlement to equity grants.
Compensation. Under the Dunlap Agreement, Mr. Dunlap was to be paid a base
salary at an annual rate of $2,000,000. Sunbeam could increase Mr. Dunlap's base
salary, but could not reduce it after any such increase. Mr. Dunlap was eligible
to participate in the other benefit plans available generally to employees or
other senior executives of Sunbeam. However, he was not eligible to participate
in any incentive plan of Sunbeam. Sunbeam also provided Mr. Dunlap with various
perquisites on a grossed-up basis.
Equity Grants. The Dunlap Agreement provided that all of Mr. Dunlap's then
outstanding options to purchase shares of Sunbeam common stock, which were
granted under Mr. Dunlap's prior employment agreement, vested as of February 20,
1998; 40% of Mr. Dunlap's shares of restricted Sunbeam common stock were
canceled as of such date; and all of Mr. Dunlap's remaining shares of restricted
Sunbeam common stock vested as of such date. The Dunlap Agreement also provided
that Sunbeam reimburse Mr. Dunlap on a grossed-up basis with respect to any
income tax assessed in connection with the vesting of such shares of restricted
Sunbeam common stock.
Mr. Dunlap received a grant as of February 1, 1998 of 300,000 shares of
Sunbeam common stock. Mr. Dunlap also received a grant effective as of February
1, 1998 of options to purchase 3,750,000 shares of Sunbeam common stock at a
price of $36.85 per share (the "Dunlap Options"), which grant was approved by
Sunbeam's stockholders at the 1998 annual meeting. The Dunlap Options provided
for a term of ten years, and for vesting with respect to one-third of the shares
subject thereto on the grant date and for an additional one-third to vest on
each of the first and second anniversaries of the grant date if Mr. Dunlap had
remained employed by Sunbeam. The Dunlap Agreement provided that upon the
occurrence of a "Change in Control" of Sunbeam, as defined in the Option Plan,
the Dunlap Options would have vested in full.
Termination and Change in Control Provisions. The Dunlap Agreement provided
that Sunbeam could terminate Mr. Dunlap's employment at any time, or due to his
disability, or for Cause. The Dunlap Agreement defined "Cause" to mean (1)
willful failure substantially to
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perform Mr. Dunlap's duties under the Dunlap Agreement, except if such failure
results from disability, or (2) his conviction for a felony or a plea of guilty
or no contest thereto.
The Dunlap Agreement provided that, if Sunbeam terminated Mr. Dunlap's
employment other than for Cause and not due to his disability, or if he
terminated his employment for a "Good Reason", as defined in the Dunlap
Agreement:
(1) he would receive as liquidated damages a lump sum payment in an
amount equal to the base salary that would have been payable through the
period ending January 31, 2001, or any then applicable renewal period;
(2) the Dunlap Options would become fully vested, and he would be
entitled to exercise the Dunlap Options as well as previously granted
options for the balance of their original ten-year term; and
(3) he would be entitled to continue participating in the employee
benefit plans in which he had been entitled to participate before
termination, for three years after termination, or to receive substantially
equivalent benefits.
The Dunlap Agreement provided that, if Sunbeam terminated Mr. Dunlap's
employment for Cause or if he terminated his employment other than for Good
Reason, all obligations, other than accrued obligations, of Sunbeam would cease,
except that Mr. Dunlap would be able to exercise the Dunlap Options as well as
previously granted options which were exercisable on the date of termination
within 90 days, if the termination were for Cause, and within one year, if it
were by Mr. Dunlap without Good Reason.
In addition, the Dunlap Agreement provided that Mr. Dunlap would be
entitled to receive a gross-up with respect to any excise tax applicable under
the Internal Revenue Code of 1986, as amended, to "excess parachute payments."
Employment Agreements with Messrs. Kersh and Fannin
Sunbeam entered into employment agreements with each of Messrs. Kersh and
Fannin as of February 1, 1998. Messrs. Kersh and Fannin are referred to herein
as the "Prior Executives." The employment agreements with Messrs. Kersh and
Fannin had terms ending on January 31, 2001. The employment agreements with
Messrs. Kersh and Fannin (referred to individually as a "Prior Executive
Agreement" and collectively as the "Prior Executive Agreements") replaced and
superseded their respective previous employment agreements with Sunbeam.
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Dispute with Mr. Kersh. On June 16, 1998, the Sunbeam board of directors
terminated Mr. Kersh as Vice Chairman and Chief Financial Officer. Mr. Kersh is
asserting claims for breach of his Prior Executive Agreement, and Sunbeam is
vigorously contesting these claims, including claims regarding the validity of
grants of restricted Sunbeam common stock and options to him. Nothing in this
prospectus should be construed to support his claims or to limit or otherwise
affect Sunbeam's claims against Mr. Kersh, including claims with respect to his
entitlement to equity grants.
Compensation. Under their respective Prior Executive Agreements, Messrs.
Kersh and Fannin were each to be paid a base salary at annual rates of $875,000
and $595,000, respectively. The Prior Executives were also eligible to
participate in those benefit plans available generally to employees or other
senior executives of Sunbeam. However, the Prior Executives were not eligible to
participate in any cash incentive plan of Sunbeam.
Equity Grants. The Prior Executive Agreements provided that all of Mr.
Kersh's then outstanding options to acquire shares of Sunbeam common stock,
which were granted under Mr. Kersh's previous employment agreement, and all of
Mr. Fannin's then outstanding options to acquire shares of Sunbeam common stock
vested as of February 20, 1998; 40% of each of Mr. Kersh's and Mr. Fannin's
shares of restricted Sunbeam common stock were canceled as of such date; and all
of Mr. Kersh's and Mr. Fannin's remaining shares of restricted Sunbeam common
stock vested as of such date. The Prior Executive Agreements provided that
Sunbeam was to reimburse Messrs. Kersh and Fannin on a grossed-up basis with
respect to any income tax assessed in connection with the vesting of such shares
of restricted Sunbeam common stock.
As of February 1, 1998, Messrs. Kersh and Fannin each received a grant of
150,000 and 30,000 shares of restricted Sunbeam common stock (the "Prior
Executive Restricted Shares"), respectively. These Prior Executive Restricted
Shares provided for vesting in four equal installments on each of February 1,
1998 and the first, second and third anniversaries of February 1, 1998. Messrs.
Kersh and Fannin also received grants, effective as of February 1, 1998, of
options to purchase 1,125,000 and 750,000 shares of Sunbeam common stock,
respectively, at a price of $36.85 per share which were approved by Sunbeam's
stockholders at the 1998 annual meeting (the "Prior Executive Options"). These
Prior Executive Options provided for vesting in four equal installments on the
grant date of February 1, 1998 and the first, second and third anniversaries of
February 1, 1998.
Termination and Change in Control Provisions. The Prior Executive
Agreements with Messrs. Kersh and Fannin provided that Sunbeam may terminate
either Prior Executive's employment at any time, or due to the Prior Executive's
disability, or for "Cause," as defined in the Prior Executive Agreements).
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Each Prior Executive Agreement provided that, if Sunbeam terminated the
Prior Executive's employment other than for Cause and not due to his disability,
or if the Prior Executive terminated his employment for "Good Reason," as
defined in the Prior Executive Agreements, or following a "Change in Control,"
as defined in the Prior Executive Agreements:
(1) such Prior Executive would receive as liquidated damages a lump
sum payment in an amount equal to the base salary that would have been
payable to him through the end of the employment term;
(2) the Options and Executive Restricted Shares granted to such Prior
Executive would become fully vested, and the Prior Executive will be
entitled to exercise his Prior Executive Options and previously granted
options for the balance of their original ten-year term; and
(3) the Prior Executive would be entitled to continue participating in
the employee benefit plans in which he had been entitled to participate
before termination, through the end of the employment term, or to receive
substantially equivalent benefits.
Each Prior Executive Agreement provided that if Sunbeam terminated the
Prior Executive's employment for Cause or if the Prior Executive terminated his
employment other than for Good Reason or following a Change in Control, all
obligations, other than accrued obligations, of Sunbeam would cease, except that
such Prior Executive would be able to exercise Prior Executive Options and
previously granted options granted to him which were exercisable on the date of
termination or within 90 days thereof, if the termination were for Cause, and
within one year thereof, if the termination were by the Executive other than for
Good Reason or following a Change in Control.
In addition, each Prior Executive Agreement provided that the Prior
Executive would be entitled to receive a gross-up with respect to any excise tax
applicable under the Internal Revenue Code to "excess parachute payments."
Subsequent Arrangements with Messrs. Dunlap, Kersh and Fannin
In early August 1998, Sunbeam entered into a six-month agreement with
Messrs. Dunlap and Kersh in which all parties agreed not to assert claims
against each other and to exchange information relating to the various lawsuits
in which Sunbeam and Messrs. Dunlap Kersh are named as defendants. Sunbeam also
agreed to pay, and has paid, to Messrs. Dunlap and Kersh amounts related to
accrued vacation and employment benefits and, to advance litigation defense
costs subject to the receipt of an undertaking from each of them, which Sunbeam
has received, to repay all amounts so advanced if it is determined that they did
not meet the applicable standard
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<PAGE>
of conduct for indemnification under Delaware law. This agreement has expired
and Messrs. Dunlap and Kersh have commenced an arbitration action against
Sunbeam for recovery of amounts they allege are payable to them under their
agreements, and they have filed an action in Delaware Chancery Court requesting
an order requiring Sunbeam to advance litigation defense costs to each of them.
Sunbeam is vigorously contesting these actions.
In connection with the termination of Mr. Fannin's employment by mutual
agreement, Sunbeam entered into an agreement with him providing that, under the
terms of his employment agreement and in consideration of the execution of the
agreement, including a release and covenant not to sue contained therein, he
would receive the following payments, all subject to applicable withholding
taxes:
(a) $825,000 in severance payments, of which $575,001 was paid in 1998
and the balance of which is payable in monthly installments of $16,667;
(b) consulting payments of $250,000 of which $41,667 was paid in 1998
and the balance of which is payable in monthly installments of $13,889; and
(c) $50,000 payable for the three year extension of Mr. Fannin's
non-compete agreement, of which $8,334 was paid in 1998 and the balance of
which is payable in equal monthly installments of $2,778.
In addition, Mr. Fannin received the value of his accrued vacation for
1996, 1997 and 1998, continuation of health, dental and life insurance coverage,
on the same basis as prior to termination of employment for an additional 18
months or until his earlier employment providing such benefits. The termination
agreement with Mr. Fannin also provided for a three-year term for his
outstanding vested stock options, confirmed the amount of his unrestricted
Sunbeam common stock grants and provided for the mutually agreed cancellation of
all other equity awards.
Other Transactions
Settlement of Claims; Issuance of Warrant
On August 12, 1998, Sunbeam announced that, following investigation and
negotiation conducted by a special committee of the Sunbeam board of directors,
consisting of four outside directors not affiliated with MacAndrews & Forbes,
Sunbeam had entered into the settlement agreement with the MacAndrews & Forbes
affiliate from which Sunbeam had acquired a controlling interest in Coleman in
March 1998. Under the settlement agreement, Sunbeam was
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<PAGE>
released from threatened claims arising from that acquisition, and MacAndrews &
Forbes agreed to provide management personnel and assistance to Sunbeam, in
exchange for the issuance to the MacAndrews & Forbes affiliate of a five-year
warrant to purchase 23 million shares of Sunbeam common stock at an exercise
price of $7 per share, subject to anti-dilution provisions.
Services Provided by MacAndrews & Forbes
Under the settlement agreement referred to in the previous paragraph, in
addition to making the services of Messrs. Levin, Shapiro and Jenkins available
to Sunbeam, MacAndrews & Forbes agreed to provide management assistance to
Sunbeam with respect to specified matters. Sunbeam does not reimburse MacAndrews
& Forbes for these services or for expenses incurred in providing these services
to Sunbeam, other than reimbursement of out-of-pocket expenses paid to third
parties. Execution of the settlement agreement was a condition to Sunbeam's
continued employment of Messrs. Levin, Shapiro and Jenkins as officers of
Sunbeam.
Registration Rights
Sunbeam and the MacAndrews & Forbes affiliate which sold Sunbeam its
controlling interest in Coleman have entered into a registration rights
agreement. Under the registration rights agreement, the MacAndrews & Forbes
affiliate can require Sunbeam to register under the federal and applicable state
securities laws the shares of Sunbeam common stock the affiliate received when
it sold its controlling interest in Coleman to Sunbeam. Sunbeam has also agreed
to permit former affiliates of Coleman that received Sunbeam common stock in the
March 1988 acquisition to join the MacAndrews & Forbes affiliate in any
registration of the affiliate's shares of Sunbeam common stock.
The registration rights agreement was amended in August 1998 to permit the
MacAndrews & Forbes affiliate to require Sunbeam to register (1) the warrant
issued to it by Sunbeam under its settlement agreement with Sunbeam and (2) the
shares of Sunbeam common stock issuable upon exercise of the warrant.
Settlement of Coleman Options
Under Sunbeam's agreement providing for the merger, the unexercised options
under Coleman's stock option plans will be cashed out at a price per share equal
to the difference between $27.50 and the exercise price of the options. Ronald
O. Perelman, the sole stockholder of MacAndrews & Forbes, holds 500,000 options
for which he will receive a net payment of $6,750,000 upon completion of the
merger. Mr. Shapiro and Ms. Clark, executive officers of Sunbeam, hold 77,500
and 25,000 options, respectively, for which they will receive net payments of
$823,000 and $275,005, respectively.
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<PAGE>
Arrangements with Coleman
Coleman and an affiliate of MacAndrews & Forbes are parties to a
cross-indemnification agreement in which Coleman has agreed to indemnify the
affiliate, its officers, directors, employees, control persons, agents and
representatives against all past, present and future liabilities, including
product liability and environmental matters, related to the initial assets of
Coleman, which Coleman acquired from such affiliate in December 1991. In
addition, under this cross-indemnification agreement, the MacAndrews & Forbes
affiliate has agreed to indemnify Coleman and its officers, directors,
employees, agents and representatives against all other liabilities of this
MacAndrews & Forbes affiliate or any of its subsidiaries, including liabilities
relating to the assets it did not transfer to Coleman in December 1991. This
cross-indemnification agreement will survive the merger.
Coleman previously was included in the consolidated tax group for the
MacAndrews & Forbes companies and was a party to a tax sharing agreement with a
MacAndrews & Forbes affiliate, under which Coleman paid to this affiliate the
amount of taxes which would have been paid by Coleman if it were required to
file separate Federal, state or local income tax returns. The obligations of
MacAndrews & Forbes under the tax sharing agreement were terminated when Sunbeam
bought a controlling interest in Coleman in March 1998. However, agreements
related to Sunbeam's acquisition of Coleman provide for tax indemnities and tax
sharing payments among Sunbeam and the MacAndrews & Forbes affiliates relating
to periods prior to the acquisition.
Office Space
During 1998, Sunbeam sublet office space in New York City from an affiliate
of MacAndrews & Forbes. The expense for such rent during 1998 was approximately
$130,000. The lease was terminated in 1999.
Employment of Law Firms
Sunbeam employed the law firms of Reboul, MacMurray, Hewitt, Maynard and
Kristol, of which Mr. Kristol is a partner, and Holland & Knight, of which Mr.
Elson is Of Counsel, to perform some legal services for Sunbeam during 1998. The
total fees paid to these firms during 1998 were less than $20,000. Neither Mr.
Kristol nor Mr. Elson was involved in the provision of legal services to
Sunbeam.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows, with respect to beneficial ownership of the
Sunbeam common stock by all persons known by Sunbeam to be the record or
beneficial owner of more than 5% of the outstanding common stock, the number of
shares of Sunbeam common stock owned by each such person or group as of April
20, 1999, the percentage of the outstanding Sunbeam common stock those holdings
represented on that date, and the percentage of the outstanding Sunbeam common
stock that those holdings will represent after the merger.
<TABLE>
<CAPTION>
Amount and Percentage of Percentage of
Nature Sunbeam Sunbeam
Of Beneficial Common Stock Common Stock
Name Ownership Prior to Merger After Merger (5)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ronald O. Perelman................. 37,099,749 (1) 29.9% (1) 27.4%
Franklin Mutual Advisers, Inc...... 17,541,398 (2) 16.1% 12.9%
Albert J. Dunlap................... 7,741,564 (3) 7.4% (3) 5.7%
Invista Capital Management,
LLC/Principal Mutual
Holding Company................ 7,440,200 (4) 7.2% 5.5%
</TABLE>
(1) Represents shares of Sunbeam common stock received by an affiliate of
MacAndrews & Forbes in the M&F Transaction and 23 million shares of Sunbeam
common stock which may be acquired by MacAndrews & Forbes pursuant to the
warrant issued to it by Sunbeam. See "RECENT DEVELOPMENTS AFFECTING SUNBEAM
- Settlement of Claims Relating to the M&F Transaction." The address of
Coleman (Parent) Holdings is 35 E. 62nd Street, New York, New York 10021.
Ronald O. Perelman is the indirect beneficial owner of all of the
outstanding capital stock of Coleman (Parent) Holdings. Accordingly, Mr.
Perelman may be deemed to be the beneficial owner of all of the shares of
Sunbeam common stock owned by Parent Holdings. Mr. Perelman's address is 35
E. 62nd Street, New York, New York 10021.
(2) Information reflected in this table and the notes thereto with respect to
Franklin Mutual Advisers is derived from the Schedule 13D, dated November
1, 1996, filed by Franklin Mutual Advisers or its predecessors with the
SEC, as thereafter amended, most recently on March 1, 1999. The address of
Franklin Mutual Advisers is 51 John F. Kennedy Parkway, Short Hills, New
Jersey 07078. The shares listed above are beneficially owned by one or more
open-end investment companies or other managed accounts which, pursuant to
advisory contracts, are advised by Franklin Mutual Advisors. Franklin
Mutual Advisers disclaims beneficial ownership of these shares.
(3) Information reflected in this table and the notes thereto with respect to
Mr. Dunlap is based upon filings made by him with the SEC. Mr. Dunlap's
holdings include certain stock grants for 1,166,667 shares and options to
acquire an additional 6,250,000 shares of Sunbeam common stock granted by
Sunbeam which are a matter of dispute between Sunbeam and Mr. Dunlap. See
"RECENT DEVELOPMENTS AFFECTING SUNBEAM - Matters Involving Former
Management."
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<PAGE>
(4) Information reflected in this table and the notes thereto with respect to
Invista Capital Management and Principal Mutual Holding Company is derived
from the Form 13G jointly filed with the SEC by Invista and Principal on
February 12, 1999. The address of Invista Capital Management is 1900 Hub
Tower, 699 Walnut Street, Des Moines, Iowa 50392. Invista Capital
Management and Principal Mutual Holding Company exercise shared voting
power and investment discretion with respect to all of the shares of
Sunbeam common stock beneficially owned by them.
(5) Assumes (1) the issuance by Sunbeam in the merger of 6,676,135 shares of
Sunbeam common stock, (2) the issuance of 23 million shares of Sunbeam
common stock to a MacAndrews & Forbes affiliate upon exercise of the
warrant issued in connection with the settlement of threatened legal claims
relating to the M&F Transaction and (3) the issuance of about 4.98 million
shares of Sunbeam common stock to Coleman public stockholders upon the
exercise of warrants issued in connection with the settlement of litigation
relating to the merger.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership, reported to
Sunbeam as of April 20, 1999, of Sunbeam common stock, including shares as to
which a right to acquire ownership exists, of: (1) each director of Sunbeam; (2)
each of the Named Executives; and (3) the directors and current executive
officers of Sunbeam as a group. In addition, the following table sets forth, as
of April 20, 1999, the beneficial ownership of two former directors and a former
executive officer, based on information filed by them with the SEC and available
to the public. With respect to (1) each current director of Sunbeam and (2) all
directors and officers of Sunbeam as a group, the following table also shows the
percentage of the outstanding Sunbeam common stock which such person's or
group's holdings will represent after the merger.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage of Sunbeam Percentage of Sunbeam
Beneficial Common Stock Common Stock
Name Ownership (1) Prior to Merger (2) After Merger (7)
<S> <C> <C> <C>
Directors
Charles M. Elson........... 10,500 (3) * *
Howard Gittis.............. 0 (5) 0 0
John H. Klein.............. 415 (3) * *
Howard G. Kristol.......... 10,500 (3) * *
Peter A. Langerman......... 0 (4) 0 0
Jerry W. Levin............. 0 (5) 0 0
Faith Whittlesey........... 6,890 (3) * *
Former Directors
Albert J. Dunlap........... 7,741,564 (2) 7.4% N/A
Russell A. Kersh........... 1,889,150 (2) 1.8% N/A
</TABLE>
190
<PAGE>
<TABLE>
<S> <C> <C> <C>
Named Executives
Karen K. Clark............. 0 0 N/A
Bobby G. Jenkins........... 0 0 N/A
Janet G. Kelley............ 86,583 (2) * N/A
Paul E. Shapiro............ 0 (5) 0 N/A
Former Named Executive
David C. Fannin............ 220,433 (2) * N/A
All Directors and current
executive officers as a
group (11 persons)......... 114,888 (6) * *
</TABLE>
* Less than one percent.
(1) All of the above named individuals have the sole power to vote and to
dispose of the shares of Sunbeam common stock listed above except as
follows: (1) Mr. Dunlap is believed to hold 1,491,564 of the listed shares
jointly with his wife; (2) 151,600 shares listed as owned by Mr. Kersh are
believed to be held by the Russell A. Kersh Irrevocable Trust of which Mr.
Kersh is the sole beneficiary, and Mr. Kersh is believed to hold 5,000 of
the listed shares jointly with his spouse; (3) Mr. Fannin holds 20,433
shares of stock jointly with his wife; and (4) Ms. Kelley holds 100 shares
jointly with her spouse.
(2) Includes shares of Sunbeam common stock which Named Executives have the
right to acquire under options which are currently exercisable (including
options which may be exercised within the next sixty days), as follows:
200,000 and 86,583 shares in the case of Mr. Fannin and Ms. Kelley,
respectively. Options which are not currently exercisable and will not
become exercisable within sixty days are not included in the table. Also
includes stock awards and options to acquire 6,250,000 and 1,625,000 shares
in the case of Messrs. Dunlap and Kersh, respectively, the status of which
is a matter of dispute between the Company and Messrs. Dunlap and Kersh.
See "RECENT DEVELOPMENTS AFFECTING SUNBEAM - Matters Involving Former
Management."
(3) Includes restricted shares of Sunbeam common stock granted to each of
directors Elson, Klein, Kristol and Whittlesey upon their respective
elections, appointments and subsequent reelections to the Sunbeam board,
all of which shares were immediately vested.
(4) Does not include shares of Sunbeam common stock owned by Franklin Mutual
Advisers as to which Mr. Langerman disclaims beneficial ownership.
(5) Does not include shares of Sunbeam common stock owned by MacAndrews &
Forbes as to which Messrs. Gittis, Levin and Shapiro disclaim beneficial
ownership.
(6) Includes shares of Sunbeam common stock which all current executive
officers of Sunbeam have the right to acquire under options which are
currently exercisable (including options which may be exercised within the
next sixty days).
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<PAGE>
(7) Assumes (1) the issuance by Sunbeam in the merger of 6,676,135 shares of
Sunbeam common stock, (2) the issuance of 23 million shares of Sunbeam
common stock to a MacAndrews & Forbes affiliate upon exercise of the
warrant issued in connection with the settlement of threatened legal claims
relating to the M&F Transaction and (3) the issuance of about 4.98 million
shares of Sunbeam common stock to Coleman public stockholders upon the
exercise of warrants issued in connection with the settlement of litigation
relating to the merger.
192
<PAGE>
DESCRIPTION OF SUNBEAM CAPITAL STOCK
The following statements are brief summaries of provisions of Sunbeam's
capital stock. The summaries do not purport to be complete and are qualified in
their entirety by reference to the full text of Sunbeam's Restated Certificate
of Incorporation and By-laws, copies of which are filed as exhibits to the
Registration Statement of which this document forms a part and are incorporated
by reference in this document in their entirety.
Sunbeam Common Stock
Sunbeam's authorized capital stock currently consists of 500,000,000 shares
of Sunbeam common stock, par value $.01 per share, and 2,000,000 shares of
preferred stock, par value $.01 per share. As of __________, 1999, there were
____________ shares of Sunbeam common stock outstanding. Each share of Sunbeam
common stock entitles its holder to one vote on all matters upon which Sunbeam
stockholders are entitled or permitted to vote, including the election of
directors. There are no cumulative voting rights. Shares of Sunbeam common stock
would participate ratably in any distribution of assets in a liquidation,
dissolution or winding up of Sunbeam, subject to prior distribution rights of
any shares of preferred stock then outstanding. The Sunbeam common stock has no
preemptive rights or conversion rights nor are there any redemption or sinking
fund provisions applicable to the Sunbeam common stock. Holders of Sunbeam
common stock are entitled to participate in dividends as and when declared by
the Sunbeam Board out of funds legally available therefor. Sunbeam's ability to
pay cash dividends is subject to restrictions under Delaware law. In addition,
Sunbeam's bank credit facility prohibits Sunbeam from paying cash dividends.
The transfer agent and registrar for the Sunbeam common stock is The Bank
of New York.
Sunbeam Preferred Stock
There are no shares of Sunbeam preferred stock currently outstanding.
Sunbeam's Certificate of Incorporation provides that the Sunbeam board of
directors may authorize the issuance of one or more series of preferred stock
having such rights, including voting, conversion and redemption rights, and such
preferences, including dividend and liquidation preferences, as the Sunbeam
board may determine without any further action by the stockholders of Sunbeam.
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<PAGE>
Warrants
Sunbeam currently has outstanding one warrant which entitles the holder to
purchase up to 23 million shares of Sunbeam common stock. This warrant was
issued on August 24, 1998 under the terms of the Settlement Agreement, dated
August 12, 1998, by and between Sunbeam and Coleman (Parent) Holdings, Inc., the
MacAndrews & Forbes affiliate from which Sunbeam acquired about 81% of the then
outstanding Coleman common stock in the M&F Transaction. In the merger, Sunbeam
will issue warrants which will entitle their holders to purchase up to about
4.98 million shares of Sunbeam common stock. These warrants will be issued under
a Warrant Agreement to be entered into by Sunbeam and [The Bank of New York], as
Warrant Agent, prior to the completion of the merger.
The warrants to be issued in the merger will be substantially similar to
the warrant issued to Coleman (Parent) Holdings. Each of the warrants will be
exercisable [on or before August 24, 2003] at a cash exercise price of $7 per
share. In addition, each of the warrants is subject to anti-dilution adjustments
in the event that Sunbeam completes one or more transactions having a dilutive
effect on its existing stockholders. Under the settlement with Coleman (Parent)
Holdings, Sunbeam has agreed that Coleman (Parent) Holdings can require Sunbeam
to register under the federal and applicable state securities laws the shares of
Sunbeam common stock issuable upon exercise of the warrant. The shares of
Sunbeam common stock issuable upon exercise of the warrants to be issued in the
merger are being registered under the registration statement of which this
document forms a part.
For further information regarding the warrant issued to Coleman (Parent)
Holdings, see "RECENT DEVELOPMENTS AFFECTING SUNBEAM - Settlement of Claims
Relating to the M&F Transaction." For further information regarding the terms of
the warrants to be issued in the merger, see "SETTLEMENT OF LITIGATION AND
WARRANTS."
194
<PAGE>
DESCRIPTION OF COLEMAN CAPITAL STOCK
The following statements are brief summaries of provisions of Coleman's
capital stock. The summaries do not purport to be complete and are qualified in
their entirety by reference to the full text of Coleman's Certificate of
Incorporation and Coleman's By-laws, as amended, copies of which have been filed
as exhibits to the Registration Statement of which this document forms a part
and are incorporated by reference in this document in their entirety.
The authorized capital stock of Coleman consists of 100,000,000 shares of
capital stock, 80,000,000 of which are common stock, par value $.01 per share,
and 20,000,000 of which are preferred stock, par value $.01 per share. Of these
authorized shares, as of __________, 1999, (1) ____________ shares of Coleman
common stock were issued and outstanding; (2) _________ shares of Coleman common
stock were issuable upon exercise of Coleman stock options outstanding under
Coleman's employee stock option plans (all of which options were vested); and
(3) no shares of Coleman preferred stock were issued or outstanding. Coleman's
Certificate of Incorporation authorizes the Coleman board of directors to
provide for the issuance, from time to time, of shares of preferred stock in
series, to establish from time to time the number of shares to be included in
any such series and to fix the designation, powers, preferences and rights of
the shares of each such series and any qualifications, limitations or
restrictions thereof.
Subject to the rights of holders of any Coleman preferred stock then
outstanding, holders of Coleman common stock are entitled to receive dividends
as may from time to time be declared by the Coleman board subject to certain
limitations under Delaware law. The merger agreement and Sunbeam's bank credit
facility, as amended in April 1999, each prohibit Coleman from paying dividends.
Holders of Coleman common stock are entitled to one vote per share on all
matters on which the holders of Coleman common stock are entitled to vote.
Because holders of Coleman common stock do not have cumulative voting rights,
the holders of a majority of the shares of Coleman common stock represented at a
meeting can elect all of the directors. In the event of liquidation, dissolution
or winding up of Coleman, holders of Coleman common stock would be entitled to
share ratably in assets of Coleman available for distribution to the holders of
Coleman common stock.
Holders of Coleman common stock are not liable for any liabilities of
Coleman. There are no preemptive rights for the Coleman common stock. The
outstanding shares of Coleman common stock are fully paid and nonassessable.
American Stock Transfer & Trust Co. acts as transfer agent and registrar
for the Coleman common stock.
195
<PAGE>
EXPERTS
The Consolidated Financial Statements of Sunbeam Corporation and its
consolidated subsidiaries (except The Coleman Company, Inc. and its
subsidiaries) as of December 31, 1998 and for the year then ended, and the
related financial statement schedule included in this document have been audited
by Deloitte & Touche LLP as stated in their report appearing herein. The
consolidated financial statements of The Coleman Company, Inc. (consolidated
with those of Sunbeam) have been audited by Ernst & Young LLP as stated in their
report included herein. The Consolidated Financial Statements of Sunbeam
Corporation and its subsidiaries are included herein in reliance upon the
respective reports of such firms, in each case given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP, and Ernst & Young
LLP, are independent auditors.
The Consolidated Financial Statements and schedule of Sunbeam Corporation
included in this document and in the corresponding registration statement as of
December 28, 1997 and for the years ended December 28, 1997 and December 29,
1996 have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
Ernst & Young LLP, independent auditors, have audited Coleman's
consolidated financial statements included in its Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
included in this document and is incorporated by reference elsewhere in the
registration statement. Coleman's financial statements are incorporated by
reference in this document in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the shares of Sunbeam common stock being offered hereby is
being passed upon for Sunbeam by _______________.
WHERE YOU CAN FIND MORE INFORMATION
Sunbeam is distributing this document to you to provide you with
information about the merger, your Delaware appraisal rights and the litigation
settlement. This document also
196
<PAGE>
serves as Sunbeam's prospectus in connection with the issuance of the shares of
Sunbeam common stock you will receive in the merger and upon exercise of the
settlement warrants after the merger. This document is also part of a
registration statement filed by Sunbeam with the SEC to register those shares
under the Securities Act of 1933. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
Sunbeam. Under the rules and regulations of the SEC, however, some information
included in the registration statement is not required to be included in this
document. You are urged to read carefully the registration statement and the
attached exhibits and schedules.
This document also serves as Coleman's information statement in connection
with the merger. This document has been filed by Coleman with the SEC to comply
with Coleman's disclosure obligations under the Securities Exchange Act of 1934.
Under the rules and regulations of the SEC, however, some information concerning
Coleman is not required to be included in this document. Instead, the SEC allows
Coleman to "incorporate by reference" the omitted information. This means that
Coleman can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is considered to be a part of this document, except for any
information that has been directly superseded by information contained in this
document. You are urged to read carefully the documents to which we have
referred you.
You can inspect and copy reports, proxy statements and other information
about Sunbeam and Coleman at the NYSE office located at 20 Broad Street, New
York, New York 10005.
You may read publicly available information about Sunbeam and Coleman,
including the registration statement and the documents concerning Coleman to
which we have referred you, at the following locations of the SEC:
Public Reference Room Midwest Regional Office New York Regional Office
450 Fifth Street, N.W. Citicorp Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
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<PAGE>
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Sunbeam and
Coleman, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
This document incorporates by reference the documents listed below that
Coleman has previously filed with the SEC. They contain important information
about Coleman and its financial condition.
1. Coleman's Annual Reports on Form 10-K for the fiscal years ended December
31, 1998, 1997 and 1996; and
2. Coleman's Information Statement under Section 14(f) of the Exchange Act
mailed to Coleman stockholders on or about March 18, 1998.
Coleman also incorporates by reference any additional documents it may file
with the SEC between the date of this document and the completion of the merger.
These documents include periodic reports, such as Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through Coleman or from the SEC through the SEC's web site at the
address described above. Documents incorporated by reference are available from
Coleman without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from Coleman at the following
address:
The Coleman Company, Inc.
2111 East 37th Street North
Wichita, Kansas 67219
Attention: Corporate Secretary
Telephone: (316) 832-2700
If you would like to request documents, please do so by _____________, 1999
to receive them before the completion of the merger. If you request any
documents from Coleman, we will mail them to you by first-class mail, or another
equally timely means, promptly after we receive your request.
198
<PAGE>
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this document or in any of the materials that we
have incorporated by reference into this document. Therefore, if anyone does
give you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document are unlawful, or
if you are a person to whom it is unlawful to direct these types of activities,
then the offer presented in this document does not extend to you. The
information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
199
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUNBEAM CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Deloitte & Touche LLP............................................................................ F-2
Report of Ernst & Young LLP................................................................................ F-3
Report of Arthur Andersen LLP.............................................................................. F-4
Consolidated Statements of Operations
for the Fiscal Years Ended December 31, 1998, December 28, 1997 and December 29, 1996.................... F-5
Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997.................................. F-6
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 31, 1998, December 28,
1997 and December 29, 1996............................................................................... F-7
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1998, December 28, 1997 and
December 29, 1996........................................................................................ F-8
Notes to Consolidated Financial Statements................................................................. F-9
FINANCIAL STATEMENT SCHEDULE*:
II. Valuation and Qualifying Accounts...................................................................... F-48
</TABLE>
- ------------------
* All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore not included
herein.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sunbeam Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation and subsidiaries (the "Company") as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule as of and for the year ended December 31, 1998, listed in the Index to
Financial Statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. We did not audit the consolidated financial
statements of The Coleman Company, Inc. and subsidiaries (consolidated
subsidiaries), which statements reflect total assets constituting 27% of
consolidated total assets as of December 31, 1998, and total revenues
constituting 40% of consolidated total revenues for the year then ended. Those
consolidated financial statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for The Coleman Company, Inc. and subsidiaries, is based solely on the
report of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Sunbeam Corporation and subsidiaries as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audit and (as to the amounts included for The
Coleman Company, Inc. and subsidiaries) the report of other auditors, such
financial statement schedule as of and for the year ended December 31, 1998,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 16, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
The Coleman Company, Inc.
We have audited the consolidated balance sheets of The Coleman Company,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 (not presented
separately herein). These financial statements are the responsibility of
Sunbeam's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Coleman Company, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
April 15, 1999
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbeam Corporation:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation (a Delaware corporation) and subsidiaries as of December 28, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the two fiscal years in the period ended December 28,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Sunbeam Corporation and
subsidiaries as of December 28, 1997, and the results of their operations and
their cash flows for each of the two fiscal years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for each of the two years in
the period ended December 28, 1997 is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 16, 1998
F-4
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................. $1,836,871 $1,073,090 $ 984,236
Cost of goods sold.................................................... 1,788,819 830,956 896,938
Selling, general and administrative expense........................... 718,077 152,653 221,655
Restructuring and asset impairment (benefit) charges.................. -- (14,582) 110,122
---------- ---------- ----------
Operating (loss) earnings............................................. (670,025) 104,063 (244,479)
Interest expense...................................................... 131,091 11,381 13,588
Other (income) expense, net........................................... (4,768) 12 3,738
---------- ---------- ----------
(Loss) earnings from continuing operations before income taxes,
minority interest and extraordinary charge ......................... (796,348) 92,670 (261,805)
Income taxes (benefit):
Current............................................................. 8,667 1,528 (22,419)
Deferred............................................................ (18,797) 38,824 (69,206)
---------- ---------- ----------
(10,130) 40,352 (91,625)
---------- ---------- ----------
Minority interest..................................................... (10,681) -- --
---------- ---------- ----------
(Loss) earnings from continuing operations before extraordinary
charge.............................................................. (775,537) 52,318 (170,180)
Earnings from discontinued operations, net of taxes................... -- -- 839
Loss on sale of discontinued operations, net of taxes................. -- (14,017) (39,140)
Extraordinary charge from early extinguishments of debt............... (122,386) -- --
---------- ---------- ----------
Net (loss) earnings................................................... $ (897,923) $ 38,301 $ (208,481)
---------- ---------- ----------
---------- ---------- ----------
(Loss) earnings per share:
(Loss) earnings from continuing operations before extraordinary
charge:
Basic............................................................ $ (7.99) $ 0.62 $ (2.05)
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... (7.99) 0.60 (2.05)
---------- ---------- ----------
---------- ---------- ----------
(Loss) from sale of discontinued operations:
Basic............................................................ $ -- $ (0.17) $ (0.46)
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... -- (0.16) (0.46)
---------- ---------- ----------
---------- ---------- ----------
Extraordinary charge:
Basic............................................................ $ (1.26) $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... (1.26) -- --
---------- ---------- ----------
---------- ---------- ----------
Net (loss) earnings:
Basic............................................................ $ (9.25) $ 0.45 $ (2.51)
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... (9.25) 0.44 (2.51)
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding:
Basic............................................................ 97,121 84,945 82,925
Diluted.......................................................... 97,121 87,542 82,925
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 61,432 $ 52,298
Restricted investments............................................................. 74,386 --
Receivables, net................................................................... 361,774 228,460
Inventories........................................................................ 519,189 304,900
Prepaid expenses and other current assets.......................................... 74,187 16,584
---------- ----------
Total current assets............................................................ 1,090,968 602,242
Property, plant and equipment, net................................................... 455,172 249,524
Trademarks, tradenames, goodwill and other, net...................................... 1,859,377 207,162
---------- ----------
$3,405,517 $1,058,928
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt.............................. $ 119,103 $ 668
Accounts payable................................................................... 162,173 108,374
Other current liabilities.......................................................... 321,185 124,085
---------- ----------
Total current liabilities....................................................... 602,461 233,127
Long-term debt, less current portion................................................. 2,142,362 194,580
Other long-term liabilities.......................................................... 248,459 154,300
Deferred income taxes................................................................ 100,473 4,842
Minority interest.................................................................... 51,325 --
Commitments and contingencies (Notes 3 and 15)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding).................... -- --
Common stock (100,739,053 and 89,984,425 shares issued)............................ 1,007 900
Additional paid-in capital......................................................... 1,123,457 479,200
(Accumulated deficit) retained earnings............................................ (809,997) 89,801
Accumulated other comprehensive loss............................................... (54,030) (33,063)
Other shareholders' equity......................................................... -- (1,714)
---------- ----------
260,437 535,124
Treasury stock, at cost (4,454,394 shares in 1997)................................. -- (63,045)
---------- ----------
Total shareholders' equity...................................................... 260,437 472,079
---------- ----------
$3,405,517 $1,058,928
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(ACCUMULATED ACCUMULATED
ADDITIONAL DEFICIT) OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS (LOSS) INCOME COMPENSATION STOCK EQUITY
------ ---------- ------------ ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996...... $ 878 $ 441,786 $ 266,698 $ (24,483) $ (397) $(83,449) $ 601,033
Comprehensive loss:
Net loss...................... -- -- (208,481) -- -- -- (208,481)
Minimum pension liability (net
of tax of $2,672)........... -- -- -- 4,963 -- -- 4,963
Translation adjustments....... -- -- -- 1,246 -- -- 1,246
---------
Comprehensive loss.......... (202,272)
Common dividends ($0.04 per
share)........................ -- -- (3,318) -- -- -- (3,318)
Exercise of stock options....... 6 7,313 -- -- -- -- 7,319
Grant of restricted stock....... -- (1,120) -- -- (14,346) 15,466 --
Amortization of unearned
compensation.................. -- -- -- -- 7,707 -- 7,707
Retirement and sale of treasury
shares........................ -- (31) -- -- -- 4,595 4,564
------ ---------- ---------- --------- -------- -------- ---------
Balance at December 29, 1996.... 884 447,948 54,899 (18,274) (7,036) (63,388) 415,033
Comprehensive income:
Net earnings.................. -- -- 38,301 -- -- -- 38,301
Minimum pension liability..... -- -- -- (14,050) -- -- (14,050)
Translation adjustments....... -- -- -- (739) -- -- (739)
---------
Comprehensive income........ 23,512
Common dividends ($0.04 per
share)........................ -- -- (3,399) -- -- -- (3,399)
Exercise of stock options....... 16 30,496 -- -- -- -- 30,512
Amortization of unearned
compensation.................. -- -- -- -- 5,322 -- 5,322
Other stock issuances........... -- 756 -- -- -- 343 1,099
------ ---------- ---------- --------- -------- -------- ---------
Balance at December 28, 1997.... 900 479,200 89,801 (33,063) (1,714) (63,045) 472,079
Comprehensive loss:
Net loss...................... -- -- (897,923) -- -- -- (897,923)
Minimum pension liability..... -- -- -- (21,795) -- -- (21,795)
Translation adjustments....... -- -- -- 828 -- -- 828
---------
Comprehensive loss.......... (918,890)
Common dividends ($0.02 per
share)........................ -- -- (1,875) -- -- -- (1,875)
Exercise of stock options....... 9 18,383 -- -- -- -- 18,392
Grant of restricted stock....... 4 18,880 -- -- (32,500) -- (13,616)
Cancellation of restricted
stock......................... (1) (5,228) -- -- 10,182 (2,250) 2,703
Amortization of unearned
compensation.................. -- -- -- -- 24,032 -- 24,032
Acquisition of Coleman.......... 95 541,428 -- -- -- 65,200 606,723
Warrants issued................. -- 70,000 -- -- -- -- 70,000
Other stock issuances........... -- 794 -- -- -- 95 889
------ ---------- ---------- --------- -------- -------- ---------
Balance at December 31, 1998.... $1,007 $1,123,457 $ (809,997) $ (54,030) $ -- $ -- $ 260,437
------ ---------- ---------- --------- -------- -------- ---------
------ ---------- ---------- --------- -------- -------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings................................................. $ (897,923) $ 38,301 $ (208,481)
Adjustments to reconcile net (loss) earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization..................................... 107,865 39,757 47,429
Non-cash interest charges......................................... 32,531 -- --
Restructuring and asset impairment (benefit) charges.............. -- (14,582) 110,122
Other non-cash special charges.................................... -- -- 10,047
Loss on sale of discontinued operations, net of taxes............. -- 14,017 39,140
Deferred income taxes............................................. (18,797) 38,824 (69,206)
Minority interest................................................. (10,681) -- --
Loss on sale of property, plant and equipment..................... 3,260 -- --
Provision for fixed assets........................................ 39,404 -- --
Provision for excess and obsolete inventory....................... 95,830 -- 60,800
Goodwill impairment............................................... 62,490 -- --
Issuance of warrants.............................................. 70,000 -- --
Non-cash compensation charge...................................... 13,118 -- --
Extraordinary charge from early extinguishments of debt........... 122,386 -- --
Changes in operating assets and liabilities, exclusive of impact of
divestitures and acquisitions:
Receivables, net.................................................. 147,045 1,044 (845)
Inventories....................................................... 37,112 (140,555) 11,289
Accounts payable.................................................. (68,187) 4,261 11,029
Restructuring accrual............................................. (3,894) (31,957) --
Prepaid expenses and other current assets and liabilities......... 50,622 (16,092) 39,657
Income taxes payable.............................................. 15,758 52,052 (21,942)
Change in other long-term and non-operating liabilities........... 13,994 (1,401) (27,089)
Other, net........................................................ (2,347) 10,288 12,213
------------ ---------- ----------
Net cash (used in) provided by operating activities.......... (190,414) (6,043) 14,163
------------ ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures................................................ (53,686) (60,544) (75,336)
Proceeds from sale of divested operations and other assets.......... 9,575 90,982 --
Purchases of businesses, net of cash acquired....................... (522,412) -- --
Other, net.......................................................... (139) -- (860)
------------ ---------- ----------
Net cash (used in) provided by investing activities.......... (566,662) 30,438 (76,196)
------------ ---------- ----------
FINANCING ACTIVITIES:
Issuance of convertible senior subordinated debentures, net of
financing fees.................................................... 729,622 -- --
Net borrowings under revolving credit facility...................... 1,205,675 5,000 30,000
Issuance of long-term debt.......................................... -- -- 11,500
Payments of debt obligations, including prepayment penalties........ (1,186,796) (12,157) (1,794)
Proceeds from exercise of stock options............................. 19,553 26,613 4,684
Sale of treasury stock.............................................. -- -- 4,578
Payments of dividends on common stock............................... (1,875) (3,399) (3,318)
Other, net.......................................................... 31 320 (364)
------------ ---------- ----------
Net cash provided by financing activities.................... 766,210 16,377 45,286
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents......... 9,134 40,772 (16,747)
Cash and cash equivalents at beginning of year...................... 52,298 11,526 28,273
------------ ---------- ----------
Cash and cash equivalents at end of year............................ $ 61,432 $ 52,298 $ 11,526
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Sunbeam Corporation ("Sunbeam" or the "Company") is a leading designer,
manufacturer and marketer of branded consumer products. The Company's primary
business is the manufacturing, marketing and distribution of durable household
and outdoor leisure consumer products through mass market and other distribution
channels in the United States and internationally. The Company also sells its
products to professional and commercial end users such as small businesses,
health care providers, hotels and other institutions. The Company's principal
products include household kitchen appliances; health monitoring and care
products for home use; scales for consumer and professional use for weight
management and business uses; electric blankets and throws; clippers and
trimmers for consumer, professional and animal uses; smoke and carbon monoxide
detectors; outdoor barbecue grills; camping equipment such as tents, lanterns,
sleeping bags and stoves; coolers; backpacks and book bags; and portable
generators and compressors.
In 1998 the Company acquired an indirect controlling interest in The
Coleman Company, Inc. ("Coleman") and all the outstanding common stock of
Signature Brands USA, Inc. ("Signature Brands") and First Alert, Inc. ("First
Alert").
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries that it controls. All material intercompany
balances and transactions have been eliminated.
Presentation of Fiscal Periods
To standardize the fiscal period ends of the Company and its acquired
entities, effective with its 1998 fiscal year, the Company has changed its
fiscal year end from the Sunday nearest December 31 to a calendar year. The
impact of this change in fiscal period on net sales for 1998 was to increase
sales by approximately $5.5 million, and the impact on operating results for the
period was to increase the net loss by approximately $1.5 million.
Fiscal years 1997 and 1996 ended on December 28, 1997 and December 29,
1996, respectively, which encompassed 52-week periods.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Significant accounting estimates include the establishment of the
allowance for doubtful accounts, tax valuation allowances, reserves for sales
returns and allowances, product warranty, product liability, excess and obsolete
inventory, litigation and environmental exposures.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
Substantially all of the Company's trade receivables are due from retailers
and distributors located throughout the United States, Europe, Latin America,
Canada, and Japan. Approximately 38% of the Company's sales in 1998 were to its
five largest customers. The Company establishes its credit policies based on an
ongoing evaluation of its customers' creditworthiness and competitive market
conditions and establishes its allowance for
F-9
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
doubtful accounts based on an assessment of exposures to credit losses at each
balance sheet date. The Company believes its allowance for doubtful accounts is
sufficient based on the credit exposures outstanding at December 31, 1998.
However, certain retailers filed for bankruptcy protection in the last several
years and it is possible that additional credit losses could be incurred if
other retailers seek bankruptcy protection or if the trends of retail
consolidation continue.
Inventories
Inventories are stated at the lower-of-cost-or-market with cost being
determined principally by the first-in, first-out method.
In certain instances, the Company receives rebates from vendors based on
the volume of merchandise purchased. Vendor rebates are recorded as reductions
in the price of the purchased merchandise and are recognized in operations as
the related inventories are sold.
Effective in fiscal 1997, the Company began capitalizing manufacturing
supplies inventories, whereas previously these inventories were charged to
operations when purchased. This change increased pre-tax operating earnings in
fiscal 1997 by $2.8 million.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation using primarily the straight-line method in amounts that allocate
the cost of property, plant and equipment over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements................................................... 5 to 45 years
Machinery, equipment and tooling............................................. 3 to 15 years
Furniture and fixtures....................................................... 3 to 10 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of its estimated useful life or the term of the lease.
Long-lived Assets
The Company accounts for long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Company
periodically evaluates factors, events and circumstances which include, but are
not limited to, the historical and projected operating performance of the
business operations, specific industry trends and general economic conditions to
assess whether the remaining estimated useful lives of long-lived assets may
warrant revision or whether the remaining asset values are recoverable through
future operations. When such factors, events or circumstances indicate that
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of cash flows (undiscounted and without interest charges) over the
remaining lives of the assets to measure recoverability. If the estimated cash
flows are less than the carrying value of the asset, the loss is measured as the
amount by which the carrying value of the asset exceeds fair value.
With respect to enterprise level goodwill, the Company reviews impairment
when changes in circumstances, similar to those described above for long-lived
assets, indicate that the carrying value may not be recoverable. Under these
circumstances, the Company estimates future cash flows using the recoverability
method (undiscounted and including related interest charges), as a basis for
recording any impairment loss. An impairment loss is then recorded to adjust the
carrying value of goodwill to the recoverable amount. The impairment loss taken
is no greater than the amount by which the carrying value of the net assets of
the business exceeds its fair value.
F-10
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Derivative Financial Instruments
The Company enters into interest rate swap agreements and foreign exchange
rate contracts as part of the management of its interest rate and foreign
currency exchange rate exposures. The Company has no derivative financial
instruments held for trading purposes and none of the instruments is leveraged.
All financial instruments are put into place to hedge specific exposures.
Amounts to be paid or received under swap agreements are recognized over the
terms of the agreements as adjustments to interest expense. Amounts receivable
or payable under the agreements are included in receivables or other current
liabilities in the Consolidated Balance Sheets. Gains and losses on foreign
currency forward contracts offset gains and losses resulting from the underlying
transactions. Gains and losses on contracts that hedge specific foreign currency
commitments are deferred and recorded in operations in the period in which the
underlying transaction is recorded.
Capitalized Interest
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. Total
interest costs during 1998, 1997 and 1996 amounted to $131.9 million, $12.3
million and $14.0 million, respectively, of which $0.8 million, $0.9 million and
$0.4 million, respectively, was capitalized as a cost of the related long-term
assets.
Deferred Financing Costs
Costs incurred in connection with obtaining financing are deferred and
amortized as a charge to interest expense over the terms of the related
borrowings using the interest method.
Amortization Periods
Trademarks, tradenames and goodwill are being amortized on a straight-line
basis over 20 to 40 years.
Revenue Recognition
The Company recognizes sales and related cost of goods sold from product
sales at the latter of the time of shipment or when title passes to the
customers. In some situations, the Company has shipped product with the right of
return where the Company is unable to reasonably estimate the level of returns
and/or the sale is contingent upon the resale of the product. In these
situations, the Company does not recognize revenue upon product shipment, but
rather when the buyer of the product informs the Company that the product has
been sold. Net sales is comprised of gross sales less provisions for estimated
customer returns, discounts, promotional allowances, cooperative advertising
allowances and costs incurred by the Company to ship product to customers.
Reserves for estimated returns are established by the Company concurrently with
the recognition of revenue. Reserves are established based on a variety of
factors, including historical return rates, estimates of customer inventory
levels, the market for the product and projected economic conditions. The
Company monitors these reserves and makes adjustments to them when management
believes that actual returns or costs to be incurred differ from amounts
recorded.
Warranty Costs
The Company provides for warranty costs in amounts it estimates will be
needed to cover future warranty obligations for products sold during the year.
Estimates of warranty costs are periodically reviewed and adjusted, when
necessary, to consider actual experience.
F-11
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Product Liability
The Company provides for product liability costs it estimates will be
needed to cover future product liability costs for product sold during the year.
Estimates of product liability costs are periodically reviewed and adjusted,
when necessary, to consider actual experience, and other relevant factors.
Legal Costs
The Company records charges for the costs it anticipates incurring in
connection with litigation and claims against the Company when management can
reasonably estimate these costs.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. The provision for
income taxes includes deferred income taxes resulting from items reported in
different periods for income tax and financial statement purposes. Deferred tax
assets and liabilities represent the expected future tax consequences of the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The effects of changes in tax
rates on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
Advertising Costs
Media advertising costs included in Selling, General and Administrative
Expense ("SG&A") are expensed as incurred. Allowances provided to customers for
cooperative advertising are charged to operations, as earned, based on revenues
and are included as a deduction from gross sales in determining net sales. The
amounts charged to operations for media and cooperative advertising during 1998,
1997 and 1996 were $124.5 million, $55.7 million and $78.7 million,
respectively.
Research and Development
Research and development expenditures are expensed in the period incurred.
The amounts charged against operations during 1998, 1997 and 1996 were
$18.7 million, $5.7 million and $6.5 million, respectively.
Foreign Currency Translation
The assets and liabilities of subsidiaries, other than those operating in
highly inflationary economies, are translated into U.S. dollars with resulting
translation gains and losses accumulated in a separate component of
shareholders' equity. Income and expense items are converted into U.S. dollars
at average rates of exchange prevailing during the year.
For subsidiaries operating in highly inflationary economies (Venezuela and
Mexico), inventories and property, plant and equipment are translated at the
rate of exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for those operations are included in Other (Income) Expense, Net in the
accompanying Consolidated Statements of Operations. Effective January 1, 1999,
Mexico will no longer be considered highly inflationary.
Stock-Based Compensation Plans
SFAS No. 123, Accounting for Stock-Based Compensation allows either
adoption of a fair value method for accounting for stock-based compensation
plans or continuation of accounting under Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations with supplemental disclosures.
F-12
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company has chosen to account for its stock options using the intrinsic
value based method prescribed in APB Opinion No. 25 and, accordingly, does not
recognize compensation expense for stock option grants made at an exercise price
equal to or in excess of the fair market value of the stock at the date of
grant. Pro forma net income and earnings per share amounts as if the fair value
method had been adopted are presented in Note 9. SFAS No. 123 does not impact
the Company's results of operations, financial position or cash flows.
Basic and Diluted (Loss) Earnings Per Share Of Common Stock
Basic (loss) earnings per common share calculations are determined by
dividing (loss) earnings available to common shareholders by the weighted
average number of shares of common stock outstanding. Diluted (loss) earnings
per share are determined by dividing (loss) earnings available to common
shareholders by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding (all related to outstanding stock
options, restricted stock, warrants and the Zero Coupon Convertible Senior
Subordinated Debentures).
For the years ended December 31, 1998 and December 29, 1996, respectively,
1,902,177 and 1,552,684 shares related to stock options, were not included in
diluted average common shares outstanding because their effect would be
antidilutive. Diluted average common shares outstanding as of December 29, 1996
also excluded (78,654) shares related to restricted stock. Diluted average
common shares outstanding as of December 31, 1998 also excluded 13,242,050
shares related to the conversion feature of the Zero Coupon Convertible Senior
Subordinated Debentures (see Note 3) and 23,000,000 shares issuable on the
exercise of warrants, due to antidilution. For the year ended December 28, 1997,
the dilutive effect of 2,718,649 equivalent shares related to stock options and
(120,923) equivalent shares of restricted stock were used in determining the
dilutive average shares outstanding.
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 on January 1, 1999. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
position, results of operations, or cash flows. Actual charges incurred due to
systems projects may be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on
the Cost of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. The Company will adopt SFAS No. 133 for the 2000 fiscal
year. The Company has not yet determined the impact SFAS No. 133 will have on
its consolidated financial position, results of operations or cash flows.
F-13
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassification
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
2. ACQUISITIONS
On March 30, 1998, the Company, through a wholly-owned subsidiary, acquired
approximately 81% of the total number of then outstanding shares of common stock
of Coleman from an affiliate of MacAndrews & Forbes Holdings, Inc. ("M&F"), in
exchange for 14,099,749 shares of the Company's common stock and approximately
$160 million in cash. In addition, the Company assumed approximately
$1,016 million in debt. The value of the common stock issued at the date of
acquisition was derived by using the average closing stock price as reported on
the New York Stock Exchange Composite Tape for the day before and day of the
public announcement of the acquisition. Immediately thereafter, as a result of
the exercise of employee stock options, Sunbeam's indirect beneficial ownership
of Coleman decreased to approximately 79% of the total number of the outstanding
shares of Coleman common stock.
On August 12, 1998, the Company announced that, following investigation and
negotiation conducted by a Special Committee of the Board consisting of four
outside directors not affiliated with M&F, the Company had entered into a
settlement agreement with an affiliate of M&F pursuant to which the Company was
released from certain threatened claims of M&F and its affiliates arising from
the Coleman acquisition and M&F agreed to provide certain management personnel
and assistance to the Company in exchange for the issuance to the M&F affiliate
of a five-year warrant to purchase up to 23 million shares of the Company's
common stock at a cash exercise price of $7.00 per share, subject to
antidilution adjustments. Accordingly, a $70.0 million non-cash SG&A expense was
recorded in the third quarter of 1998, based on a valuation performed as of
August 1998 using facts existing at that time. The valuation was conducted by an
independent consultant engaged by the Special Committee of the Board of
Directors.
The Company expects to acquire the remaining equity interest in Coleman
pursuant to a merger transaction in which the existing Coleman minority
shareholders will receive 0.5677 shares of the Company's common stock and $6.44
in cash for each share of Coleman common stock outstanding. In addition,
unexercised options under Coleman's stock option plans will be cashed out at a
price per share equal to the difference between $27.50 and the exercise price of
such options. The Company expects to issue approximately 6.7 million shares of
common stock and expend approximately $87 million in cash to complete the
Coleman acquisition. Although there can be no assurance, it is anticipated the
Coleman merger will occur in the second half of 1999. The acquisition of the
remaining outstanding shares of Coleman common stock will be accounted for under
the purchase method of accounting on the date of consummation of the Coleman
merger. (Also see Note 15 for information regarding the proposed issuance of
warrants related to this transaction.)
On April 6, 1998, the Company completed the acquisitions of First Alert,
valued at approximately $182 million (including $133 million of cash and
$49 million of assumed debt) and Signature Brands valued at $255 million,
(reflecting cash paid, including the required retirement or defeasance of debt).
All of these acquisitions were accounted for by the purchase method of
accounting. Accordingly, the results of operations of the acquired entities are
included in the accompanying Consolidated Statements of Operations from their
respective dates of acquisition.
F-14
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS--(CONTINUED)
In each acquisition, the purchase price paid has been allocated to the fair
value (determined by independent appraisals) of tangible and identified
intangible assets acquired and liabilities assumed as follows (in millions):
<TABLE>
<CAPTION>
SIGNATURE FIRST
COLEMAN BRANDS ALERT TOTAL
------- --------- ----- ------
<S> <C> <C> <C> <C>
Value of common stock issued..................................... $ 607 $ -- $-- $ 607
Cash paid including expenses and mandatory redemption of debt,
net of cash acquired........................................... 160 255 133 548
Cash received from sale of Coleman Spas, Inc..................... (17) -- -- (17)
Cash received from stock option proceeds......................... (9) -- -- (9)
------- ----- --- ------
Net cash paid and equity issued.................................. 741 255 133 1,129
Fair value of liabilities assumed................................ 1,455 83 103 1,641
------- ----- --- ------
2,196 338 236 2,770
Fair value of assets acquired.................................... 1,113 191 172 1,476
------- ----- --- ------
Excess of purchase price over fair value of net assets
acquired....................................................... $1,083 $ 147 $64 $1,294
------- ----- --- ------
------- ----- --- ------
</TABLE>
The excess of purchase price over the fair value of net assets acquired has
been classified as goodwill. Goodwill related to the Coleman and Signature
Brands acquisitions is being amortized on a straight-line basis over 40 years.
During the fourth quarter of 1998, as a result of the significant loss incurred
by First Alert, as well as its future prospects, the Company determined that the
goodwill relating to this acquisition was impaired and, based on the
determination of fair value, has written-off the net carrying value of goodwill
approximating $62.5 million. This one-time charge is reflected in SG&A expense
in the Consolidated Statements of Operations.
The following unaudited pro forma financial information for the Company
gives effect to the Coleman and Signature Brands acquisitions as if they had
occurred at the beginning of the periods presented. No pro forma adjustments
have been made for the First Alert acquisition as its effects are not
significant. These pro forma results have been prepared for informational
purposes only and do not purport to be indicative of the results of operations
which actually would have occurred had the acquisitions been consummated on the
dates indicated, or which may result in the future. The unaudited pro forma
results follow (in millions, except per share data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
DECEMBER 31, DECEMBER 28,
1998 1997
------------ ------------
<S> <C> <C>
Net sales........................................................ $2,098.7 $2,408.9
Net loss from continuing operations before extraordinary
charge......................................................... (801.1) (23.6)
Basic and diluted loss per share from continuing operations
before extraordinary charge.................................... (7.96) (0.24)
</TABLE>
F-15
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DEBT
Debt at the end of each fiscal year consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Term loans, due in installments through 2006, average interest rate
of 8.47% for 1998................................................. $1,262,500 $ --
Revolving credit facility, average interest rate of 8.55% for 1998
and 5.99% for 1997................................................ 94,000 110,000
Zero coupon convertible senior subordinated debentures, net of
unamortized discount of $1,234,845, due 2018...................... 779,155 --
Senior subordinated notes, bearing interest at 13.0%, payable
semiannually, due August 1999..................................... 70,000 --
Hattiesburg industrial revenue bond due 2009, fixed interest rate of
7.85%............................................................. -- 75,000
Other lines of credit, including foreign facilities................. 45,803 --
Other long-term borrowings, due through 2012, weighted average
interest rate of 3.89% and 3.92%, at December 31, 1998 and
December 28, 1997, respectively................................... 10,007 10,248
---------- --------
2,261,465 195,248
Less short-term debt and current portion of long-term debt.......... 119,103 668
---------- --------
Long-term debt...................................................... $2,142,362 $194,580
---------- --------
---------- --------
</TABLE>
Concurrent with the acquisitions, the Company replaced its $250 million
syndicated unsecured five-year revolving credit facility with a revolving and
term credit facility (the "New Credit Facility"). The New Credit Facility
provided for aggregate borrowings of up to $1.7 billion. As a result of its
operating losses incurred in fiscal 1998, among other things, the Company was
not in compliance with certain covenants set forth in the New Credit Facility.
The Company and its lenders entered into agreements as of June 30, 1998,
October 19, 1998 and April 10, 1999, in each case providing for waivers of
compliance with such covenants under the New Credit Facility. Effective
April 15, 1999, Sunbeam and its lenders entered into an agreement which waived
compliance with such covenants through April 10, 2000 and provided for new
financial covenants. The following description of the New Credit Facility
reflects the terms of the New Credit Facility as amended through April 15, 1999.
The New Credit Facility provided for aggregate borrowings of up to
$1.7 billion pursuant to: (i) a revolving credit facility in an aggregate
principal amount of up to $400 million maturing March 30, 2005 ($52.5 million of
which may only be used to complete the Coleman merger if the Coleman merger is
not completed prior to August 31, 1999); (ii) $800 million in term loans
maturing on March 30, 2005 (of which $35.0 million may only be used to complete
the Coleman merger) and (iii) a $500 million term loan maturing September 30,
2006. As of December 31, 1998, $1.4 billion was outstanding and $0.3 billion was
available for borrowing under the New Credit Facility.
Pursuant to the New Credit Facility, interest accrues, at the Company's
option: (i) at the London Interbank Offered Rate ("LIBOR"), or (ii) at the base
rate of the administrative agent which is generally the higher of the prime
commercial lending rate of the administrative agent or the Federal Funds Rate
plus 0.50%, in each case plus an agreed upon interest margin which is currently
3.75% for LIBOR borrowings and 2.50% for base rate borrowings. The applicable
interest margin is subject to downward adjustment upon the occurrence of certain
events. Borrowings under the New Credit Facility are secured by a pledge of the
stock of the Company's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its material
domestic subsidiaries, other than Coleman and its material subsidiaries except
as described below. Currently, Coleman's inventory and related assets are
pledged to secure its obligations for letters of credit issued for its account
under the New Credit Facility. Additionally, as security for Coleman's note
payable to the Company, Coleman pledged substantially all of its domestic
assets, other than real property, including 66% of the
F-16
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DEBT--(CONTINUED)
stock of its direct foreign subsidiaries and domestic holding companies for its
foreign subsidiaries, and all of the stock of its other direct domestic
subsidiaries (but not the assets of Coleman's subsidiaries). The pledge runs in
favor of Sunbeam's lending banks, to which the Coleman note has been pledged as
security for Sunbeam's obligations to them. Upon completion of the Coleman
merger, substantially all of Coleman's assets and the assets of Coleman's
domestic subsidiaries will be pledged to secure the obligations under the New
Credit Facility. In addition, borrowings under the New Credit Facility are
guaranteed by a number of the Company's wholly owned material domestic
subsidiaries and these subsidiary guarantees are secured as described above.
Upon completion of the Coleman merger, Coleman and each of its United States
subsidiaries will become guarantors of the obligations under the New Credit
Facility. To the extent borrowings are made by any subsidiaries of the Company,
the obligations of such subsidiaries are guaranteed by the Company.
The New Credit Facility contains covenants customary for credit facilities
of a similar nature, including limitations on the ability of Sunbeam and its
subsidiaries, including Coleman, to, among other things, (i) declare dividends
or repurchase stock, (ii) prepay, redeem or repurchase debt, incur liens and
engage in sale-leaseback transactions, (iii) make loans and investments,
(iv) incur additional debt, (v) amend or otherwise alter material agreements or
enter into restrictive agreements, (vi) make capital and year 2000 compliance
expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii)
engage in certain transactions with affiliates, (ix) settle certain litigation,
(x) alter its cash management system and (xi) alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios. The New Credit Facility provides for events of default customary for
transactions of this type, including nonpayment, misrepresentation, breach of
covenant, cross-defaults, bankruptcy, material adverse change arising from
compliance with ERISA, material adverse judgments, entering into guarantees and
change of ownership and control. It is also an event of default under the New
Credit Facility if Sunbeam's registration statement in connection with the
Coleman merger is not declared effective by the Securities and Exchange
Commission ("SEC") on or before October 30, 1999 or if the merger does not occur
within 25 business days of the effectiveness of the registration statement or if
the cash consideration (including any payments on account of the exercise of any
appraisal rights, but excluding related legal, accounting and other customary
fees and expenses) to consummate the Coleman merger exceeds $87.5 million.
Although there can be no assurance, the Company anticipates that it will satisfy
these conditions. Unless waived by the bank lenders, the failure to satisfy
these requirements (as with the occurrence of any other event of default) would
permit the bank lenders to accelerate the maturity of all outstanding borrowings
under the New Credit Facility. The New Credit Facility also includes provisions
for the deferral of the 1999 scheduled term loan payments of $69.3 million,
subject to delivery of certain collateral documents and the filing of an
amendment to the Company's registration statement on Form S-4 relating to the
Coleman merger. If these conditions are met, and there are no events of default,
the scheduled loan payments will be extended until April 10, 2000. The Company
anticipates that it will satisfy these conditions and, accordingly, has
classified these amounts as long-term in the Consolidated Balance Sheet.
In March 1998, the Company completed an offering of Zero Coupon Convertible
Senior Subordinated Debentures due 2018 (the "Debentures") at a yield to
maturity of 5.0% (approximately $2,014 million principal amount at maturity)
which resulted in approximately $730 million of net proceeds. The Debentures are
exchangeable for shares of the Company's common stock at an initial conversion
rate of 6.575 shares for each $1,000 principal amount at maturity of the
Debentures, subject to adjustment upon occurrence of certain events. The
Debentures are subordinated in right of payment to all existing and future
senior indebtedness of the Company. The Debentures are not redeemable by the
Company prior to March 25, 2003. On or after such date, the Debentures are
redeemable for cash with at least 30 days notice, at the option of the Company.
The Company is required to purchase Debentures at the option of the holder as of
March 25, 2003, March 25, 2008 and March 25, 2013, at purchase prices equal to
the issue price plus accrued original discount to such dates. The Company may,
at its option, elect to pay any such purchase price in cash or common stock, or
any combination thereof. The Company was required to file a registration
statement with the SEC to register the Debentures by June 23, 1998. This
registration statement was filed February 4, 1999 and the SEC has not declared
the
F-17
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DEBT--(CONTINUED)
registration statement effective. Sunbeam's failure to file the registration
statement by June 23, 1998 did not constitute a default under the terms of the
Debentures. As part of the normal review process by the SEC, a number of
comments have been made by the staff of the division of Corporation Finance
relating to the registration statement and the restated 1996 and 1997 financial
statements included therein. The Company expects to resolve these comments when
it files an amendment to the registration statement. From June 23, 1998 until
the registration statement is declared effective, the Company is required to pay
to the Debenture holders cash liquidated damages accruing, for each day during
such period, at a rate per annum equal to 0.25% during the first 90 days and
0.50% thereafter multiplied by the total of the issue price of the Debentures
plus the original issue discount thereon on such day. The Company made its first
payment of approximately $0.5 million to the Debenture holders on September 25,
1998. As of December 31, 1998 the Company had accrued additional payments
totaling $1.0 million. The Company made a payment to Debenture holders in March
1999 of approximately $2.0 million. This amount included liquidated damages that
accrued during the first quarter of 1999.
In connection with the acquisition of Signature Brands, the Company was
required to defease $70.0 million of acquired debt. Cash was placed with a
trustee to provide for the defeasance, including the related prepayment penalty.
This cash was used to purchase Treasury Notes. Accordingly, $74.4 million of
restricted investments held by the trustee for the August 1999 liquidation of
this acquired debt are reflected as an asset and $70.0 million is reflected as
short-term debt in the Consolidated Balance Sheet at December 31, 1998. The
prepayment penalty is reflected as part of the acquisition price of Signature
Brands.
In March 1998, the Company prepaid the $75.0 million 7.85% industrial
revenue bond related to its Hattiesburg facility originally due in 2009. In
connection with the early extinguishment of this debt, the Company recognized an
extraordinary charge of $7.5 million. As a result of repayment of certain
indebtedness assumed in the Coleman acquisition, the Company also recognized an
extraordinary charge of $114.9 million. These extraordinary charges consisted
primarily of redemption premiums.
During 1997, the Company repaid $12.2 million of long-term borrowings
related to the divested furniture operations and other assets sold.
At December 31, 1998, the aggregate annual maturities on short-term and
long-term debt in each of the years 1999-2003, and thereafter, were $119
million, $1,355 million, $1 million, $1 million, $1 million, and $5 million,
respectively. In addition, the fully accreted Debenture amount of
$2,014 million matures in 2018. The total of annual debt maturities for all
years presented does not agree to the balance of debt outstanding at
December 31, 1998 as a result of the accretion of discount on the Debentures.
The outstanding balances relating to the New Credit Facility are included in the
maturity schedule in 2000, consistent with the expiration of the covenant
waiver. Sunbeam has made no decision with respect to the repayment or
refinancing of indebtedness incurred or to be incurred under the New Credit
Facility and may repay such indebtedness out of its internally generated funds
or from proceeds of a subsequent financing. Any decisions with respect to such
repayment or refinancing will be made based on a review from time to time of the
advisability of particular transactions, as well as on prevailing interest rates
and financial and economic conditions.
4. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The fair value of the Company's financial instruments as of December 31,
1998 and December 28, 1997 was estimated based upon the following methods and
assumptions:
Cash and Cash Equivalents--The carrying amount of cash and cash equivalents
is assumed to approximate fair value as cash equivalents include all highly
liquid, short-term investments with original maturities of three months or less.
F-18
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FINANCIAL INSTRUMENTS--(CONTINUED)
Short and Long Term Debt--The fair value of the Company's fixed rate debt
is estimated using either reported transaction values or discounted cash flow
analysis. The fair value of the Company's fixed rate debt was $319 million as of
December 31, 1998 as compared to the carrying value of $859 million. The
carrying value of the Company's variable rate debt is assumed to approximate
market based upon periodic adjustments of the interest rate to the current
market rate in accordance with the terms of the debt agreements. The carrying
value of the Company's various debt outstanding as of December 28, 1997
approximated market.
Letters of Credit and Surety Bonds--The Company utilizes stand-by letters
of credit to back certain financing instruments and insurance policies and
commercial letters of credit guaranteeing various international trade
activities. In addition, the Company also entered into surety bonds largely as a
result of litigation judgements that are currently under appeal. The contract
amounts of the letters of credit and surety bonds approximate their fair values.
The contract value of letters of credit were $82.3 million and $29.0 million as
of December 31, 1998 and December 28, 1997, respectively. Contract values for
surety bonds as of December 31, 1998 were approximately $26.5 million and were
not significant at December 28, 1997.
Derivative Financial Instruments--The Company utilizes interest rate swap
agreements to reduce the impact on interest expense of fluctuating interest
rates on its floating rate debt. The use of derivatives did not have a material
impact on the Company's operations in 1998, 1997 and 1996. At December 31, 1998,
the Company held three floating to fixed interest rate swap agreements, one with
a notional value of $25 million and two with notional amounts of $150 million
each. The swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the lives of the agreements without the
exchange of the underlying notional principal amounts. The swaps expire in
January 2003, June 2001 and June 2003, respectively. Under these agreements, the
Company received an average floating rate of 5.64%, 5.59% and 5.59%,
respectively, and paid an average fixed rate of 6.12%, 5.75% and 5.58%,
respectively, during 1998. The Company estimates that it would have to pay $7.3
million to terminate the 1998 swaps. The Company had no swap agreements
outstanding at December 28, 1997.
In order to mitigate the transaction exposures that may arise from changes
in foreign exchange rates, the Company purchases foreign currency option and
forward contracts to hedge specific transactions, principally the purchases of
inventories. The option contracts typically expire within one year. The options
are accounted for as hedges pursuant to SFAS No. 52, Foreign Currency
Translation, accordingly gains and losses thereon are deferred and recorded in
operations in the period in which the underlying transaction is recorded. At
December 31, 1998, the Company held purchased option contracts with a notional
value of $32.3 million and forward contracts with a notional value of
$30.9 million. These contracts had gross unrealized gains of $0.3 million and
gross unrealized losses of $0.7 million at December 31, 1998. The Company did
not hold any such contracts at December 28, 1997.
Exposure to market risk on interest rate and foreign currency financial
instruments results from fluctuations in interest and currency rates,
respectively, during the periods in which the contracts are outstanding. The
counterparties to the Company's interest rate swap agreements and currency
exchange contracts consist of a diversified group of major financial
institutions, each of which is rated investment grade A or better. The Company
is exposed to credit risk to the extent of potential nonperformance by
counterparties on financial instruments. The Company believes the risk of
incurred losses due to credit risk is remote.
5. ACCOUNTS RECEIVABLE SECURITIZATION
In December 1997, the Company entered into a receivable securitization
program, that expires March 2000, to sell without recourse, through a wholly
owned subsidiary, certain trade accounts receivable, up to a maximum of
$70.0 million. During 1998, the Company has received approximately
$200.0 million under this arrangement. At December 31, 1998, the Company had
reduced accounts receivable by $20.0 million for receivables sold under this
program. At December 28, 1997, the Company had received $58.9 million under this
arrangement, of
F-19
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCOUNTS RECEIVABLE SECURITIZATION--(CONTINUED)
which $39.1 million related to sales recorded in fiscal 1997 and the balance
related to sales to be recognized in the first quarter of 1998. Accordingly, at
December 28, 1997, the accompanying Consolidated Balance Sheet reflects a
reduction in accounts receivable of $39.1 million and an increase in other
current liabilities of $19.8 million. Proceeds from the sales of receivables
were used to reduce borrowings under the Company's revolving credit facility or
to provide cash flow for working capital purposes, thereby reducing the need to
borrow under the credit facility. Costs of the program, which primarily consist
of the purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $2.3 million and $0.2 million during 1998 and 1997,
respectively, and have been classified as interest expense in the accompanying
Consolidated Statements of Operations. The Company, through a wholly-owned
subsidiary, retains collection and administrative responsibilities for the
purchased receivables. This agreement contains cross-default provisions that
provide the purchaser of the receivables an option to cease purchasing
receivables from the Company if the Company is in default under the New Credit
Facility.
6. INCOME TAXES
(Loss) earnings from continuing operations before income taxes, minority
interest and extraordinary charge for each fiscal year is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
Domestic........................................................... $(723,179) $80,946 $(244,255)
Foreign............................................................ (73,169) 11,724 (17,550)
--------- ------- ---------
$(796,348) $92,670 $(261,805)
--------- ------- ---------
--------- ------- ---------
</TABLE>
Income tax provisions include current and deferred taxes (tax benefits) for
each fiscal year as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- --------
<S> <C> <C> <C>
Current:
Federal............................................................... $1,203 $(3,421) $(22,924)
State................................................................. 275 3,266 (202)
Foreign............................................................... 7,189 1,683 707
------ ------- --------
8,667 1,528 (22,419)
------ ------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Deferred:
Federal............................................................ (6,343) 30,554 (57,211)
State.............................................................. (1,316) 3,962 (11,050)
Foreign............................................................ (11,138) 4,308 (945)
-------- ------- --------
(18,797) 38,824 (69,206)
-------- ------- --------
$(10,130) $40,352 $(91,625)
-------- ------- --------
-------- ------- --------
</TABLE>
F-20
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES--(CONTINUED)
The effective tax rate on earnings (loss) before income taxes, minority
interest and extraordinary charges varies from the current statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
(Benefit) provision at statutory rate....................................... (35.0)% 35.0 % (35.0)%
State taxes, net............................................................ -- 5.1 (2.8)
Amortization of intangible assets and goodwill.............................. 4.3 -- --
Warrants issued in settlement of claim...................................... 3.1 -- --
Foreign earnings and dividends taxed at other rates......................... 2.7 2.0 2.3
Valuation allowance......................................................... 23.6 20.4 --
Reversal of tax liabilities no longer required.............................. -- (14.4) --
Other, net.................................................................. -- (4.6) 0.5
------ ------ ------
Effective tax rate (benefit) provision...................................... (1.3)% 43.5 % (35.0)%
------ ------ ------
------ ------ ------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Receivables................................................... $ 19,180 $ 10,516
Postretirement benefits other than pensions................... 22,714 11,430
Reserves for self-insurance and warranty costs................ 40,765 33,426
Pension liabilities........................................... 16,334 2,811
Inventories................................................... 27,822 14,437
Net operating loss carryforwards.............................. 322,273 --
Tax credits................................................... 13,510 12,955
Other, net.................................................... 89,577 33,388
-------- ---------
Total deferred tax assets.................................. 552,175 118,963
Valuation allowance........................................... 290,520 23,215
-------- ---------
Net deferred tax assets.................................... 261,655 95,748
-------- ---------
Deferred tax liabilities:
Depreciation.................................................. 43,377 22,532
Acquired intangible assets.................................... 244,378 68,311
Other, net.................................................... 19,850 9,747
-------- ---------
Total deferred tax liabilities............................. 307,605 100,590
-------- ---------
Net deferred tax liabilities............................... $(45,950) $ (4,842)
-------- ---------
-------- ---------
</TABLE>
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy of the
valuation allowances and recognizes tax benefits when it is more likely than not
that the benefits will be realized. In the fourth quarter of 1997, the Company
increased the valuation allowance by $23.2 million, reflecting management's
assessment that it was more likely than not that the deferred tax assets would
not be realized through future taxable income. Of this amount, approximately
$18.9 million related to deferred tax assets, the majority of which was
recognized as a benefit in the first three quarters of 1997. The remainder
related to minimum pension liabilities and was therefore recorded as an
adjustment in shareholders' equity. This assessment was made as a result of the
significant leverage undertaken by the Company as part of the acquisitions (see
Note 2) and the significant decline in net sales and earnings from anticipated
levels during the fourth quarter of 1997 and the first quarter of 1998.
F-21
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES--(CONTINUED)
During 1998, the Company increased the valuation allowance to $291 million,
which increase reflects management's assessment that it is more likely than not
that the deferred tax asset will not be realized through future taxable income.
At December 31, 1998, the Company had net operating loss carryforwards ("NOL's")
of approximately $725 million for domestic income tax purposes and $169 million
for foreign income tax purposes. The domestic NOL's begin expiring in 2018. Of
the foreign tax NOL's, $3 million, $4 million, $19 million, $18 million and
$16 million expire in the years ending December 31, 1999 through 2003,
respectively, and $91 million of such NOL's have an unlimited life.
The Company has not provided U.S. income taxes on undistributed foreign
earnings of approximately $32 million at December 31, 1998, as the Company
intends to permanently reinvest these earnings in the future growth of the
business. Determination of the amount of unrecognized deferred U.S. income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
7. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Benefit Plans
The Company sponsors several defined benefit pension plans covering
eligible U.S. salaried and hourly employees. Benefit accruals under such plans
covering all U.S. salaried employees were frozen, effective December 31, 1990.
Accordingly, no credit in the pension formula is given for service or
compensation after that date. However, these employees continue to earn service
toward vesting in their interest in the frozen plans as of December 31, 1990.
The Company also provides health care and life insurance benefits to certain
former employees who retired from the Company prior to March 31, 1991. The
Company has consistently followed a policy of funding the cost of postretirement
health care and life insurance benefits on a pay-as-you-go basis.
As a result of the Company's acquisitions of Coleman and First Alert (see
Note 2), the liabilities for their respective defined benefit pension plans (the
"Plans") were assumed and have been accounted for in accordance with Accounting
Principles Board Opinion No.16 ("APB 16"), Accounting for Business Combinations.
Effective January 1, 1999, the Coleman and First Alert salaried pension plans
were amended to change the pension benefit formula to a cash balance formula
from the existing benefit calculation. The benefits accrued under these plans as
of December 31, 1998 were frozen and converted to the new cash balance plan
using a 7.0% interest rate assumption. The effect of the amendment of the Plans
is reflected in the projected benefit obligation as of the date of acquisition
as required by APB 16. Under the cash balance plan, the Company will credit
certain participants' accounts annually. At the date of acquisition the pension
benefit obligation and the fair value of the plan assets attributable to these
Plans were $43.4 million and $27.7 million, respectively, and are reflected in
the table below.
In addition, Coleman provided certain unfunded postretirement health and
life insurance benefits for certain retired employees. At the date of
acquisition the postretirement benefit obligation associated with this plan was
$19.5 million as reflected in the table below, and has been accounted for in
accordance with APB 16.
The Company funds all pension plans in amounts consistent with applicable
laws and regulations. Pension plan assets include corporate and U.S. government
bonds, corporate stocks, mutual funds, fixed income securities, and cash
equivalents.
Employees of non-U.S. subsidiaries generally receive retirement benefits
from Company sponsored plans or from statutory plans administered by
governmental agencies in their countries. The assets, liabilities and pension
costs of the Company's non-U.S. defined benefit retirement plans are not
material to the consolidated financial statements.
On January 1, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits ("SFAS No. 132").
This statement revises employers' disclosures about pension
F-22
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS--(CONTINUED)
and other postretirement benefit plans. SFAS No. 132 does not change the method
of accounting for such plans. The following table includes disclosures of the
funded status and amounts recognized in the Company's Consolidated Balance
Sheets at the end of each fiscal year as required by SFAS No. 132 (in
thousands):
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year......................... $127,229 $122,754 $ 14,220 $ 14,555
Acquisitions.................................................... 43,404 -- 19,477 --
Service cost.................................................... 1,551 157 689 --
Interest cost................................................... 10,875 8,970 2,088 996
Amendments...................................................... -- 84 -- --
Actuarial loss.................................................. 20,456 10,630 4,069 --
Settlement...................................................... -- (1,732) -- --
Benefits paid................................................... (15,018) (13,634) (1,677) (1,331)
-------- -------- -------- --------
Benefit obligation at end of year............................... $188,497 $127,229 $ 38,866 $ 14,220
-------- -------- -------- --------
-------- -------- -------- --------
Change in Plan Assets:
Fair value of plan assets at beginning of year.................. $116,485 $116,522 $ -- $ --
Acquisitions.................................................... 27,657 -- -- --
Actual return on plan assets.................................... 6,424 12,511 -- --
Employer contributions.......................................... 8,889 2,818 1,677 1,331
Settlement...................................................... -- (1,732) -- --
Benefits paid................................................... (15,018) (13,634) (1,677) (1,331)
-------- -------- -------- --------
Fair value of plan assets at end of year........................ $144,437 $116,485 $ -- $ --
-------- -------- -------- --------
-------- -------- -------- --------
Reconciliation of Funded Status:
Funded status................................................... $(44,060) $(10,744) $(38,866) $(14,220)
Unrecognized net actuarial loss/(gain).......................... 48,616 25,192 3,829 (240)
Unrecognized prior service cost................................. -- -- (12,991) (15,934)
-------- -------- -------- --------
Net amount recognized........................................... $ 4,556 $ 14,448 $(48,028) $(30,394)
-------- -------- -------- --------
-------- -------- -------- --------
Amount Recognized in the Consolidated Balance Sheets Consist of:
Accrued benefit liability....................................... $(42,431) $(10,744) $(48,028) $(30,394)
Accumulated other comprehensive income.......................... 46,987 25,192 -- --
-------- -------- -------- --------
Net amount recognized........................................... $ 4,556 $ 14,448 $(48,028) $(30,394)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
In determining the actuarial present value of the benefit obligation, the
weighted average discount rate was 6.75% and 7.25% as of December 31, 1998 and
December 28, 1997, respectively; the expected return on plan assets ranged from
6.75% to 9.00% for 1998 and was 7.25% for 1997. The expected increase in future
compensation levels was 4.00% for Coleman for 1998.
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 7.0% to 8.0% for the plans for 1999 and
were assumed to decrease gradually to 5.0% by 2003 and remain at that level
thereafter.
F-23
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components.................. $ 508 $ (424)
Effect on the postretirement benefit obligation.......................... $6,035 $ (5,144)
</TABLE>
Net pension expense and periodic postretirement benefit include the
following components (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic pension benefit cost:
Service cost.................................. $ 1,551 $ 157 $ 411 $ 689 $ -- $ --
Interest cost................................. 10,875 8,970 9,071 2,088 996 1,041
Expected return of market value of assets..... (10,127) (8,586) (816) -- -- --
Amortization of unrecognized prior service
cost....................................... -- -- -- (2,943) (2,942) (2,942)
Recognized net actuarial loss (gain).......... 735 414 (7,518) -- -- --
-------- ------- -------- ------- ------- -------
Net periodic benefit cost (benefit)........... 3,034 955 1,148 (166) (1,946) (1,901)
Settlement charge............................. -- 615 -- -- -- --
Curtailment charge............................ -- 106 -- -- -- --
-------- ------- -------- ------- ------- -------
Total expense (benefit)....................... $ 3,034 $ 1,676 $ 1,148 $ (166) $(1,946) $(1,901)
-------- ------- -------- ------- ------- -------
-------- ------- -------- ------- ------- -------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the plans with accumulated benefit obligations in
excess of plan assets were $186.4 million, $161.6 million and $125.5 million at
December 31, 1998 and $127.2 million, $127.2 million and $116.5 million at
December 28, 1997, respectively.
Defined Contribution Plans
As a result of the Company's acquisitions of Coleman, First Alert and
Signature Brands, the Company amended its Savings & Investment and Profit
Sharing Plan ("Savings Plan") to assume the assets of the respective savings
plans at each of the acquired companies and establish parity with the benefits
provided by Sunbeam. Effective January 1, 1999, all eligible employees could
participate in the Savings Plan. Company contributions to these plans include
employer matching contributions as well as discretionary contributions depending
on the performance of the Company, in an amount up to 10% of eligible
compensation. The Company provided $1.9 million in 1998, $1.8 million in 1997
and $1.7 million in 1996 for its defined contribution plans.
8. SHAREHOLDERS' EQUITY
Common Stock
At December 31, 1998, the Company had 500,000,000 shares of $0.01 par value
common stock authorized and there were 14,094,158 shares of common stock
reserved for issuance upon the exercise of outstanding stock options.
F-24
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SHAREHOLDERS' EQUITY--(CONTINUED)
Compensatory Stock Grants
In July 1996, the Company granted 1,100,000 shares of restricted stock in
connection with the employment of a then new Chairman and Chief Executive
Officer and two other senior officers of the Company. Compensation expense
attributable to the restricted stock awards was amortized to expense beginning
in 1996 over the periods in which the restrictions lapse (which in the case of
333,333 shares, was immediately upon the date of grant, in the case of 666,667
shares, was to be amortized equally over two years from the date of grant and in
the case of the remaining 100,000 shares, was equally over three years from the
date of grant). These restricted stock awards resulted in a $7.7 million charge
to SG&A expense in 1996.
On February 20, 1998, the Company entered into new three-year employment
agreements with its then Chairman and Chief Executive Officer and two other then
senior officers of the Company. These agreements replaced previous employment
agreements entered into in July 1996 that were scheduled to expire in July 1999.
The new employment agreement for the Company's then Chairman and Chief
Executive Officer provided for, among other items, the acceleration of vesting
of 200,000 shares of restricted stock and the forfeiture of the remaining
133,334 shares of unvested restricted stock granted under the July 1996
agreement, a new equity grant of 300,000 shares of unrestricted stock, a new
grant of a ten-year option to purchase 3,750,000 shares of the Company's common
stock with an exercise price equal to the fair market value of the stock at the
date of grant and exercisable in three equal annual installments beginning on
the date of grant and the acceleration of vesting of 833,333 outstanding stock
options granted under the July 1996 agreement, as further described in Note 9.
In addition, the new employment agreement with the then Chairman and Chief
Executive Officer provided for income tax gross-ups with respect to any tax
assessed on the equity grant and acceleration of vesting of restricted stock.
The new employment agreements with the two other then senior officers
provided for, among other items, the grant of a total of 180,000 shares of
restricted stock that were to vest in four equal annual installments beginning
on the date of grant, the acceleration of vesting of 44,000 shares of restricted
stock and the forfeiture of the remaining 29,332 shares of unvested restricted
stock granted under the July 1996 agreements, new grants of ten-year options to
purchase a total of 1,875,000 shares of the Company's common stock with an
exercise price equal to the fair market value of the stock at the date of grant
and exercisable in four equal annual installments beginning on the date of grant
and the acceleration of vesting of 383,334 outstanding stock options granted
under the July 1996 agreements. In addition, the new employment agreements
provided for income tax gross-ups with respect to any tax assessed on the
restricted stock grants and acceleration of vesting of restricted stock.
Compensation expense attributed to the equity grant, the acceleration of
vesting of restricted stock and the related income tax gross-ups was recognized
in the first quarter of 1998 and compensation expense related to the new
restricted stock grants and related tax gross-ups was amortized to expense
beginning in the first quarter of 1998 with amortization to continue over the
period in which the restrictions lapse. Total compensation expense recognized in
1998 related to these items was approximately $31 million.
On June 15, 1998, the Company's Board of Directors announced the removal of
the then Chairman and Chief Executive Officer and subsequently announced the
removal or resignation of other senior officers, including the Company's then
Chief Financial Officer. In connection with the removal or resignation of the
senior officers and the termination of their restricted stock grants, the
unamortized portion of the deferred compensation expense attributable to the
restricted stock grants was reversed. The Company and certain of its former
officers are in disagreement as to the Company's obligations to these
individuals under prior employment agreements and arising from their
terminations. (See Note 15.)
F-25
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SHAREHOLDERS' EQUITY--(CONTINUED)
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss consist of the
following (in thousands):
<TABLE>
<CAPTION>
CURRENCY MINIMUM
TRANSLATION PENSION
ADJUSTMENTS LIABILITY TOTAL
----------- -------- --------
<S> <C> <C> <C>
Balance at December 29, 1996....................................... $ (12,111) $ (6,163) $(18,274)
Balance at December 28, 1997....................................... (12,850) (20,213) (33,063)
Balance at December 31, 1998....................................... (12,022) (42,008) (54,030)
</TABLE>
9. EMPLOYEE STOCK OPTIONS AND AWARDS
The Company has one stock-based compensation plan, the Amended and Restated
Sunbeam Corporation Stock Option Plan (the "Plan"). Under the Plan, all
employees are eligible for grants of options to purchase up to an aggregate of
16,300,000 shares of the Company's common stock at an exercise price equal to or
in excess of the fair market value of the stock on the date of grant. The term
of each option commences on the date of grant and expires on the tenth
anniversary of the date of grant subject to earlier cancellation. Options
generally become exercisable over a three to five year period.
The Plan also provides for the grant of restricted stock awards of up to
200,000 shares, in the aggregate, to employees and non-employee directors. See
Note 8 for a discussion of restricted stock awards made outside the Plan.
In July 1996, options to purchase an aggregate of 3,000,000 shares (of
which 2,750,000 options were outstanding at December 28, 1997) were granted
outside of the Plan at exercise prices equal to the fair market value of the
Company's common stock on the dates of grant in connection with the employment
of a then new Chairman and Chief Executive Officer and two other senior officers
of the Company. These outstanding options have terms of ten years and, with
respect to options for 2,500,000 shares, were exercisable in three annual
installments beginning July 17, 1996. Options for the remaining 250,000 shares
still outstanding were exercisable in three annual installments beginning on the
first anniversary of the July 22, 1996 grant date. On February 20, 1998 the
vesting provisions of the options granted outside the Plan were accelerated.
Additional stock option grants outside the Plan were made in February 1998, with
a portion thereof subsequently terminated in connection with the removal of the
then Chairman and Chief Executive Officer. The then Chairman and Chief Executive
Officer and another senior officer are disputing termination of their stock
option grants. (See Notes 8 and 15.)
In the third and fourth quarters of 1998, options to purchase an aggregate
of 4,200,000 shares were granted outside of the Plan in connection with the
employment of the new Chief Executive Officer and certain members of the new
senior management team. The options were granted to certain senior executives at
exercise prices equal to or greater than the fair market value of the Company's
common stock on the dates of the grant. The senior officers were granted options
to purchase 3,200,000 shares of common stock at a price of $7.00 per share;
500,000 shares of common stock at a price of $10.50 per share and 500,000 shares
at a price of $14.00 per share. All of these outstanding options have terms of
ten years and become fully exercisable at the end of two to three year periods
if the executive remains employed by the Company as of such date. These grants
are subject the shareholder approval at the 1999 Annual Meeting. A measurement
date pursuant to APB Opinion No. 25 will be established for these grants upon
shareholder approval.
In August 1998, the Company approved a plan to reprice outstanding common
stock options held by the Company's employees. The repricing program, which has
been completed, provided for outstanding options with exercise prices in excess
of $10.00 per share to be exchanged for new options on a voluntary basis in an
exchange ratio ranging from approximately two to three old options for one new
option, (as determined by reference to a Black-Scholes option pricing model)
with the exercise price of the new options set at $7.00 per share. These
F-26
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS--(CONTINUED)
options were repriced at an exercise price approximating the market value of the
Company's common stock at the date of the repricing and, consequently, there was
no related compensation expense.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for outstanding stock options. Had compensation cost for the
Company's outstanding stock options been determined based on the fair value at
the grant dates for those options consistent with SFAS No. 123, the Company's
net (loss) earnings and diluted (loss) earnings per share would have differed as
reflected by the pro forma amounts indicated below (in thousands except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
Net (loss) earnings:
As reported...................................................... $(897,923) $38,301 $(208,481)
Pro forma........................................................ (955,685) 14,524 (218,405)
Diluted (loss) earnings per share:
As reported...................................................... (9.25) 0.44 (2.51)
Pro forma........................................................ (9.84) 0.17 (2.63)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
Expected volatility................................................ 52.80% 34.19% 36.78%
Risk-free interest rate............................................ 4.68% 6.36% 6.34%
Dividend yield..................................................... 0.0% 0.1% 0.1%
Expected life...................................................... 6 years 6 years 5 years
</TABLE>
F-27
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS--(CONTINUED)
A summary of the status of the Company's outstanding stock options as of
December 31, 1998, December 28, 1997 and December 29, 1996, and changes during
the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Plan options
Outstanding at beginning
of year............... 6,654,068 $25.61 6,271,837 $19.43 4,610,387 $16.67
Granted.................. 6,663,998 17.13 3,105,263 32.40 4,061,450 20.39
Exercised................ (879,088) 22.25 (1,549,196) 17.20 (622,994) 7.51
Canceled................. (6,826,070) 27.75 (1,173,836) 21.10 (1,777,006) 18.64
---------- ---------- ----------
Outstanding at end of
year.................. 5,612,908 $13.32 6,654,068 $25.61 6,271,837 $19.43
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at
year-end.............. 1,717,545 $20.91 1,547,198 $19.13 1,655,450 $16.13
Weighted-average fair
value of options
granted during the
year.................. $10.47 $15.46 $14.76
Options outside plan
Outstanding at beginning
of year............... 2,750,000 $12.43 2,750,000 $12.43 692,500 $16.70
Granted.................. 9,825,000 24.64 -- -- 3,000,000 12.65
Canceled................. (4,093,750) 36.85 -- -- (942,500) 16.27
---------- ---------- ----------
Outstanding at end of
year.................. 8,481,250 $14.77 2,750,000 $12.43 2,750,000 $12.43
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at
year-end.............. 4,281,250 $21.17 1,750,000 $12.35 833,333 $12.25
Weighted-average fair
value of options
granted during the
year.................. $19.31 N/A $ 5.99
</TABLE>
Included in the outstanding and exercisable options, as presented above,
are options vested by the former Chairman and Chief Executive Officer and a
former senior officer. The Company and these individuals are in a dispute
regarding the status of these options.
F-28
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
- ----------------------------------------------- ----------- ------------------------ ----------------
<S> <C> <C> <C>
$5.00 to 7.00.................................. 6,076,805 9.2 $ 6.91
$7.01 to $14.00................................ 4,048,200 8.3 11.80
$14.01 to $15.00............................... 642,124 7.6 14.43
$15.01 to $23.15............................... 697,697 7.2 19.47
$23.16 to $26.71............................... 733,714 8.3 25.07
$26.72 to $36.85............................... 1,607,840 9.1 36.57
$36.86 and over................................ 287,778 8.9 40.32
-----------
$5.00 to $50.77................................ 14,094,158 8.7 14.19
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------------------
NUMBER
RANGE OF EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 EXERCISE PRICE
- ------------------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
$5.00 to $7.00........................................................... 95,895 $ 5.01
$7.01 to $14.00.......................................................... 2,500,000 12.25
$14.01 to $15.00......................................................... 571,290 14.41
$15.01 to $23.15......................................................... 627,488 19.30
$23.16 to $26.71......................................................... 540,055 25.10
$26.72 to $36.85......................................................... 1,563,211 36.74
$36.86 and over.......................................................... 100,856 40.60
---------
$5.00 to $50.77.......................................................... 5,998,795 21.09
---------
---------
</TABLE>
F-29
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each fiscal year is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Receivables:
Trade...................................................................... $ 407,452 $ 250,699
Sundry..................................................................... 7,347 7,794
---------- ---------
414,799 258,493
Valuation allowance.......................................................... (53,025) (30,033)
---------- ---------
$ 361,774 $ 228,460
---------- ---------
---------- ---------
Inventories:
Finished goods............................................................. $ 370,622 $ 193,864
Work in process............................................................ 39,143 25,679
Raw materials and supplies................................................. 109,424 85,357
---------- ---------
$ 519,189 $ 304,900
---------- ---------
---------- ---------
Prepaid expenses and other current assets:
Deferred income taxes...................................................... $ 40,756 $ --
Prepaid expenses and other................................................. 33,431 16,584
---------- ---------
$ 74,187 $ 16,584
---------- ---------
---------- ---------
Property, plant and equipment:
Land....................................................................... $ 10,664 $ 1,793
Buildings and improvements................................................. 168,685 98,054
Machinery and equipment.................................................... 395,763 248,138
Furniture and fixtures..................................................... 18,208 7,327
---------- ---------
593,320 355,312
Accumulated depreciation and amortization.................................... (138,148) (105,788)
---------- ---------
$ 455,172 $ 249,524
---------- ---------
---------- ---------
Trademarks, tradenames, goodwill and other:
Trademarks and tradenames.................................................. $ 597,515 $ 237,095
Goodwill................................................................... 1,254,880 24,687
Deferred financing costs................................................... 47,325 983
Other intangible assets.................................................... 28,012 424
---------- ---------
1,927,732 263,189
Accumulated amortization................................................... (101,783) (56,880)
---------- ---------
1,825,949 206,309
Other assets................................................................. 33,428 853
---------- ---------
$1,859,377 $ 207,162
---------- ---------
---------- ---------
</TABLE>
F-30
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
Other current liabilities:
<S> <C> <C>
Payrolls, commissions and employee benefits................................ $ 61,294 $ 12,227
Advertising and sales promotion............................................ 56,288 34,749
Product warranty........................................................... 50,287 21,498
Accounts receivable securitization liability............................... -- 19,750
Sales returns.............................................................. 16,972 7,846
Interest................................................................... 26,202 941
Other...................................................................... 110,142 27,074
---------- ---------
$ 321,185 $ 124,085
---------- ---------
---------- ---------
Other long-term liabilities:
Accrued postretirement benefit obligation.................................. $ 48,028 $ 30,394
Accrued pension............................................................ 42,431 10,744
Product liability and workers compensation................................. 71,868 41,901
Other...................................................................... 86,132 71,261
---------- ---------
$ 248,459 $ 154,300
---------- ---------
---------- ---------
</TABLE>
Supplementary Statements of Operations and Cash Flows data for each fiscal
year are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Other (income) expense, net:
Interest income.................................................... $ (2,897) $ (2,561) $ (1,255)
Other, net......................................................... (1,871) 2,573 4,993
-------- -------- --------
$ (4,768) $ 12 $ 3,738
-------- -------- --------
-------- -------- --------
Cash paid (received) during the period for:
Interest........................................................... $ 81,291 $ 13,058 $ 13,397
-------- -------- --------
-------- -------- --------
Income taxes (net of refunds)...................................... $(17,358) $(44,508) $ (540)
-------- -------- --------
-------- -------- --------
</TABLE>
11. ASSET IMPAIRMENT AND OTHER CHARGES
In the fourth quarter of 1998, the Company recorded a $62.5 million charge
for the write-off of the carrying value of First Alert's goodwill (see Note 2).
In the second quarter of 1998, as a result of decisions to outsource or
discontinue a substantial number of products previously made by the Company,
certain facilities and equipment will either no longer be used or will be
utilized in a significantly different manner. Accordingly, a charge of $29.6
million was recorded in Cost of Goods Sold to write certain of these assets down
to their estimated fair market value. Approximately 80% of this charge related
to machinery, equipment and tooling at the Company's Mexico City and
Hattiesburg, Mississippi manufacturing plants, the estimated fair value for
which was derived through an auction process. The remainder of this charge
related to tooling and equipment at various other facilities, which either had a
nominal value or the fair market value of which was derived through an auction
process. These assets were taken out of service at the time of the write-down
and consequently were not depreciated further after the write-down.
Personnel at the Mexico City facility were notified in the second quarter
of 1998 that the plant was scheduled for closure at year-end 1998, accordingly,
at that time, a liability of $1.8 million was recorded in Cost of Goods Sold
primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998,
F-31
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. ASSET IMPAIRMENT AND OTHER CHARGES--(CONTINUED)
the Company recorded as Cost of Goods Sold, an additional provision for
impairment of fixed assets of $3.1 million in an acquired entity, relating to
assets taken out of service for which there was no remaining value. The asset
impairment resulted from management's decision to discontinue certain product
lines subsequent to the acquisition. These fixed assets were taken out of
service at the time of the write-down and consequently were not depreciated
further after the write-down. In the fourth quarter of 1998, the Company
recorded a $7.1 million charge as a result of management's decision to outsource
the production of certain appliances. This charge to Cost of Goods Sold
primarily consists of a provision for certain tooling and equipment
($6.7 million) and severance and related benefits ($0.4 million). The tooling
and equipment was recorded at their estimated fair values which were derived
from comparable market data. Depreciation of this equipment was discontinued at
the time of the write-down.
During 1997 and the first half of 1998, the Company built inventories in
anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when the facts
and circumstances were known that such sales volume would not materialize, the
Company recorded $58.2 million in charges to properly state this inventory at
the lower-of-cost-or-market. This inventory primarily related to certain
appliances, grills and grill accessories. The Company also recorded a charge of
$11.0 million for excess inventories for raw materials and work in process that
will not be used due to outsourcing the production of irons, breadmakers,
toasters and certain other appliances. In addition, during 1998, the Company
made the decision to exit certain product lines, primarily air and water
filtration products and eliminate certain stock keeping units within existing
product lines, primarily relating to appliances, grills and grill accessories.
As a result of this decision, a $26.6 million charge was recorded to properly
state this inventory at the lower-of-cost-or-market. Total charges for excess
inventories recorded at the lower-of-cost-or-market amounted to approximately
$95.8 million at December 31, 1998. (See Note 12 for asset impairment and other
charges recorded in conjunction with a 1996 restructuring plan.)
12. RESTRUCTURING
In November 1996, the Company announced the details of a restructuring
plan. The plan included the consolidation of administrative functions within the
Company, the reduction of manufacturing and warehouse facilities, the
centralization of the Company's procurement function, and reduction of the
Company's product offerings and stock keeping units ("SKU's"). The Company also
announced plans to divest several lines of business (see Note 13).
As part of the restructuring plan, the Company consolidated six divisional
and regional headquarter's functions into a single worldwide corporate
headquarters and outsourced certain back office activities resulting in a
reduction in total back-office/administrative headcount. Overall, the
restructuring plan called for a reduction in the number of production facilities
from 26 to 8 and the elimination of over 6,000 positions from the Company's
workforce, including 3,300 from the disposition of certain business operations
and the elimination of approximately 2,800 other positions, some of which were
outsourced. The Company completed the major phases of the restructuring plan by
July 1997.
In conjunction with the implementation of the restructuring plan, the
Company recorded a pre-tax charge of $239.2 million in the fourth quarter of
1996. This amount is recorded as follows in the accompanying Consolidated
Statements of Operations: $110.1 million in Restructuring and Asset Impairment
Charges, as further described below; $60.8 million in Cost of Goods Sold related
principally to inventory write-downs as a result of a reduction in SKU's and
costs of inventory liquidation programs; $10.1 million in SG&A expense, for
period costs principally relating to outsourcing and package redesign, and
$58.2 million ($39.1 million net of taxes) in Loss on Sale of Discontinued
Operations related to the divestiture of its furniture business. In 1997, upon
completion of the sale of the furniture business, the Company recorded an
additional pre-tax loss of
F-32
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RESTRUCTURING--(CONTINUED)
$22.5 million from discontinued operations ($14.0 million net of taxes) due
primarily to lower than anticipated sales proceeds relating to the post closing
adjustment process that was part of the sale agreement.
Amounts included in Restructuring and Asset Impairment Charges in 1996 in
the accompanying Consolidated Statements of Operations included cash items such
as severance and other employee costs of $24.7 million, lease obligations of
$12.6 million and other exit costs associated with facility closures and related
to the implementation of the restructuring plan of $4.1 million, principally
representing costs related to clean-up and restoration of facilities for either
sale or return to the landlord.
Included in Restructuring and Asset Impairment Charges in 1996 was
$68.7 million of non-cash charges principally consisting of: (a) asset
write-downs to net realizable value for disposals of excess facilities and
equipment and certain product lines ($22.5 million); (b) write-offs of redundant
computer systems from the administrative back-office consolidations and
outsourcing initiatives ($12.3 million); (c) write-off of intangibles relating
to discontinued product lines ($10.1 million); (d) write-off of capitalized
product and package design costs and other expenses related to exited product
lines and SKU reductions ($9.0 million), and (e) losses related to the
divestiture of certain non-core products and businesses ($14.8 million). The
asset write-downs of $34.8 million included equipment taken out of service in
1996 (either abandoned in 1996 or sold in 1997) and accordingly, depreciation
was not recorded subsequent to the date of the impairment charge. The losses of
$14.8 million related to the divestiture of non-core products and businesses
resulted from divesting of the time and temperature business (sold in March
1997) and Counselor(Registered) and Borg(Registered) scale product lines (sold
in May 1997) and the sale of the textile mill in Biddeford, Maine in May 1997.
These charges primarily represented the estimated non-cash loss to exit these
products including fixed assets and inventory write-downs and other costs
related to exiting these product lines.
The $24.7 million for severance and other employee costs, including COBRA
and other fringe benefits, related to approximately 3,700 positions that were
planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations (see
Note 13). The furniture business was sold in 1997. In 1996 and 1997,
approximately 1,200 employees and 1,800 employees, respectively, were terminated
from continuing operations. Due largely to attrition, the remaining planned
terminations were not required. In 1997, the Company determined that its
severance and related employee costs were less than originally accrued
principally due to lower than expected severance and COBRA costs, and
accordingly reversed accruals of $7.9 million in the third and fourth quarters.
At December 31, 1997, the balance accrued of $1.2 million represented the
remaining severance and related employee costs for certain employees terminated
during 1997. During 1998, all amounts were expended.
The amounts accrued at December 29, 1996, for Restructuring and Asset
Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit
($5.8 million in the third quarter and $8.8 million in the fourth quarter of
1997) related to the reversal of accruals no longer required, which were
recorded as these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan, the
Company recorded additional charges totaling $129.1 million, reflected in Cost
of Goods Sold; SG&A expense and Loss on Sale of Discontinued Operations. The
charge included in Cost of Goods Sold ($60.8 million) principally represented
inventory write-downs and anticipated losses on the disposition of the inventory
as a result of the significant reduction in SKU's provided for in the
restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grills accessories and the balance related to
raw materials, work-in-process and finished goods for other
F-33
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RESTRUCTURING--(CONTINUED)
discontinued products including appliances, clippers and blankets. SG&A expense
included period costs in 1997 and 1996 of $15.8 million and $10.1 million,
respectively, relating to employee relocation and recruiting, outsourcing,
equipment movement and package redesign costs expended as a result of the
implementation of the restructuring plan. The Loss on Sale of Discontinued
Operations of $58.2 million is discussed further in Note 13.
At December 28, 1997, the Company had $5.2 million in liabilities accrued
related to the 1996 restructuring plan, including $1.2 million of severance
related costs and $4.0 million related to facility closures, which principally
represented future lease payments (net of sub-leases) on exited facilities.
During 1998, this liability was reduced by $4.0 million as a result of cash
expenditures. At December 28, 1997, the Company had $3.0 million of warranty
liabilities related to the discontinued furniture operations. During 1998,
$2.5 million of this liability was liquidated.
The following table sets forth the details and the activity from the
charges (in millions):
<TABLE>
<CAPTION>
ADDITIONS
ACCRUAL BALANCE CHARGED TO CASH NON-CASH ACCRUAL BALANCE
JANUARY 1, 1996 INCOME REDUCTIONS REDUCTIONS DECEMBER 29, 1996
--------------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Write-downs:
Fixed assets, held for disposal, not
in use.............................. $ -- $ 34.8 $ -- $ 34.8 $ --
Fixed assets, held for disposal, used
until disposed...................... 11.3 14.8 -- 11.3 14.8
Inventory on hand..................... -- 60.8 -- 60.8 --
Other assets, principally trademarks
and intangible assets............... -- 19.1 -- 18.0 1.1
----- ------ ------ ------ -------
11.3 129.5 -- 124.9 15.9
----- ------ ------ ------ -------
Restructuring accruals
Employee severance pay and fringes.... -- 24.7 5.6 -- 19.1
Lease payments and termination fees... 2.5 12.6 2.5 -- 12.6
Other exit activity costs, principally
facility closure expense............ -- 4.1 -- -- 4.1
----- ------ ------ ------ -------
2.5 41.4 8.1 -- 35.8
----- ------ ------ ------ -------
Total restructuring and asset impairment
accrual............................... 13.8 170.9 8.1 124.9 51.7
----- ------ ------ ------ -------
Other related period costs incurred:
Employee relocation; equipment
relocation and installation and
other............................... -- 3.2 3.2 -- --
Transitional fees related to
outsourcing arrangements............ -- 4.9 4.9 -- --
Package redesign...................... -- 2.0 2.0 -- --
----- ------ ------ ------ -------
-- 10.1 10.1 -- --
----- ------ ------ ------ -------
Total included in continuing
operations............................ 13.8 181.0 18.2 124.9 51.7
Total included in discontinued
operations............................ -- 58.2 -- -- 58.2
----- ------ ------ ------ -------
$13.8 $239.2 $ 18.2 $124.9 $ 109.9
----- ------ ------ ------ -------
----- ------ ------ ------ -------
</TABLE>
F-34
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RESTRUCTURING--(CONTINUED)
<TABLE>
<CAPTION>
ACCRUAL BALANCE ADDITIONS ACCRUAL BALANCE
DECEMBER 30, CHARGED TO CASH NON-CASH DECEMBER 28,
1996 INCOME REDUCTIONS REDUCTIONS REVERSALS 1997
--------------- ---------- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Write-downs:
Fixed assets, held for
disposal, used until
disposed.................. $ 14.8 $ -- $ -- $ 14.8 $ -- $ --
Other assets, principally
trademarks and intangible
assets.................... 1.1 -- -- 1.1 -- --
------- ------ ------ ------ ----- -----
15.9 -- -- 15.9 -- --
------- ------ ------ ------ ----- -----
Restructuring accruals:
Employee severance pay and
fringes................... 19.1 -- 10.0 -- 7.9 1.2
Lease payments and
termination fees.......... 12.6 -- 2.6 -- 6.7 3.3
Other exit activity costs,
principally facility
closure expenses.......... 4.1 -- 3.4 -- -- 0.7
------- ------ ------ ------ ----- -----
35.8 -- 16.0 -- 14.6 5.2
------- ------ ------ ------ ----- -----
Total restructuring and asset
impairment accrual........... 51.7 -- 16.0 15.9 14.6 5.2
Discontinued operations........ 58.2 22.5 6.1 71.6 -- 3.0
------- ------ ------ ------ ----- -----
$ 109.9 $ 22.5 $ 22.1 $ 87.5 $14.6 $ 8.2
------- ------ ------ ------ ----- -----
------- ------ ------ ------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
ACCRUAL BALANCE
DECEMBER 29, CASH ACCRUAL BALANCE
1997 REDUCTIONS DECEMBER 31, 1998
--------------- ---------- -----------------
<S> <C> <C> <C>
Restructuring accruals:
Employees severance pay and fringes............................ $ 1.2 $1.2 $ --
Lease payments and termination fees........................... 3.3 2.1 1.2
Other exit activity costs, principally facility closure
expenses.................................................... 0.7 0.7 --
----- ---- -----
Total restructuring accrual...................................... 5.2 4.0 1.2
----- ---- -----
Discontinued operations.......................................... 3.0 2.5 0.5
----- ---- -----
$ 8.2 $6.5 $ 1.7
----- ---- -----
----- ---- -----
</TABLE>
F-35
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. DISCONTINUED OPERATIONS
As part of the 1996 restructuring plan, the Company also announced the
divestiture of the furniture business, by a sale of assets. In February 1997,
the Company entered into an agreement to sell the business to U.S. Industries,
Inc. in a transaction that was completed on March 17, 1997. In connection with
the furniture divestiture, the Company recorded a provision for estimated losses
to be incurred on the sale of $39.1 million in 1996, net of applicable income
tax benefits of $19.9 million. Although the discontinued furniture operations
were profitable, net income had declined from $21.7 million in 1994 to
$0.8 million in 1996. This decline, along with the Company's announcement that
it intended to divest this line of business contributed to the loss on sale.
Revenues for the discontinued furniture business were $51.6 million in the first
quarter of 1997, $227.5 million in 1996 and $185.6 million in 1995. Results of
operations were nominal in 1997 and 1996, down from $12.9 million (net of
$7.9 million in taxes) in 1995. In connection with the sale of these assets
(primarily inventory, property, plant and equipment), the Company received
$69.0 million in cash. The Company retained accounts receivable related to the
furniture business of approximately $50 million as of the closing date and
retained certain liabilities. The final purchase price for the furniture
business was subject to a post-closing adjustment based on the terms of the
asset purchase agreement and in the first quarter of 1997, after completion of
the sale, the Company recorded an additional loss of $14.0 million, net of
applicable income tax benefits of $8.5 million.
In addition to the furniture business divestiture, the Company also
completed the sale of other product lines and assets in 1997 as part of its
restructuring plan, including time and temperature products,
Counselor(Registered) and Borg(Registered) scales and a textile facility. Losses
incurred on the disposal of these assets, which consist primarily of write-downs
of assets to net realizable value, are included in Restructuring and Asset
Impairment Charges in 1996 in the Consolidated Statements of Operations.
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA
Throughout 1998 Sunbeam's operations were managed through four reportable
segments: Household, Outdoor Leisure, International and Corporate. Reportable
segments are identified by the Company based upon the distinct products
manufactured (Household and Outdoor Leisure) or based upon the geographic region
in which its products are distributed (International). The Company's reportable
segments are all separately managed.
The Household group consists of appliances (including mixers, blenders,
food steamers, bread makers, rice cookers, coffee makers, toasters, irons and
garment steamers), health products (including vaporizers, humidifiers, air
cleaners, massagers, hot and cold packs and blood pressure monitors), scales,
personal care products (including hair clippers and trimmers and related
products for the professional beauty, barber and veterinarian trade and sales of
products to commercial and institutional channels), blankets (including electric
blankets, heated throws and mattress pads) and First Alert(Registered) products
(smoke and carbon monoxide detectors, fire extinguishers and home safety
equipment).
The Outdoor Leisure group includes outdoor recreation products (which
encompass tents, sleeping bags, coolers, camping stoves, lanterns and outdoor
heaters), outdoor cooking products (including gas and charcoal outdoor grills
and grill parts and accessories), Powermate(Registered) products (including
portable power generators and air compressors), and Eastpak(Registered) products
(including backpacks and bags).
The International group is managed through five regional subdivisions:
Europe, Latin America, Japan, Canada and East Asia. Europe includes the
manufacture, sales and distribution of Campingaz(Registered) products and sales
and distribution in Europe, Africa and the Middle East of other Company
products. The Latin American region includes the manufacture, sales and
distribution throughout Latin America of small appliances, and sales and
distribution of personal care products, professional clippers and related
products, camping products and Powermate products. Japan includes the sales and
distribution of primarily outdoor recreation products. Canada includes sales of
substantially all the Company's products and East Asia encompasses sales and
distribution in all areas of East Asia other than Japan of substantially all the
Company's products.
F-36
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA--(CONTINUED)
The Company's Corporate group provides certain management, accounting,
legal, risk management, treasury, human resources, tax and management
information services to all operating groups and also includes the operation of
the Company's retail stores and the conduct of the Company's licensing
activities.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note 1) except
that certain bad debt expense is recorded at a consolidated level and included
in the Corporate group. Sunbeam evaluates performance and allocates resources
based upon profit or loss from operations before amortization, income taxes,
minority interest, interest expense, non-recurring gains and losses and foreign
exchange gains and losses. Intersegment sales and transfers are primarily
recorded at cost.
The following tables include selected financial information with respect to
Sunbeam's four operating segments. Business segment information for prior years
has been reclassified to conform to the current year presentation.
<TABLE>
<CAPTION>
OUTDOOR
HOUSEHOLD LEISURE INTERNATIONAL CORPORATE TOTAL
--------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Net sales to unaffiliated customers......... $ 714,568 $ 677,526 $ 413,864 $ 30,913 $1,836,871
Intersegment net sales...................... 62,971 111,583 98,120 -- 272,674
Segment operating loss...................... (69,276) (71,612) (29,941) (151,868) (322,697)
Segment assets.............................. 864,745 1,782,994 413,755 344,023 3,405,517
Segment depreciation expense................ 24,086 32,759 2,448 4,742 64,035
YEAR ENDED DECEMBER 28, 1997
Net sales to unaffiliated customers......... $ 568,921 $ 258,484 $ 229,572 $ 16,113 $1,073,090
Intersegment net sales...................... 100,355 3,520 64,549 -- 168,424
Segment operating earnings (loss)........... 73,210 8,205 43,793 (42,915) 82,293
Segment assets.............................. 510,183 141,332 167,591 239,822 1,058,928
Segment depreciation expense................ 15,358 9,494 3,204 3,872 31,928
YEAR ENDED DECEMBER 29, 1996
Net sales to unaffiliated customers......... $ 555,215 $ 245,600 $ 183,267 $ 154 $ 984,236
Intersegment net sales...................... 48,961 8,940 30,012 -- 87,913
Segment operating (loss) earnings........... (37,598) 39,970 5,567 (62,355) (54,416)
Segment assets.............................. 352,253 215,757 89,360 402,078 1,059,448
Segment depreciation expense................ 25,950 9,180 2,464 741 38,335
</TABLE>
F-37
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA--(CONTINUED)
Reconciliation of selected segment information to Sunbeam's consolidated
totals for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 28, 1997 DECEMBER 29, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales:
Net sales for reportable segments....................... $ 2,109,545 $ 1,241,514 $ 1,072,149
Elimination of intersegment net sales................... (272,674) (168,424) (87,913)
----------- ----------- -----------
Consolidated net sales................................ $ 1,836,871 $ 1,073,090 $ 984,236
----------- ----------- -----------
----------- ----------- -----------
Segment (loss) earnings:
Total (loss) earnings for reportable segments........... $ (322,697) $ 82,293 $ (54,416)
Unallocated amounts:
Interest expense...................................... (131,091) (11,381) (13,588)
Other (income) expense, net........................... 4,768 (12) (3,738)
Amortization of intangible assets..................... (43,830) (7,829) (9,094)
Provision for inventory (Notes 11 and 12)............. (95,830) -- (60,800)
Asset impairment (Notes 2 and 11)..................... (101,894) -- --
Issuance of warrants (Note 2)......................... (70,000) -- --
Former employees deferred compensation and severance
(Note 8)........................................... (31,200) -- --
Restructuring benefit (charges) (Note 12)............. -- 14,582 (110,122)
Restructuring related charges (Note 12)............... -- (15,800) (10,047)
Reversals of reserves no longer required.............. -- 27,963 --
Other (charges) benefit............................... (4,574) 2,854 --
----------- ----------- -----------
(473,651) 10,377 (207,389)
----------- ----------- -----------
Consolidated (loss) earnings from continuing
operations before income taxes, minority interest
and extraordinary charge......................... $ (796,348) $ 92,670 $ (261,805)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-38
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA--(CONTINUED)
Enterprise-Wide Disclosures
Net sales from the Company's Household products represented 50%, 73% and
74% of consolidated net sales in 1998, 1997 and 1996, respectively. Net sales
from the Company's Outdoor Leisure products category represented 50%, 25% and
26% of consolidated net sales in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Geographic Area Data
Net sales to unaffiliated customers:
United States............................................... $1,423,007 $ 843,518 $ 800,969
Europe...................................................... 170,910 17,415 18,872
Latin America............................................... 158,670 164,044 125,072
Other....................................................... 84,284 48,113 39,323
---------- ---------- ----------
Total net sales............................................... $1,836,871 $1,073,090 $ 984,236
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States............................................... $2,991,762 $ 891,337 $ 970,088
Europe...................................................... 244,670 9,703 15,476
Latin America............................................... 80,943 127,036 54,921
Other....................................................... 88,142 30,852 18,963
---------- ---------- ----------
Total identifiable assets..................................... $3,405,517 $1,058,928 $1,059,448
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Revenue from one customer in Sunbeam's Household and Outdoor Leisure
segments accounted for approximately 18%, 20% and 19% of consolidated net sales
in 1998, 1997 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
SEC Investigation
By letter dated June 17, 1998, the staff of the Division of Enforcement of
the SEC advised the Company that it was conducting an informal inquiry into the
Company's accounting policies and procedures and requested that the Company
produce certain documents. On July 2, 1998, the SEC issued a Formal Order of
Private Investigation, designating officers to take testimony and pursuant to
which a subpoena duces tecum was served on the Company requiring the production
of certain documents. On November 4, 1998, the Company received another SEC
subpoena duces tecum requiring the production of further documents. The Company
has provided numerous documents to the SEC staff and continues to cooperate
fully with the SEC staff. The Company cannot predict the term of such
investigation or its potential outcome.
Litigation
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of the Company's common stock in the U.S. District Court for the
Southern District of Florida against the Company and some of its present and
former directors and former officers alleging violations of the federal
securities laws as discussed below (the "Consolidated Federal Actions"). After
that date, approximately fifteen similar class actions were filed in the same
Court. One of the lawsuits also named as defendant Arthur Andersen LLP, the
Company's independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Court entered an Order consolidating all these suits
and all similar class actions subsequently filed and providing time periods for
the filing of a consolidated amended complaint and defendants' response thereto.
On June 22, 1998, two groups of plaintiffs made motions to be appointed lead
plaintiffs and to
F-39
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
have their selection of counsel approved as lead counsel. On July 20, 1998, the
Court entered an Order appointing lead plaintiffs and lead counsel. This Order
also stated that it "shall apply to all subsequently filed actions which are
consolidated herewith." On August 28, 1998, plaintiffs in one of the
subsequently filed actions filed an objection to having their action
consolidated pursuant to the June 16, 1998 Order, arguing that the class period
in their action differs from the class periods in the originally filed
consolidated actions. On December 9, 1998, the Court entered an Order overruling
plaintiffs' objections and affirming its prior Order appointing lead plaintiffs
and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class action
complaint against the Company, some of its present and former directors and
former officers, and Arthur Andersen LLP. The consolidated amended class action
complaint alleges that, in violation of section 10(b) of the Exchange Act and
SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding the Company's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of the common
stock and call options, and that, in violation of section 20(a) of the Exchange
Act, the individual defendants exercised influence and control over the Company,
causing the Company to make material misrepresentations and omissions. The
consolidated amended complaint seeks an unspecified award of money damages. On
February 5, 1999, plaintiffs moved for an order certifying a class consisting of
all persons and entities who purchased Sunbeam common stock or who purchased
call options or sold put options with respect to Sunbeam common stock during the
period April 23, 1997 through June 30, 1998, excluding the defendants, their
affiliates, and employees of Sunbeam. Defendants have filed a response to the
motion for class certification. On March 8, 1999, all defendants who had been
served with the consolidated amended class action complaint moved to dismiss it.
Under the Private Securities Litigation Reform Act of 1995, all discovery in the
consolidated action is stayed pending resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the Circuit
Court for the Fifteenth Judicial Circuit in and for Palm Beach County, Florida
against the Company and some of its present and former directors and former
officers. The action alleged that the individual defendants breached their
fiduciary duties and wasted corporate assets when the Company granted stock
options at an exercise price of $36.85 to three of its officers and directors
(who were subsequently terminated) on or about February 2, 1998. On June 25,
1998, all defendants filed a motion to dismiss the complaint for failure to make
a presuit demand on Sunbeam's Board of Directors. On October 22, 1998, the
plaintiff amended the complaint against all but one of the defendants named in
the original complaint. On February 19, 1999, plaintiffs filed a second amended
derivative complaint nominally on behalf of Sunbeam against some of its present
and former directors and former officers and Arthur Andersen LLP. The second
amended complaint alleges, among other things, that Messrs. Dunlap and Kersh
(the Company's former Chairman and Chief Executive Officer and Chief Financial
Officer, respectively) caused Sunbeam to employ fraudulent accounting procedures
in order to enable them to secure new employment contracts, and seeks an award
of damages and other declaratory and equitable relief. The plaintiff has agreed
that defendants need not respond to the second amended complaint until May 14,
1999. As described below, the Company and the plaintiffs have moved the Court
for injunctive relief against Messrs. Dunlap and Kersh with respect to the
arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court of
Chancery of the State of Delaware in New Castle County by minority shareholders
of Coleman against Coleman, the Company and some of the Company's and Coleman's
present and former officers and directors. An additional class action was filed
on August 10, 1998, against the same parties. The complaints in these class
actions allege, in essence, that the existing exchange ratio for the proposed
Coleman merger is no longer fair to Coleman's public shareholders as a result of
the decline in the market value of the common stock. On October 21, 1998, the
Company announced that it had entered into a Memorandum of Understanding to
settle, subject to court approval, the class actions. Under the terms of the
proposed settlement, if approved by the court the Company will issue to the
Coleman public shareholders, and plaintiff's counsel in this action, warrants to
purchase up to approximately 4.98 million
F-40
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
shares of the Company's common stock at a cash exercise price of $7 per share,
subject to certain anti-dilution provisions. These warrants will generally have
the same terms as the warrants issued to an affiliate of M&F (see Note 2) and
will be issued when the Coleman merger is consummated, which is now expected to
be during the second half of 1999. Issuance of these warrants will be accounted
for as additional purchase consideration. There can be no assurance that the
Court will approve the settlement as proposed.
During the months of August and October 1998, purported class action and
derivative lawsuits were filed in the Court of Chancery of the State of Delaware
in New Castle County and in the U.S. District Court for the Southern District of
Florida by shareholders of the Company against the Company, M&F and certain of
the Company's present and former directors. These complaints allege that the
defendants breached their fiduciary duties when the Company entered into a
settlement agreement whereby M&F and its affiliates released the Company from
certain claims they may have had arising out of the Company's acquisition of
M&F's interest in Coleman, and M&F agreed to provide management support to the
Company. Under the settlement agreement, M&F was granted a five-year warrant to
purchase up to an additional 23 million shares of Sunbeam's common stock at an
exercise price of $7 per share, subject to certain anti-dilution provisions. The
plaintiffs have requested an injunction against issuance of stock to M&F
pursuant to exercise of the warrants and unspecified money damages. These
complaints also allege that the rights of the public shareholders have been
compromised, as the settlement would normally require shareholders' approval
under the rules and regulations of the New York Stock Exchange ("NYSE"). The
Audit Committee of the Company's Board of Directors determined that obtaining
such shareholders' approval would have seriously jeopardized the financial
viability of the Company, which is an allowable exception to the NYSE
shareholders' approval requirements. By Order of the Court of Chancery dated
January 7, 1999, the derivative actions filed in that Court were consolidated
and the Company has moved to dismiss such action. The action filed in the U.S.
District Court for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial District
Court of Galveston County, Texas alleging various claims in violation of the
Texas Securities Act and Texas Business & Commercial Code as well as common law
fraud as a result of the Company's alleged misstatements and omissions regarding
the Company's financial condition and prospects during a period beginning
May 1, 1998 and ending June 16, 1998, in which the plaintiffs engaged in
transactions in the Company's common stock. The Company is the only named
defendant in this action. The complaint requests recovery of compensatory
damages, punitive damages and expenses in an unspecified amount. This action was
removed to the U.S. District Court for the Southern District of Texas and
subsequently has been transferred to the Southern District of Florida, the forum
for the Consolidated Federal Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of certain
purchasers of the Debentures in the U.S. District Court of the Southern District
of Florida against the Company and some of the Company's former officers and
directors, alleging violations of the federal securities laws and common law
fraud. The complaint alleges that the Company's offering memorandum used for the
marketing of the Debentures contained false and misleading information regarding
the Company's financial position and that the defendants engaged in a plan to
inflate the Company's earnings for the purpose of defrauding the plaintiffs and
others. This action has been transferred to the Southern District of Florida,
the forum for the Consolidated Federal Actions, and the parties have negotiated
a proposed coordination plan in order to coordinate proceedings in this action
with those in the Consolidated Federal Actions.
The Company has been named as a defendant in an action filed in the
District Court of Tarrant County, Texas, 48th Judicial District, on November 20,
1998, which was served on the Company through the Secretary of State of Texas on
January 15, 1999. The plaintiffs in this action are purchasers of the
Debentures. The plaintiffs allege that the Company violated the Texas Securities
Act and the Texas Business & Commercial Code and committed state common law
fraud by materially misstating the financial position of the Company in
connection with the offering and sale of the Debentures. The complaint seeks
rescission, as well as compensatory and
F-41
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
exemplary damages in an unspecified amount. The Company specially appeared to
assert an objection to the Texas Court's exercise of personal jurisdiction over
the Company, and a hearing on this objection was held on April 15, 1999. The
Court has issued a letter ruling advising the parties that it would grant the
Company's special appearance and sustain the challenge to personal jurisdiction.
The plaintiffs have moved for reconsideration of this decision. Plaintiffs had
also moved for partial summary judgment on their Texas Securities Act claims,
but, in light of the Court's decision on the special appearance, the hearing on
the summary judgment motion has been cancelled.
On April 12, 1999, a class action lawsuit was filed in the U.S. District
Court for the Southern District of Florida. The lawsuit was filed on behalf of
persons who purchased the Debentures during the period of March 20, 1998 through
June 30, 1998, inclusive, but after the initial offering of such Debentures. The
complaint asserts that Sunbeam made material omissions and misrepresentations
that had the effect of inflating the market price of the Debentures. The
complaint names as defendants the Company, its former auditor, Arthur
Andersen LLP and two former Sunbeam officers, Messrs. Dunlap and Kersh. The
plaintiff is an institution which allegedly acquired in excess of $150,000,000
face amount of the Debentures and now seeks unspecified money damages. The
Company was served on April 16, 1999 in connection with this pending lawsuit.
The Company will advise the Court of the pending Consolidated Federal Actions
and request transfer of the action.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam. Messrs. Dunlap and Kersh are requesting a
finding by the arbitrator that they were terminated by the Company without cause
and should be awarded the corresponding benefits set forth in their respective
employment agreements. On March 12, 1999, Sunbeam asked the Circuit Court for
the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to issue an
injunction prohibiting Messrs. Dunlap and Kersh from pursuing their arbitration
proceedings against Sunbeam on the ground that the simultaneous litigation of
the April 7, 1998 action and these arbitration proceedings would subject Sunbeam
to the threat of inconsistent adjudications with respect to certain rights to
compensation asserted by Messrs. Dunlap and Kersh. On March 19, 1999, the
plaintiff in the April 7, 1998 action discussed above moved for a similar
injunction on the ground that the arbitration proceedings threatened irreparable
harm to Sunbeam and its shareholders. On March 26, 1999, Messrs., Dunlap and
Kersh filed a response in opposition to the motions for injunctive relief. A
hearing on the motions for injunctive relief has been held and as a result of
Sunbeam's motion for preliminary injunction, administration of the arbitrations
has been suspended until May 10, 1999.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the Court
of Chancery of the State of Delaware seeking an order directing Sunbeam to
advance attorneys' fees and other expenses incurred in connection with various
state and federal class and derivative actions and an investigation instituted
by the SEC. The complaint alleges that such advancements are required by
Sunbeam's by-laws and by a forebearance agreement entered into between Sunbeam
and Messrs. Dunlap and Kersh in August 1998. The Company has filed its answer to
the complaint and the Court of Chancery has scheduled a trial of this summary
proceeding to be held on June 15, 1999.
The Company intends to vigorously defend each of the foregoing lawsuits
other than those as to which a Memorandum of Understanding to settle has been
reached, but cannot predict the outcome and is not currently able to evaluate
the likelihood of the Company's success in each case or the range of potential
loss. However, if the foregoing actions were determined adversely to the
Company, such judgements would likely have a material adverse effect on the
Company's financial position, results of operations and cash flows.
On July 2, 1998, the American Insurance Company ("American") filed suit
against the Company in the U.S. District Court for the Southern District of New
York requesting a declaratory judgment of the Court that the directors' and
officers' liability insurance policy for excess coverage issued by American was
invalid and/or had been properly canceled by American. The Company's motion to
transfer such action to the federal district court
F-42
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
in which the Consolidated Federal Actions are currently pending was recently
denied. The case is now in discovery. On October 20, 1998, an action was filed
by Federal Insurance Company in the U.S. District Court for the Middle District
of Florida requesting the same relief as that requested by American in the
previously filed action as to additional coverage levels under the Company's
directors' and officers' liability insurance policy. This action has been
transferred to the U.S. District Court for the Southern District of Florida and
is currently in discovery. On December 22, 1998, an action was filed by
Executive Risk Indemnity, Inc. in the Circuit Court of the Seventeenth Judicial
Circuit in and for Broward County, Florida requesting the same relief as that
requested by American and Federal in their previously filed actions as to
additional coverage levels under the Company's directors' and officers'
liability insurance policy. On April 15, 1999, the Company filed an action in
the U.S. District Court for the Southern District of Florida against the
National Union Fire Insurance Company of Pittsburgh, PA, Gulf Insurance Company
and St. Paul Mercury Insurance Company requesting, among other things, a
declaratory judgment that National Union is not entitled to rescind its
liability insurance policy to the Company and a declaratory judgment that the
Company is entitled to coverage from these insurance companies for various
lawsuits described herein under liability insurance policies issued by each of
the defendants. The Company intends to pursue recovery from all of its insurers
if damages are awarded against the Company or its indemnified officers and/or
directors under any of the foregoing actions. The Company's failure to obtain
such insurance recoveries following an adverse judgement in any of the foregoing
actions could have a material adverse effect on the Company's financial
position, results of operations and cash flows.
The Company and its subsidiaries are also involved in various lawsuits
arising from time to time that the Company considers to be ordinary routine
litigation incidental to its business. In the opinion of the Company, the
resolution of these routine matters, and of certain matters relating to prior
operations, individually or in the aggregate, will not have a material adverse
effect upon the financial position, results of operations, or cash flows of the
Company.
In the fourth quarter of 1996, the Company recorded a $12.0 million charge
related to a case for which an adverse development arose near year-end. In 1997,
this case was favorably resolved and, as a result, $8.1 million of the charge
established in 1996 was reversed into income primarily in the fourth quarter of
1997.
As of December 31, 1998 and December 28, 1997, the Company had established
accruals for litigation matters, including legal fees, of $31.2 million and
$9.9 million, respectively. The Company believes, based on existing information,
that anticipated probable costs of litigation matters existing as of
December 31, 1998 have been adequately reserved to the extent determinable.
Environmental Matters
The Company's operations, like those of comparable businesses, are subject
to certain federal, state, local and foreign environmental laws and regulations
in addition to laws and regulations regarding labeling and packaging of products
and the sales of products containing certain environmentally sensitive materials
("Environmental Laws"). The Company believes it is in substantial compliance
with all Environmental Laws which are applicable to its operations. Compliance
with Environmental Laws involves certain continuing costs; however, such costs
of ongoing compliance have not resulted, and are not anticipated to result, in a
material increase in the Company's capital expenditures or to have a material
adverse effect on the Company's results of operations, financial condition or
competitive position.
In addition to ongoing environmental compliance at its operations, the
Company also is actively engaged in certain environmental remediation activities
many of which relate to divested operations. As of December 31, 1998, the
Company has been identified by the United States Environmental Protection Agency
("EPA") or a state environmental agency as a potentially responsible party
("PRP") in connection with seven sites subject to the federal Superfund Act and
five sites subject to state Superfund laws comparable to the federal law
F-43
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
(collectively the "Environmental Sites"), exclusive of sites at which the
Company has been designated (or expects to be designated) as a de minimis (less
than 1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the site
at their expense. Liability under the Superfund Act is joint and several and is
imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, the Company recognizes its responsibility to determine
whether other PRPs at a Superfund site are financially capable of paying their
respective shares of the ultimate cost of remediation of the site. Whenever the
Company has determined that a particular PRP is not financially responsible, it
has assumed for purposes of establishing reserve amounts that such PRP will not
pay its respective share of the costs of remediation. To minimize the Company's
potential liability with respect to the Environmental Sites, the Company has
actively participated in steering committees and other groups of PRPs
established with respect to such sites. The Company currently is engaged in
active remediation activities at 12 sites, seven of which are among the
Environmental Sites referred to above, and five of which have not been
designated as Superfund sites under federal or state law.
The Company has established reserves, in accordance with SFAS No. 5,
Accounting for Contingencies, to cover the anticipated probable costs of
remediation, based upon periodic reviews of all sites for which the Company has,
or may have remediation responsibility. The amount of such reserves was
$25.0 million at December 31, 1998 and $24.0 million at December 28, 1997. The
Company continues to pursue the recovery of some environmental remediation costs
from certain of its liability insurance carriers; however, such potential
recoveries have not been offset against potential liabilities and have not been
considered in determining the Company's environmental reserves. Due to
uncertainty over remedial measures to be adopted at some sites, the possibility
of changes in Environmental Laws and regulations and the fact that joint and
several liability with the right of contribution is possible at federal and
state Superfund sites, the Company's ultimate future liability with respect to
sites at which remediation has not been completed may vary from the amounts
reserved as of December 31, 1998.
In the fourth quarter of 1996, a comprehensive review of all environmental
exposures was performed, and the Company accelerated its strategy for the
resolution and settlement of certain environmental claims. As a result, the
Company recorded additional environmental reserves of approximately $9.0 million
in the fourth quarter of 1996. The Company believes, based on existing
information, that the costs of completing environmental remediation of all sites
for which the Company has a remediation responsibility have been adequately
reserved, and that the ultimate resolution of these matters will not have a
material adverse effect upon the Company's financial condition, results of
operations or cash flows.
Product Liability Matters
The Company is party to various personal injury and property damage
lawsuits relating to its products and incidental to its business. Annually, the
Company sets its product liability insurance program based on the Company's
current and historical claims experience and the availability and cost of
insurance. The Company's program for 1998 was comprised of a self-insurance
retention of $2.5 million per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates taking into account prior
experience, numbers of claims and other relevant factors; thus, the Company's
ultimate liability may exceed or be less than the amounts accrued. The methods
of making such estimates and establishing the resulting liability are reviewed
periodically and any adjustments resulting therefrom are reflected in current
operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience
F-44
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
will be consistent with its past experience. Based on existing information, the
Company believes that the ultimate conclusion of the various pending product
liability claims and lawsuits of the Company, individually or in the aggregate,
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
Leases
The Company rents certain facilities, equipment and retail stores under
operating leases. Rental expense for operating leases amounted to $28.1 million
in 1998, $7.4 million for 1997 and $8.0 million for 1996. The minimum future
rentals due under noncancelable operating leases as of December 31, 1998
aggregated to $167.6 million. The amounts payable in each of the years 1999-2003
and thereafter are $34.6 million, $33.7 million, $17.1 million, $13.5 million,
$9.7 million and $59.0 million, respectively.
In connection with a warehouse expansion related to the electric blanket
business, the Company entered into a $5 million capital lease obligation in
1996.
Certain Debt Obligations
Responsibility for servicing certain debt obligations of the Company's
predecessor were assumed by third parties in connection with the acquisition of
former businesses, although the Company's predecessor remained the primary
obligor in accordance with the respective loan documents. Such obligations,
which amounted to approximately $17.3 million at December 31, 1998, and the
corresponding receivables from the third parties, are not included in the
Consolidated Balance Sheets since these transactions occurred prior to the
issuance of SFAS No. 76, Extinguishment of Debt. Management believes that the
third parties will continue to meet their obligations pursuant to the assumption
agreements.
Purchase and other Commitments
In conjunction with the sale of the Biddeford, Maine textile mill in 1997,
the Company entered into a five-year agreement to purchase blanket shells from
the mill. The agreement provides for a minimum purchase commitment each year of
the contract. As of December 31, 1998, the Company had remaining minimum
commitments under the contract of approximately $104 million.
In connection with Coleman's 1995 purchase of substantially all of the
assets of Active Technologies, Inc. ("ATI"), the Company may be required to make
payments to the predecessor owner of ATI of up to $18.8 million based on the
Company's sales of ATI related products and royalties received by the Company
for licensing arrangements related to ATI patents. As of December 31, 1998, the
amounts paid under the terms of this agreement have been immaterial.
16. RELATED PARTY TRANSACTIONS
Services Provided by M&F
Pursuant to the settlement agreement with M&F, M&F agreed to make certain
executive management personnel available to the Company and to provide certain
management assistance to Sunbeam. The Company does not reimburse M&F for such
services, other than reimbursement of out-of-pocket expenses paid to third
parties. (See Note 2.)
F-45
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. RELATED PARTY TRANSACTIONS--(CONTINUED)
Liquidation of Options
The Company expects to acquire the remaining approximately 20% equity
interest in Coleman in the second half of 1999. Upon the consummation of the
merger transaction, the unexercised options under Coleman's stock option plans
will be cashed out at a price per share equal to the difference between $27.50
per share and the exercise price of such options. Ronald O. Perelman, the sole
stockholder of M&F, holds 500,000 options for which he will receive a net
payment of $6,750,000. Mr. Shapiro and Ms. Clark, executive officers of the
Company, hold 77,500 and 25,000 options, respectively, for which they will
receive net payments of $823,000 and $275,005, respectively.
Arrangements Between Coleman and M&F
Coleman and an affiliate of M&F are parties to a cross-indemnification
agreement pursuant to which Coleman has agreed to indemnify such affiliate, its
officers, directors, employees, control persons, agents and representatives
against all past, present and future liabilities, including product liability
and environmental matters, related to the initial assets of Coleman, which
Coleman acquired from such affiliate in December 1991. In addition, pursuant to
this cross-indemnification agreement, the M&F affiliate has agreed to indemnify
Coleman and its officers, directors, employees, agents and representatives
against all other liabilities of such M&F affiliate or any of its subsidiaries,
including liabilities relating to the assets it did not transfer to Coleman in
December 1991. This cross-indemnification agreement will survive the Coleman
merger.
Coleman previously was included in the consolidated tax group for the M&F
companies and was a party to a tax sharing agreement with a M&F affiliate,
pursuant to which Coleman paid to such affiliate the amount of taxes which would
have been paid by Coleman if it were required to file separate federal, state or
local income tax returns. The tax sharing agreement was terminated upon the
acquisition of Coleman; however, the acquisition agreement provides for certain
tax indemnities and tax sharing payments among the Company and the M&F
affiliates relating to periods prior to the acquisition.
Lease of Office Space
During 1998, the Company sublet office space in New York City from an
affiliate of M&F. The expense for such rent during 1998 was approximately
$130,000. The lease was terminated in 1999.
17. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL 1998(A)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $ 247.6 $ 578.5 $ 496.0 $ 514.8
Gross profit (loss)................................................... 33.8 (52.5) 67.4 (0.6)
Operating loss........................................................ (37.4) (193.3) (161.0) (278.3)
Loss from continuing operations before extraordinary charge........... (45.6) (241.0) (188.9) (300.0)
Basic and diluted loss per share from continuing operations before
extraordinary charge................................................ (0.53) (2.39) (1.88) (2.98)
Extraordinary charge.................................................. (8.6) (103.1) -- (10.7)
Net loss.............................................................. (54.1) (344.1) (188.9) (310.8)
Basic and diluted loss per share...................................... (0.63) (3.41) (1.88) (3.09)
</TABLE>
F-46
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. UNAUDITED QUARTERLY FINANCIAL DATA--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1997(A)(B)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $ 252.5 $ 271.4 $ 286.8 $ 262.4
Gross profit.......................................................... 58.3 55.3 76.5 52.1
Operating earnings.................................................... 17.1 16.8 45.1 25.1
Earnings from continuing operations................................... 9.0 8.7 27.5 7.1
Basic earnings per share from continuing operations................... 0.11 0.10 0.32 0.08
Diluted earnings per share from continuing operations................. 0.11 0.10 0.31 0.08
(Loss) on sale of discontinued operations, net of taxes............... (13.7) -- (2.7) 2.4
Net (loss) earnings................................................... (4.7) 8.7 24.8 9.5
Basic (loss) earnings per share....................................... (0.06) 0.10 0.29 0.11
Diluted (loss) earnings per share..................................... (0.06) 0.10 0.28 0.11
</TABLE>
- ------------------
(a) Due to the net loss incurred, earnings per share calculations exclude common
stock equivalents for all four quarters and for the year in 1998 and for the
first and third quarters in 1997. Earnings (loss) per share are computed
independently for each of the quarters presented. Therefore, the sum of the
quarterly earnings (loss) per share in 1998 and 1997 does not equal the
total computed for the year.
(b) Each quarter consists of a 13-week period.
During 1998, significant unusual charges affected the respective quarters
as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Compensation agreements with former senior officers (Note 8)............... $31.2 $ -- $ -- $ --
Excess and obsolete inventory reserves (Note 11)........................... -- 84.0 2.2 9.6
Facilities impairment charges (Note 11).................................... -- 29.6 3.1 6.7
Warrants issued to M&F (Note 2)............................................ -- -- 70.0 --
Costs associated with financial statement restatement...................... -- -- 10.8 9.6
Goodwill impairment (Note 2)............................................... -- -- -- 62.5
----- ------- ----- -----
Total...................................................................... $31.2 $113.6 $86.1 $88.4
----- ------- ----- -----
----- ------- ----- -----
</TABLE>
During the first, second, third and fourth quarters of fiscal 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities no longer required were reversed and taken
into income. Included in these reserves is the $8.1 million litigation reserve
reversal discussed in Note 15. Also, during the third and fourth quarters of
fiscal 1997, approximately $5.8 million and $8.8 million, respectively, of
restructuring reserves no longer required were reversed and taken into income,
as discussed in Note 12. Additionally, during the fourth quarter of fiscal 1997,
approximately $13.3 million of tax liabilities no longer required were reversed
and taken into income.
F-47
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO RESERVES BALANCE AT
BEGINNING COSTS AND FROM END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
- ------------------------------------------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and cash
discounts:
$ 25,050 (b)
Fiscal year ended December 31, 1998........... $ 30,033 $ 32,919 $ 15,216 93 (c) $ 53,025
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
$ (2,000)(a)
8,948 (b)
Fiscal year ended December 28, 1997........... $ 19,701 $ 17,297 $ -- 17 (c) $ 30,033
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
$ (233)(a)
19,911 (b)
Fiscal year ended December 29, 1996........... $ 12,326 $ 27,053 $ -- -- (c) $ 19,701
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Notes: (a) Reclassified to/from accrued liabilities for customer deductions.
(b) Accounts written off as uncollectible.
(c) Foreign currency translation adjustment.
(d) Reserve balances of acquired companies at acquisition date.
F-48
<PAGE>
ANNEX I
-------
===============================================================================
AGREEMENT AND PLAN OF MERGER
among
SUNBEAM CORPORATION
CAMPER ACQUISITION CORP.
and
THE COLEMAN COMPANY, INC.
Dated as of
February 27, 1998
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS.....................-.2
Section 1.1 Definitions.....................................2
ARTICLE II
THE COMPANY MERGER....................8
Section 2.1 The Company.....................................8
Section 2.2 Closing.........................................9
Section 2.3 Company Effective Time of the Company Merger....9
Section 2.4 Certificate of Incorporation.................. .9
Section 2.5 By-Laws.........................................9
Section 2.6 Directors.......................................9
Section 2.7 Officers........................................9
ARTICLE III
CONVERSION OF SHARES..................10
Section 3.1 Effect on Capital Stock........................10
Section 3.2 Exchange of Certificates Representing Shares...11
Section 3.3 Dividends; Transfer Taxes......................12
Section 3.4 No Fractional Shares...........................13
Section 3.5 Termination of Exchange Fund...................13
Section 3.6 Investment of Exchange Fund....................13
Section 3.7 Closing of Company Transfer Books..............13
Section 3.8 Dissenting Shares..............................14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....14
Section 4.1 Organization...................................14
Section 4.2 Capitalization.................................15
Section 4.3 Subsidiaries...................................15
Section 4.4 Authority Relative to this Agreement...........16
Section 4.5 Consents and Approvals; No Violations..........16
Section 4.6 Reports and Financial Statements...............17
Section 4.7 Absence of Certain Changes or Events...........18
Section 4.8 Litigation.....................................20
Section 4.9 Information in Disclosure Documents and
Registration Statement....................20
Section 4.10 Taxes.........................................20
Section 4.11 Compliance with Applicable Law................21
i
<PAGE>
PAGE
----
Section 4.12 Labor Matters.................................21
Section 4.13 ERISA Compliance..............................22
Section 4.14 Environmental Matters.........................23
Section 4.15 Intellectual Property.........................24
Section 4.16 Contracts.....................................24
Section 4.17 Opinion of Financial Advisor..................24
Section 4.18 Takeover Statute..............................25
Section 4.19 Brokers.......................................25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
LASER AND MERGER SUB..................25
Section 5.1 Organization...................................25
Section 5.2 Capitalization.................................25
Section 5.3 Merger Sub.....................................26
Section 5.4 Authority Relative to this Agreement...........26
Section 5.5 Consents and Approvals; No Violations..........27
Section 5.6 Reports and Financial Statements...............27
Section 5.7 Absence of Certain Changes or Events...........28
Section 5.8 Litigation.....................................28
Section 5.9 Information in Disclosure Documents and
Registration Statement....................29
Section 5.10 Taxes.........................................29
Section 5.11 Compliance with Applicable Law................29
Section 5.12 Brokers.......................................30
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS.......30
Section 6.1 Conduct of Business by the Company.............30
Section 6.2 Other Actions..................................33
Section 6.3 Advice of Changes..............................33
Section 6.4 Conduct of Business of Merger Sub..............33
Section 6.5 Section 14(f) Notice...........................33
ii
<PAGE>
PAGE
----
ARTICLE VII
ADDITIONAL AGREEMENTS.................34
Section 7.1 Preparation of the Registration Statement, the
Information Statement, the Schedule 13E-3 and
the Section 14(f) Notice....................34
Section 7.2 Access and Information; Confidentiality........34
Section 7.3 Comfort Letters................................35
Section 7.4 Listing Application............................35
Section 7.5 Affiliates.....................................35
Section 7.6 HSR Act; Competition Laws......................36
Section 7.7 Employee Matters...............................36
Section 7.8 Continuance of Existing Indemnification Rights.38
Section 7.9 Expenses.......................................40
Section 7.10 Public Announcements..........................40
Section 7.11 Reasonable Best Efforts.......................40
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER........41
Section 8.1 Conditions to Each Party's Obligation to Effect
the Company Merger........................41
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER...........41
Section 9.1 Termination....................................41
Section 9.2 Effect of Termination..........................41
Section 9.3 Amendment......................................41
Section 9.4 Extension; Waiver..............................42
ARTICLE X
GENERAL PROVISIONS...................42
Section 10.1 No Survival of Representations and Warranties.42
Section 10.2 Notices.......................................42
Section 10.3 Descriptive Headings..........................43
Section 10.4 Entire Agreement; No Third-Party Beneficiary..43
Section 10.5 Interpretation................................44
Section 10.6 Severability..................................44
Section 10.7 Assignment....................................44
Section 10.8 Disclosure Schedules..........................44
Section 10.9 Governing Law.................................45
Section 10.10 Specific Performance.........................45
Section 10.11 Counterparts.................................45
Section 10.12 Certain Terms................................45
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
February 27, 1998, among SUNBEAM CORPORATION, a Delaware corporation ("Laser"),
CAMPER ACQUISITION CORP. ("Merger Sub"), a Delaware corporation and a wholly
owned subsidiary of Laser, and THE COLEMAN COMPANY, INC., a Delaware corporation
(the "Company").
WHEREAS, the Boards of Directors of Laser, Merger Sub and the
Company deem it advisable and in the best interests of their respective
stockholders that Merger Sub merge with and into the Company (the "Company
Merger"), and such Boards of Directors have approved the Company Merger, upon
the terms and subject to the conditions set forth herein; and
WHEREAS, as a condition to the Company Merger, a newly formed,
wholly owned subsidiary of Laser will merge with and into CLN Holdings Inc.
("Holdings") with Holdings continuing as the surviving corporation and a wholly
owned subsidiary of Laser (the "Holdings Merger") pursuant to an Agreement and
Plan of Merger (the "Holdings Merger Agreement"), dated as of the date hereof,
among Laser, Laser Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Laser, Coleman (Parent) Holdings Inc., a Delaware corporation
("Parent Holdings"), and Holdings; and
WHEREAS, the Board of Directors of the Company has approved
the Holdings Merger solely for purposes of rendering Section 203 of the DGCL
inapplicable to the transactions contemplated hereby; and
WHEREAS, Laser, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Company Merger and also to prescribe certain conditions to the Company
Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the following meanings, the definitions to be
applicable to both the singular and plural forms of each term defined to the
extent that such forms of such terms are used in this Agreement.
"Affiliate" shall mean, as to any Person (as hereinafter
defined), any other Person which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. The term "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as applied to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
other ownership interest, by contract or otherwise.
"Affiliate Agreements" shall mean any Contract, agreement or
understanding between the Company and any of its subsidiaries, on the one hand,
and Worldwide and any of its Affiliates (other than the Company and its
subsidiaries), on
the other hand.
"Certificate of Incorporation" shall have the meaning ascribed
to it in Section 2.4.
"Certificate of Merger" shall have the meaning ascribed to it
in Section 2.3.
"Claim" shall have the meaning ascribed to it in Section
7.8(a).
"Closing" shall have the meaning ascribed to it in Section
2.2.
"Closing Date" shall have the meaning ascribed to it in
Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commonly Controlled Entity" shall have the meaning ascribed
to it in Section 4.13(a).
"Company Balance Sheet Date" shall have the meaning ascribed
to it in Section 4.6(c).
I-2
<PAGE>
"Company Business Personnel" shall have the meaning ascribed
to it in Section 4.12.
"Company Common Stock" shall mean the common stock, par value
$.01 per share, of the Company.
"Company Disclosure Schedule" shall have the meaning ascribed
to it in the Introduction to Article IV.
"Company Effective Time" shall have the meaning ascribed to it
in Section 2.3.
"Company Licenses" shall have the meaning ascribed to it in
Section 4.11.
"Company Material Adverse Effect" shall have the meaning
ascribed to it in Section 4.1.
"Company Merger" shall have the meaning ascribed to it in the
Recitals.
"Company Plans" shall have the meaning ascribed to it in
Section 4.13(a).
"Company Preferred Stock" shall mean the preferred stock, par
value $.01 per share, of the Company.
"Company Rule 145 Affiliates" shall have the meaning ascribed
to it in Section 7.5.
"Company SEC Reports" shall have the meaning ascribed to it in
Section 4.6(a).
"Company Stock Option Plans" shall mean The Coleman Company,
Inc. 1996 Stock Option Plan, The Coleman Company, Inc. 1993 Stock Option Plan
and The Coleman Company, Inc. 1992 Stock Option Plan.
"Competition Laws" shall mean foreign statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
foreign Laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization, lessening of competition
or restraint of trade.
"Contract" shall mean any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation.
I-3
<PAGE>
"Conversion Number" shall have the meaning ascribed to it in
Section 3.1(a)(i).
"Credit Suisse First Boston" shall mean Credit Suisse First
Boston Corporation, the Company's financial advisor.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"D&O Insurance" shall have the meaning ascribed to it in
Section 7.8(c).
"Dissenting Shares" shall have the meaning ascribed to it in
Section 3.8.
"Employee Stock Options" shall mean all employee and
non-employee director stock options issued pursuant to the Company Stock Option
Plans.
"Environmental Claim" shall mean any claim, action,
investigation or written notice to the Company or any of its subsidiaries by any
person or entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resource damages, personal injuries, or penalties)
arising out of, based on, or resulting from, (a) the presence, or release into
the environment, of any Hazardous Substance at any location, whether or not
owned or operated by the Company or any of its subsidiaries or (b) circumstances
forming the basis of any violation, or alleged violation of any applicable
Environmental Law.
"Environmental Laws" shall mean all federal, state, local and
foreign Laws and regulations, as in effect and as interpreted as of the date of
this Agreement, relating to pollution or protection of the environment,
including, without limitation, Laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.
"Environmental Permits" shall have the meaning ascribed to it
in Section 4.14(a).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
I-4
<PAGE>
"Exchange Agent" shall have the meaning ascribed to it in
Section 3.2(a).
"Exchange Fund" shall have the meaning ascribed to it in
Section 3.2(a).
"Filed Company SEC Reports" shall have the meaning ascribed to
it in Section 4.6(a).
"Filed Laser SEC Reports" shall have the meaning ascribed to
it in Section 5.6(a).
"GAAP" shall mean United States generally accepted accounting
principles and practices in effect from time to time, consistently applied.
"Governmental Entity" shall mean any court, arbitral tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency.
"Hazardous Substance" shall mean all substances defined as
Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. sectioni 300.5, or defined as such by, or
regulated as such under, any Environmental Law, including any radon, asbestos
and oil and petroleum products, by-products and fractions.
"Holdings" shall have the meaning ascribed to it in the
Recitals.
"Holdings Disclosure Schedule" shall mean the Disclosure
Schedule being delivered by Holdings concurrently with the execution of the
Agreement and Plan of Merger relating to the Holdings Merger.
"Holdings Effective Time" shall mean the date and time on
which the Holdings Merger is effected.
"Holdings Merger" shall have the meaning ascribed to it in the
Recitals.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
"Information Statement" shall have the meaning ascribed to it
in Section 4.9.
"Indemnified Person" shall have the meaning ascribed to it in
Section 7.8(a).
I-5
<PAGE>
"Intellectual Property" shall mean all domestic and foreign
patents, patent applications, written invention disclosures to be filed or
awaiting filing determinations, trademark and service mark applications,
registered trademarks, registered service marks, registered copyrights,
trademarks, service marks and trade names.
"Laser Balance Sheet Date" shall have the meaning ascribed to
it in Section 5.6(c).
"Laser Common Stock" shall mean the common stock, par value
$.01 per share, of Laser.
"Laser Licenses" shall have the meaning ascribed to it in
Section 5.11.
"Laser Material Adverse Effect" shall have the meaning
ascribed to it in Section 5.1.
"Laser Preferred Stock" shall mean the preferred stock, par
value $.01 per share, of Laser.
"Laser SEC Reports" shall have the meaning ascribed to it in
Section 5.6(a).
"Laser Shares" shall mean the shares of Laser Common Stock to
be issued in the Company Merger.
"Laser Stock Option Plans" shall have the meaning ascribed to
it in Section 5.2.
"Laser Stock Options" shall have the meaning ascribed to it in
Section 5.2.
"Laws" shall mean any federal, state, local or foreign law,
statute, ordinance, rule, regulation, order, judgment or decree, administrative
order or decree, administrative or judicial decision, and any other executive or
legislative proclamation.
"Liens" shall mean all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever.
"LYONs" shall mean the Liquid Yield Option(TM) Notes due 2013
of Worldwide.
"Merger Sub Common Stock" shall mean the common stock, par
value $.01 per share, of Merger Sub.
I-6
<PAGE>
"Morgan Stanley" shall mean Morgan Stanley & Co. Incorporated,
Laser's financial advisor.
"NYSE" shall mean the New York Stock Exchange, Inc.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall have the meaning ascribed to it in
Section 4.13(a).
"Per Share Merger Consideration" shall have the meaning
ascribed to it in Section 3.1(a)(i).
"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization.
"Plans" shall have the meaning ascribed to it in Section
7.7(e).
"Properties" shall have the meaning ascribed to it in Section
4.14(c).
"Registration Statement" shall have the meaning ascribed to it
in Section 4.9.
"Release" shall mean any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation, ambient
air, surface water, groundwater and surface or subsurface strata) or into or out
of any property, including the movement of Hazardous Materials through or in the
air, soil, surface water, groundwater or property.
"Schedule 13E-3" shall have the meaning ascribed to it in
Section 4.9.
"Section 14(f) Notice" shall have the meaning ascribed to it
in Section 4.9.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Subsidiary" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other subsidiary of such party is a general partner
or (ii) at least 50% of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization or at least 50% of the value of the outstanding
I-7
<PAGE>
equity is directly or indirectly owned or controlled by such party or by any one
or more of its subsidiaries, or by such party and one or more of its
subsidiaries.
"Surviving Corporation" shall have the meaning ascribed to it
in Section 2.1.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable")
shall mean (i) any federal, state, local or foreign net income, gross income,
receipts, windfall profit, severance, property, production, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add-on
minimum, ad valorem, transfer, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority; and (ii) any liability of Laser or
any Laser subsidiary or the Company or any of its subsidiaries, as applicable,
for the payment of amounts with respect to payments of a type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group, or as a result of any obligation of Laser or any
Laser subsidiary or the Company or any of its subsidiaries, as the case may be,
under any arrangement to share liability for taxes or indemnify any other entity
or person for taxes.
"Tax Return" shall mean any return, report or statement
required to be filed with respect to any Tax (including any attachments
thereto), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
"Welfare Plan" shall have the meaning ascribed to it in
Section 4.13(a).
"Worldwide" shall mean Coleman Worldwide Corporation, a
Delaware corporation and a wholly owned subsidiary of Holdings.
ARTICLE II
THE COMPANY MERGER
Section 2.1 The Company. Upon the terms and subject to the
conditions set forth herein, and in accordance with the DGCL, at the Company
Effective Time, Merger Sub shall be merged with and into the Company. Following
the Company Effective Time, the Company shall continue as the surviving
corporation (the "Surviving Corporation"), and the separate corporate existence
of Merger Sub shall cease. The Company Merger shall have the effects set forth
in Section 259 of the DGCL.
I-8
<PAGE>
Section 2.2 Closing. The closing of the Company Merger (the
"Closing") will take place at 10:00 a.m. on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the third NYSE
trading day after satisfaction or waiver of the conditions set forth in Section
8.1, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York 10022, unless another time, date or place is agreed
to in writing by the parties hereto.
Section 2.3 Company Effective Time of the Company Merger. The
Company Merger shall become effective on the date and at the time at which a
properly executed certificate of merger (the "Certificate of Merger") is duly
filed with the Secretary of State of the State of Delaware. The Certificate of
Merger shall be filed as soon as practicable on or after the Closing Date. When
used in this Agreement, the term "Company Effective Time" shall mean the date
and time on which the Certificate of Merger is so filed.
Section 2.4 Certificate of Incorporation. From and after the
Company Effective Time, the certificate of incorporation of the Company as in
effect at the Company Effective Time (the "Certificate of Incorporation") shall
be the certificate of incorporation of the Surviving Corporation until amended
as provided by Law and the Certificate of Incorporation.
Section 2.5 By-Laws. From and after the Company Effective
Time, the by-laws of Merger Sub as in effect at the Company Effective Time shall
be the by-laws of the Surviving Corporation until amended as provided by the
DGCL, the Certificate of Incorporation and the terms thereof.
Section 2.6 Directors. The directors of Merger Sub at the
Company Effective Time shall be the initial directors of the Surviving
Corporation and shall hold office from the Company Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Certificate of Incorporation and by-laws of the Surviving
Corporation or as otherwise provided by the DGCL (it being understood that the
directors of the Company shall resign upon the later of (i) the Holdings
Effective Time and (ii) the eleventh (11th) day following the date on which the
Section 14(f) Notice shall have been filed with the SEC and mailed to all
stockholders of record of the Company in accordance herewith).
Section 2.7 Officers. The officers of the Company at the
Company Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office from the Company Effective Time until their
respective successors are duly elected or appointed and qualifies in the manner
provided in the Certificate of Incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by Law.
I-9
<PAGE>
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Effect on Capital Stock. At the Company Effective
Time, by virtue of the Company Merger and without any action on the part of any
holder thereof:
(a) Conversion of Company Common Stock.
(i) Subject to Section 3.1(b) hereof, each share of
Company Common Stock issued and outstanding immediately prior to the
Company Effective Time (other than Dissenting Shares and Company Common
Stock to be cancelled in accordance with Section 3.1(c) hereof) shall
be converted into the right to receive (A) 0.5677 (the "Conversion
Number") of a fully paid and nonassessable share of Laser Common Stock
and (B) $6.44 in cash, without interest thereon (the consideration
referred to in this Section 3.1(a) being sometimes referred to herein
as the "Per Share Merger Consideration").
(ii) If, prior to the Company Effective Time, Laser
shall (A) pay a dividend in, subdivide, combine into a smaller number
of shares or issue by reclassification of its shares, any shares of
Laser Common Stock, the Conversion Number shall be adjusted
appropriately or (B) pay a dividend (other than regular quarterly
dividend payments, consistent with past practice), whether in cash or
property, the amount of the cash portion of the Per Share Merger
Consideration shall be appropriately adjusted such that the amount of
cash to be received with respect to each share of Company Common Stock,
or if a dividend shall have been paid in other property, cash and other
property to be received with respect to each share of Company Common
Stock, shall be equal to that which would have been received in the
aggregate with respect to each share of Company Common Stock (on a per
share equivalent basis) had the dividend been paid following the
Company Effective Time at a time when the Laser Shares to be issued
pursuant hereto had been issued to the holders of the shares of Company
Common Stock.
(iii) Each of the shares of Company Common Stock
converted in accordance with paragraph (i) of this Section 3.1(a) shall
no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
Per Share Merger
I-10
<PAGE>
Consideration and cash in lieu of any fractional share of Laser Common
Stock (determined in accordance with Section 3.4 hereof), to be issued
or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 3.2 hereof, without interest.
(b) Company Common Stock Held by Worldwide or Holdings to
Remain Outstanding. Notwithstanding Section 3.1(a) hereof, at the Company
Effective Time all shares of Company Common Stock held by Worldwide or Holdings
shall remain outstanding and unchanged as a result of the Company Merger.
(c) Cancellation of Treasury Stock and Company Common Stock
Held by Laser and Company Subsidiaries. Each share of Company Common Stock, if
any, held in the treasury of the Company, by any subsidiary of the Company, by
Laser or by any subsidiary of Laser (other than Worldwide or Holdings)
immediately prior to the Company Effective Time shall be cancelled and retired
and cease to exist.
(d) Cancellation of Merger Sub Common Stock. Each share of
Merger Sub Common Stock issued and outstanding immediately prior to the Company
Effective Time shall be cancelled and retired and cease to exist.
Section 3.2 Exchange of Certificates Representing Shares.
(a) As of the Company Effective Time, Laser shall deposit, or
shall cause to be deposited, with an exchange agent selected by Laser and
reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit
of the holders of shares of Company Common Stock, for exchange in accordance
with this Article III: (i) certificates representing the number of Laser Shares
issuable in the Company Merger to be issued in respect of all shares of Company
Common Stock outstanding immediately prior to the Company Effective Time and
which are to be exchanged pursuant to the Company Merger (exclusive of shares to
remain outstanding pursuant to Section 3.1(b) hereof or to be canceled pursuant
to Section 3.1(c) hereof); and (ii) cash in an amount sufficient to make any
cash payment due under Sections 3.1(a)(i)(B) and 3.4 hereof (such cash and
certificates for Laser Shares being hereinafter referred to collectively as the
"Exchange Fund").
(b) As soon as reasonably practicable after the Company
Effective Time, Laser shall cause the Exchange Agent to mail (or deliver to its
principal office) to each holder of record of a certificate or certificates
representing shares of Company Common Stock (i) a letter of transmittal which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates for shares of Company Common Stock shall pass, only upon delivery
of the certificates for such shares of Company Common Stock to the Exchange
Agent and which shall be in such form and have such other provisions, including
appropriate provisions with respect to back-up withholding,
I-11
<PAGE>
as Laser may reasonably specify, and (ii) instructions for use in effecting the
surrender of the certificates for shares of Company Common Stock. Upon surrender
of a certificate for shares of Company Common Stock for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder thereof shall
be entitled to receive in exchange therefor that portion of the Exchange Fund
which such holder has the right to receive pursuant to the provisions of this
Article III, after giving effect to any required withholding Tax, and the
certificate for shares of Company Common Stock so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash portion of the
Exchange Fund. In the event of any transfer of ownership of shares of Company
Common Stock which has not been registered in the transfer records of the
Company, certificates representing the proper number of shares of Laser Common
Stock, if any, and a check in an amount equal to the proper amount of the cash
component, if any, of the Exchange Fund, will be issued to the transferee of the
certificate representing the transferred shares of Company Common Stock, only
upon presentation to the Exchange Agent of a certificate or certificates
representing such shares of Company Common Stock, accompanied by all documents
required to evidence and effect the prior transfer thereof and to evidence that
any applicable stock transfer Taxes associated with such transfer were paid.
Section 3.3 Dividends; Transfer Taxes. No dividends that are
declared on Laser Common Stock will be paid to persons entitled to receive
certificates representing shares of Laser Common Stock until such persons
surrender their certificates representing shares of Company Common Stock. Upon
such surrender, there shall be paid to the person in whose name the certificates
representing such shares of Laser Common Stock shall be issued, any dividends
which shall have become payable with respect to such shares of Laser Common
Stock between the Company Effective Time and the time of such surrender. In no
event shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any certificates for any shares of Laser Common
Stock are to be issued in a name other than that in which the certificate
representing shares of Company Common Stock surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall pay to the Exchange Agent any transfer or other Taxes
required by reason of the issuance of certificates for such shares of Laser
Common Stock in a name other than that of the registered holder of the
certificate surrendered or shall establish to the satisfaction of the Exchange
Agent that such Tax has been paid or is not applicable. Notwithstanding the
foregoing, (i) neither the Exchange Agent nor any party hereto shall be liable
to a holder of shares of Company Common Stock for any shares of Laser Common
Stock or dividends thereon, any cash payments to be made pursuant to Section
3.1(a)(i)(B) hereof or, in accordance with Section 3.4 hereof, any cash in lieu
of fractional share interests, in each case, delivered to a public official
pursuant to applicable escheat Laws and (ii) any shares of Laser Common Stock
held by the
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Exchange Agent prior to surrender of certificates representing shares of
Company Common Stock shall not be deemed issued.
Section 3.4 No Fractional Shares. No certificates or scrip
representing fractional shares of Laser Common Stock shall be issued upon the
surrender for exchange of certificates representing shares of Company Common
Stock pursuant to this Article III, and no dividend, stock split or other change
in the capital structure of Laser shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. In lieu of any such fractional shares of Laser
Common Stock, each holder of shares of Company Common Stock who would otherwise
have been entitled to a fraction of a share of Laser Common Stock upon surrender
of stock certificates for exchange pursuant to this Article III will be paid
cash upon such surrender in an amount equal to the product of such fraction
multiplied by the closing sale price of one share of Laser Common Stock on the
NYSE on the day of the Company Effective Time, or, if shares of Laser Common
Stock are not so traded on such day, the closing sale price of one such share on
the next preceding day on which such share was traded on the NYSE. For purposes
of this Section 3.4, shares of Company Common Stock of any holder represented by
two or more certificates shall be aggregated, and in no event shall any holder
be paid an amount of cash pursuant to this Section 3.4 in respect of more than
one share of Laser Common Stock.
Section 3.5 Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of the Company Common
Stock for six (6) months after the Company Effective Time shall be delivered to
Laser,
upon demand, and any holders of the Company Common Stock who have not
theretofore complied with this Article III shall thereafter look only to Laser
for payment of their claim for the shares of Laser Common Stock and cash and
dividends or other
distributions, if any, pursuant to this Article III.
Section 3.6 Investment of Exchange Fund. Without prejudice to
the rights of any holder of Company Common Stock to receive the Per Share Merger
Consideration, the Exchange Agent shall invest any cash included in the Exchange
Fund, as directed by Laser, on a daily basis. Any interest and other income
resulting from such investments shall be paid to Laser.
Section 3.7 Closing of Company Transfer Books. At the Company
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Company Common Stock shall thereafter be made. If, after
the Company Effective Time, certificates representing shares of Company Common
Stock are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the Per Share Merger Consideration applicable thereto.
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Section 3.8 Dissenting Shares. Each outstanding share of
Company Common Stock as to which a written demand for appraisal is filed in
accordance with Section 262 of the DGCL and not withdrawn, and with respect to
which a consent is not given in favor of the Company Merger shall not be
converted into or represent a right to receive the Per Share Merger
Consideration unless and until the holder thereof shall have failed to perfect,
or shall have effectively withdrawn or lost, the right to appraisal of and
payment for each such share of Company Common Stock under Section 262, at which
time each such share shall be converted into the right to receive the Per Share
Merger Consideration. All such shares of Company Common Stock as to which such a
written demand for appraisal is so filed and not withdrawn and with respect to
which a consent is not given in favor of the Company Merger, except any such
shares of Company Common Stock the holder of which, prior to the Company
Effective Time, shall have effectively withdrawn or lost such right to appraisal
and payment for such shares of Company Common Stock under Section 262, are
herein referred to as "Dissenting Shares." The Company shall give Laser prompt
notice upon receipt by the Company of any written demands for appraisal rights,
withdrawal of such demands, and any other written communications delivered to
the Company pursuant to Section 262, and the Company shall give Laser the
opportunity, to the extent permitted by Law, to participate in all negotiations
and proceedings with respect to such demands. Except with the prior written
consent of Laser, the Company shall not voluntarily make any payment with
respect to any demands for appraisal rights and shall not settle or offer to
settle any such demands. Each holder of Dissenting Shares who becomes entitled,
pursuant to the provisions of Section 262, to payment for such shares of
Dissenting Shares under the provisions of Section 262 shall receive payment
therefor from the Surviving Corporation and such shares of Company Common Stock
shall be cancelled thereafter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Laser in a schedule delivered
to Laser prior to the execution hereof (which schedule shall contain appropriate
references to identify the representations and warranties herein to which the
information in such schedule relates) (the "Company Disclosure Schedule"), the
Company represents and warrants to Laser and Merger Sub as follows:
Section 4.1 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature
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of its activities makes such qualification necessary, except where the failure
to be so qualified would not individually or in the aggregate have a material
adverse effect on the business, results of operations or financial condition
of the Company and its subsidiaries, taken as a whole (a "Company Material
Adverse Effect").
Section 4.2 Capitalization. The authorized capital stock of
the Company consists of 80,000,000 shares of Company Common Stock and 20,000,000
shares of Company Preferred Stock. As of February 23, 1998, (i) 53,488,170
shares of Company Common Stock were issued and outstanding; (ii) 3,282,930
shares of Company Common Stock were issuable upon exercise of Employee Stock
Options to acquire 3,282,930 shares of Company Common Stock outstanding under
the Company Stock Option Plans (of which options to acquire 2,399,380 were
vested); and (iii) no shares of Company Preferred Stock were issued or
outstanding. As of such date, no shares of Company Common Stock were held as
treasury shares. All of the issued and outstanding shares of Company Common
Stock are validly issued, fully paid and nonassessable and free of preemptive
rights. As of the date hereof, except as set forth above, there are no shares of
capital stock of the Company issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating the Company to issue, transfer, sell, redeem, repurchase
or otherwise acquire any shares of its capital stock or securities. There are no
notes, bonds, debentures or other indebtedness of the Company having the right
to vote (or convertible into or exchangeable for securities having the right to
vote) on any matters upon which stockholders of the Company may vote.
Section 4.3 Subsidiaries. All the outstanding shares of
capital stock of, or other ownership interests in, each of the Company's
subsidiaries have been validly issued and are fully paid and nonassessable and
such shares (other than directors' qualifying shares and similar interests) are
owned directly or indirectly by the Company, free and clear of all Liens. Except
for the capital stock of the Company's subsidiaries and except as set forth in
Section 4.3 of the Company Disclosure Schedule, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, limited liability company, joint venture or other
entity. Each of the Company's subsidiaries that is a corporation is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation. Each of the Company's subsidiaries that is
a partnership or a limited liability company is duly formed and validly existing
under the Laws of its jurisdiction of formation. Each of the Company's
subsidiaries has the corporate power or the partnership power, as the case may
be, to carry on its business as it is now being conducted or presently proposed
to be conducted. Each the Company's subsidiaries that is a corporation is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not individually or in the aggregate
have a Company
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Material Adverse Effect. Each of the Company's subsidiaries that is a
partnership is duly qualified as a foreign partnership authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified would
not individually or in the aggregate have a Company Material Adverse Effect.
Except as set forth in Section 4.2 hereof, there are no outstanding options,
warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating the Company or any of its subsidiaries to
issue, transfer or sell any securities of any Company subsidiary. There are no
voting, stockholder or other agreements or understandings to which the Company
or any of the Company's subsidiaries is a party or is bound with respect to the
voting of the capital stock of the Company or any of the Company's subsidiaries.
Section 4.4 Authority Relative to this Agreement. The Company
has the corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Company, and no other
corporate actions or proceedings on the part of the Company (including any
action on the part of its stockholders) are necessary to authorize this
Agreement or the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization and
valid execution and delivery by Laser and Merger Sub, constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
or similar Laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
Section 4.5 Consents and Approvals; No Violations. Except for
applicable requirements of the HSR Act, the Securities Act, the Exchange Act,
Competition Laws and state securities or blue sky Laws, and the filing and
recordation of the Certificate of Merger as required by the DGCL, no filing
with, and no permit, authorization, consent or approval of, any governmental or
regulatory authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement, except for such filings, permits,
authorizations, consents or approvals the failure of which to be made or
obtained would not individually or in the aggregate have a Company Material
Adverse Effect. Except as set forth in Section 4.5 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company,
nor the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the provisions hereof, will (a) conflict
with or result in any breach of any provisions of the certificate of
incorporation or by-laws of the Company or the certificate of incorporation or
by-laws of any of the Company's subsidiaries; (b) result in a violation or
breach of, or constitute
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(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, any of the
terms, conditions or provisions of any material (as defined for purposes of
Form 10-K) Contract to which the Company or any of the Company's subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound; or (c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any of the Company's subsidiaries or any
of their properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults which would not individually or in the
aggregate have a Company Material Adverse Effect.
Section 4.6 Reports and Financial Statements.
(a) The Company has filed all reports, forms, registrations,
schedules, statements and other documents required to be filed by it with the
SEC since January 1, 1997 (the "Company SEC Reports"). As of their respective
dates, the Company SEC Reports complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder. Except to the
extent that information contained in any Company SEC Report has been amended,
revised or superseded by a later Company SEC Report filed and publicly available
prior to the date of this Agreement (as amended, revised or superseded by a
later Company SEC Report filed and publicly available prior to the date of this
Agreement, the "Filed Company SEC Reports"), none of the Filed Company SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements of the Company
included in the Filed Company SEC Reports complied as to form in all material
respects with the applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto have been prepared in accordance
with GAAP (except, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly present
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and their consolidated cash flows for the periods then ended
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
(c) Except as set forth in the Filed Company SEC Reports and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since the date of the most recent
consolidated balance sheet included in the Filed Company SEC Reports (the
"Company Balance Sheet Date"), neither the
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Company nor any of its subsidiaries has any material liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) required by
GAAP to be recognized or disclosed on a consolidated balance sheet of the
Company and its consolidated subsidiaries or in the notes thereto.
Section 4.7 Absence of Certain Changes or Events. Except as
set forth in the Filed Company SEC Reports, since the Company Balance Sheet
Date, the business of the Company and its subsidiaries has been conducted only
in the ordinary course of business consistent with past practice, and there has
not been any event, change or development which individually or in the aggregate
has had or would reasonably be expected to have a Company Material Adverse
Effect or would impair or delay the ability of the Company to consummate the
transactions contemplated by, or to satisfy its obligations under, this
Agreement. Except as set forth in Section 4.7 of the Company Disclosure
Schedule, during the period from the Company Balance Sheet Date through the date
of this Agreement, neither the Company nor any of its subsidiaries has:
(i) declared, set aside or paid any distributions
(whether in cash, stock or property) with respect to its capital stock
or (y) split, combined, or reclassified any of its capital stock or
issued or authorized the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock
(other than dividends or stock issuances by a wholly owned subsidiary
of the Company to the Company or another wholly owned subsidiary of the
Company);
(ii) issued, delivered, sold, pledged or otherwise
encumbered any shares of its capital stock, any other voting securities
or any securities convertible into, or any options, warrants or rights
to acquire, any such shares, voting securities or convertible
securities (other than the issuance of Company Common Stock upon the
exercise of Employee Stock Options in accordance with their terms and
issuances by a wholly owned subsidiary of the Company to the Company or
another wholly owned subsidiary of the Company);
(iii) in the case of the Company, amended its
certificate of incorporation or by-laws;
(iv) acquired or agreed to acquire by merging or
consolidating with, or in purchasing a substantial portion of the
assets of, or in any other manner, any business or any corporation,
limited liability company, partnership, association or other business
organization or division thereof material to the Company;
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(v) other than in the ordinary course of business,
(x) incurred any indebtedness or (y) made any loans, advances or
capital contributions to, or investments in, any other person (other
than the Company or a subsidiary of the Company), in any case in an
amount material to the Company;
(vi) other than in the ordinary course of business or
consistent with the Company's capital budgets heretofore disclosed to
Laser, made or agreed to make any capital expenditure or capital
expenditures;
(vii) other than in the ordinary course of business,
made any Tax election or settled or compromised any material income Tax
liability;
(viii) except in the ordinary course of business or
except as would not reasonably be expected to have a Company Material
Adverse Effect, entered into any Contracts or amended or terminated any
material Contract or agreement to which the Company or any of its
subsidiaries is a party or waived, released or assigned any material
rights or claims thereunder;
(ix) except as required by Law or contractual
obligation or in the ordinary course of business consistent with past
practice, (a) increased the compensation of any of its employees, (b)
entered into any Contract with any of its employees regarding his or
her employment, compensation or benefits, or (c) adopted any plan,
arrangement or policy which would become a Company Plan or amended any
Company Plan to the extent such adoption or amendment would create or
increase any material liability or obligation on the part of the
Company or its subsidiaries;
(x) entered into any transaction or Contract with, or
(except pursuant to the Affiliate Agreements) made any payment to, any
Affiliate of the Company (other than to the Company's subsidiaries or
its or their officers or directors in the ordinary course of business
consistent with past practice); or
(xi) agreed to do any of the foregoing.
Section 4.8 Litigation. Except as disclosed in the Filed
Company SEC Reports and as set forth in Section 4.8 of the Company Disclosure
Schedule, as of the
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date hereof, to the Company's knowledge there is no suit, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries that individually or in the
aggregate would reasonably be expected to (i) have a Company Material Adverse
Effect (taking into account any reserve therefor as of the Company Balance Sheet
Date), or (ii) delay in any material respect or prevent the consummation of any
of the transactions contemplated by this Agreement, nor is there any judgment,
order, decree, statute, Law, ordinance, rule or regulation of any Governmental
Entity or arbitrator outstanding against the Company or any of its subsidiaries
having, or which would reasonably be expected to have, any effect referred to in
clause (i) or (ii) above.
Section 4.9 Information in Disclosure Documents and
Registration Statement. None of the information to be supplied by the Company
for inclusion or incorporation by reference in the information statement to be
distributed in connection with the Company Merger (as amended or supplemented,
the "Information Statement") or the related filing on Schedule 13E-3 (as amended
or supplemented, the "Schedule 13E-3") or the notice to be provided to the
Company's stockholders pursuant to Section 14(f) of the Exchange Act (as amended
or supplemented, the "Section 14(f) Notice") or the registration statement on
Form S-4 under the Securities Act for the purpose of registering the shares of
Laser Common Stock to be issued in the Company Merger (as amended or
supplemented, the "Registration Statement") will, in the case of the
Registration Statement, at the time it becomes effective and at the Company
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or, in the case of the Information Statement,
the Schedule 13E-3, the Section 14(f) Notice, at the time of the mailing thereof
and, in the case of the Information Statement, the Schedule 13E-3 at the Company
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Information Statement, the Schedule 13E-3 and the Section
14(f) Notice will comply as to form in all material respects with the provisions
of the Exchange Act, and the rules and regulations promulgated thereunder.
Section 4.10 Taxes. Except as would not have a Company
Material Adverse Effect or as set forth in Section 4.10 of the Company
Disclosure Schedule:
(a) Each of the Company and each of its subsidiaries has (i)
filed (or there has been filed on its behalf) with the appropriate Governmental
Entities all Tax Returns required to be filed by it, and all such Tax Returns
are true, correct and complete and (ii) has paid all Taxes due by it;
(b) there is no action, suit, investigation, audit, claim or
assessment pending or proposed in writing or threatened in writing with respect
to Taxes of the
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Company or any of its subsidiaries and, to the best of the Company's knowledge,
no basis exists therefor;
(c) there are no Liens for Taxes upon the assets of the
Company or any of its subsidiaries except Liens relating to current Taxes not
yet due;
(d) the United States federal income Tax Returns which include
the Company and the Company's subsidiaries have been examined, and such
examinations have been completed, by the Internal Revenue Service (or the
applicable statutes of limitation for the assessment of federal income Taxes for
such periods have expired) for all periods through and including 1985.
Section 4.11 Compliance with Applicable Law. Except as
disclosed in the Filed Company SEC Reports, the Company and its subsidiaries
have received such certificates, permits, licenses, franchises, consents,
approvals, orders, authorizations and clearances from appropriate Governmental
Entities (the "Company Licenses") as are necessary to own or lease and operate
their respective properties and to conduct their respective businesses
substantially in the manner described in the Company SEC Reports and as
currently owned or leased and conducted, and all such Company Licenses are valid
and in full force and effect, except for any such certificates, permits,
licenses, franchises, consents, approvals, orders, authorizations and clearances
which the failure to have or to be in full force and effect would not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect. Except as disclosed in Filed Company SEC Reports, the Company
and the Company's subsidiaries are in compliance with their respective
obligations under the Company Licenses, with only such exceptions as,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect. Except as disclosed in the Filed Company SEC
Reports, the Company and its subsidiaries are in compliance with all judgments,
orders, decrees, statutes, Laws, ordinances, rules and regulations of any
Governmental Entity applicable to them, except for such noncompliance which
individually or in the aggregate would not have a Company Material Adverse
Effect.
Section 4.12 Labor Matters. Except as disclosed in the Filed
Company SEC Reports, neither the Company nor any of the Company's subsidiaries
has any labor contracts, collective bargaining agreements or material employment
or consulting agreements with any persons employed by or otherwise performing
services primarily for the Company or any of the Company's subsidiaries (the
"Company Business Personnel") or any representative of any Company Business
Personnel. Except as set forth in the Filed Company SEC Reports, neither the
Company nor any of its subsidiaries has engaged in any unfair labor practice
with respect to Company Business Personnel, and there is no unfair labor
practice complaint pending against the Company or any of its subsidiaries with
respect to Company Business Personnel which, in either such case, would
reasonably be expected to have, individually or in the aggregate, a
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Company Material Adverse Effect. Except as set forth in the Filed Company SEC
Reports, there is no material labor strike, dispute, slowdown or stoppage
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries, and neither the Company nor any of its subsidiaries has
experienced any material primary work stoppage or other material labor
difficulty involving its employees during the last three (3) years.
Section 4.13 ERISA Compliance.
(a) The Company has delivered to Laser or will deliver to
Laser prior to the Company Effective Time each "employee pension benefit plan"
(as defined in Section 3(2) of ERISA) (a "Pension Plan"), each "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) (a "Welfare Plan"), each
material bonus, stock option, stock purchase, stock ownership, stock bonus,
restricted stock, deferred compensation plan or arrangement and each other
material employee fringe benefit plan or arrangement maintained, contributed to
or required to be maintained or contributed to by the Company or any of its
subsidiaries or any other person or entity that, together with the Company, is
or was treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code (each, a "Commonly Controlled Entity") which is currently in effect for the
benefit of any current or former directors, officers, employees or independent
contractors of the Company or any of its subsidiaries (collectively, the
"Company Plans"). The Company has delivered to Laser or will deliver to Laser
prior to the Company Effective Time true, complete and correct copies of (x) the
two most recent annual reports on Form 5500 filed with the Internal Revenue
Service with respect to each Company Plan (if any such report was required), (y)
the most recent summary plan description for each Company Plan for which such
summary plan description is required and (z) each currently effective trust
agreement, insurance or group annuity contract and each other material funding
or financing arrangement relating to any Company Plan.
(b) No Commonly Controlled Entity has incurred any liability
under Title IV of ERISA, other than for contributions not yet due to a defined
benefit pension plan subject to Title IV of ERISA and other than for the payment
of premiums to the PBGC not yet due, and no condition exists that presents a
material risk of incurring any such liability, which liability, to the extent
currently due, has not been fully paid as of the date hereof and would
individually or in the aggregate be reasonably likely to result in a Company
Material Adverse Effect.
(c) Except as set forth in Company SEC reports or in Section 4.13 of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
has any obligation to provide any welfare benefits to employees or former
employees following termination of employment except (i) for benefits the cost
of which is borne entirely by the employee or former employee, (ii) as required
under Section 4980 of the
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Code or other applicable law or (iii) obligations to provide such benefits to
Company employees employed in non-U.S. jurisdictions.
(d) No Commonly Controlled Entity has engaged in a transaction
described in Section 4069 of ERISA that could subject the Company or any of its
subsidiaries or Laser to liability at any time after the date hereof, which
liability would be reasonably likely to result in a Company Material Adverse
Effect.
(e) No Commonly Controlled Entity has withdrawn from any
multiemployer plan where such withdrawal has resulted in any actual or potential
"withdrawal liability" (as defined in Section 4201 of ERISA) that has not been
fully paid, which liability would be reasonably likely to result in a Company
Material Adverse Effect.
(f) Except as set forth in Section 4.13 of the Company
Disclosure Schedule or as specifically provided in this Agreement, the
transactions contemplated by this Agreement will not, either alone or in
connection with another event, cause there to be paid or become payable any
additional benefits or any acceleration of the time of payment or vesting of any
benefits under any Company Plan or under any employment, severance, termination
or compensation agreement to which the Company is a party as of the Company
Effective Time.
Section 4.14 Environmental Matters.
(a) Except as disclosed in the Filed Company SEC Reports, the
Company and its subsidiaries are in compliance with all applicable Environmental
Laws, which compliance includes the possession of permits and governmental
authorizations required under applicable Environmental Laws ("Environmental
Permits") and compliance with the terms and conditions thereof, except where
such non-compliance would not result in a Company Material Adverse Effect.
(b) Except as disclosed in the Filed Company SEC Reports,
there are no Environmental Claims pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that would reasonably
be expected to result in a Company Material Adverse Effect.
(c) Except as disclosed in the Filed Company SEC Reports, the
properties presently or to the knowledge of the Company formerly owned, leased
or operated by the Company or its subsidiaries (including groundwater under the
properties) (the "Properties") do not contain any Hazardous Substance other than
as permitted under applicable Environmental Law; provided, however, that with
respect to Properties formerly owned, leased or operated by the Company or its
subsidiaries,
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such representation is limited to the period prior to the disposition of such
Properties by the Company or its subsidiaries.
(d) Except as disclosed in the Filed Company SEC Reports, to
the knowledge of the Company, no Hazardous Substance has been disposed of or
transported from any of the Properties during the time any such Property was
owned, leased or operated by the Company or any of its subsidiaries, other than
as permitted under applicable Environmental Law and in effect at the time of
such disposal or transportation.
(e) Except as disclosed in the Filed Company SEC Reports, to
the knowledge of the Company, the Company and its subsidiaries have not become
obligated, whether by operation of Law or through contractual agreement, to
indemnify any other person or otherwise to assume liability for any claim
brought pursuant to any Environmental Law which could reasonably be expected to
have a Company Material Adverse Effect.
Section 4.15 Intellectual Property. The Company has previously
delivered to Laser a list, which, to the knowledge of the Company, is true and
correct as of the date hereof in all material respects, of all material issued
patents and registered trademarks of the Company. Except as set forth in Section
4.15 of the Company Disclosure Schedule, the Company and its subsidiaries own or
have sufficient rights to use all material Intellectual Property used in
connection with the business of the Company and its subsidiaries as currently
conducted. As used in this Section 4.15, the term "material," when applied to
Intellectual Property, means that such Intellectual Property is used in a
significant manner to conduct the business of the Company and its subsidiaries
as it is currently conducted.
Section 4.16 Contracts. Except as set forth in Section 4.16 of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
is a party to or bound by any material Contract, other than (i) the Affiliate
Agreements listed in Section 4.10 of the Holdings Disclosure Schedule, (ii) any
Contract filed or incorporated by reference as an exhibit to any Filed Company
SEC Report or (iii) any Contract (other than the Affiliate Agreements listed in
Section 4.10 of the Holdings Disclosure Schedule) entered into in the ordinary
course of business consistent with past practice.
Section 4.17 Opinion of Financial Advisor. The Board of
Directors of the Company has received the opinion of Credit Suisse First Boston,
dated the date hereof to the effect that the Per Share Merger Consideration is
fair to the holders of shares of Company Common Stock (other than Worldwide)
from a financial point of view.
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Section 4.18 Takeover Statute. The Board of Directors of the
Company has approved the Holdings Merger solely for the purpose of rendering
inapplicable, and such approval is sufficient to render inapplicable, to the
Company Merger and the other transactions contemplated by this Agreement the
provisions of Section 203 of the DGCL. To the best of the Company's knowledge,
no other state takeover statute or similar statute or regulation applies or
purports to apply to the Company Merger, this Agreement or any of the
transactions contemplated hereby, and no provision of the certificate of
incorporation or by-laws of the Company or certificates of incorporation or
by-laws (or comparable organizational documents) of any subsidiary of the
Company would, directly or indirectly, restrict or impair the ability of Laser
to vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of capital stock of the Company or any of its subsidiaries that may be
acquired or controlled by Laser.
Section 4.19 Brokers. No broker, investment banker or other
person, other than Credit Suisse First Boston, the fees and expenses of which
will be paid by the Company (as reflected in an agreement between Credit Suisse
First Boston and the Company, a copy of which has been furnished to Laser), is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LASER
AND MERGER SUB
Laser and Merger Sub represent and warrant to the Company as
follows:
Section 5.1 Organization. Laser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted. Laser is duly qualified as a foreign corporation to do business, and
is in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
individually or in the aggregate have a material adverse effect on the business,
results of operations or financial condition of Laser and its subsidiaries,
taken as a whole (a "Laser Material Adverse Effect").
Section 5.2 Capitalization. The authorized capital stock of
Laser consists of 200,000,000 shares of Laser Common Stock, and 2,000,000 shares
of Laser Preferred Stock. As of February 23, 1998, (i) 85,988,627 shares of
Laser Common Stock were issued and outstanding; (ii) 16,129,197 shares of Laser
Common Stock were
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issuable upon exercise of employee and non-employee stock options (the "Laser
Stock Options") outstanding under all stock option plans of Laser (the "Laser
Stock Option Plans") or granted pursuant to employment agreements; and (iii) no
shares of Laser Preferred Stock were issued and outstanding. As of such date,
4,568,959 shares of Laser Common Stock were held as treasury shares. All of the
issued and outstanding shares of Laser Common Stock are validly issued, fully
paid and nonassessable and free of preemptive rights. All of the shares of Laser
Common Stock issuable as consideration in the Company Merger at the Company
Effective Time in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights. As of such date, except as set forth above, there are no shares of
capital stock of Laser issued or outstanding or, as of such date or as of the
date hereof, except as set forth above, any options, warrants, subscriptions,
calls, rights, convertible securities or other agreements or commitments
obligating Laser to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock or securities, or the capital stock or
securities of Laser. There are no notes, bonds, debentures or other indebtedness
of Laser having the right to vote (or convertible into or exchangeable for
securities having the right to vote) on any matters upon which stockholders of
Laser may vote.
Section 5.3 Merger Sub. Merger Sub is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Merger Sub is a newly incorporated company formed solely for purposes
of consummating the transactions contemplated by this Agreement and has engaged
in no activity other than as provided in, or contemplated by, this Agreement.
The authorized capital stock of Merger Sub consists of 1,000 shares of Merger
Sub Common Stock, all of which are validly issued, fully paid and nonassessable
and are owned by Laser. Except as set forth above there are no shares of capital
stock of Merger Sub issued or outstanding or any options, warrants,
subscription, calls, rights, convertible securities or other agreements or
commitments obligating Merger Sub to issue, transfer, sell, redeem, repurchase
or otherwise acquire any shares of its capital stock or securities.
Section 5.4 Authority Relative to this Agreement. Each of
Laser and Merger Sub has the corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Laser and Merger Sub and the consummation by Laser and Merger Sub of the
transactions contemplated hereby have been duly authorized by the Boards of
Directors of Laser and Merger Sub, and no other corporate action or proceedings
on the part of Laser or Merger Sub (including any action on the part of its
stockholders) is necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Laser and Merger Sub and, assuming it is a valid and binding obligation of the
Company, constitutes a valid and binding agreement of Laser and Merger Sub,
enforceable against Laser and Merger Sub in accordance with its terms, except
that such
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enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium or similar Laws now or hereafter in effect relating to creditors'
rights generally and other forms of equitable relief may be subject to equitable
defenses and the discretion of the court before which any proceedings therefor
may be brought.
Section 5.5 Consents and Approvals; No Violations. Except for
applicable requirements of the HSR Act, the Securities Act, the Exchange Act,
Competition Laws, and state securities or blue sky Laws, and the filing of the
Certificate of Merger in such form as required by, and executed in accordance
with the relevant provisions of, the DGCL, no filing with, and no permit,
authorization, consent or approval of, any governmental or regulatory authority
is necessary for the consummation by Laser or Merger Sub of the transactions
contemplated by this Agreement, except for such filings, permits,
authorizations, consents or approvals the failure of which to be made or
obtained would not (i) individually or in the aggregate have a Laser Material
Adverse Effect or (ii) delay in any material respect or prevent the consummation
of any of the transactions contemplated by this Agreement. Neither the execution
and delivery of this Agreement by Laser or Merger Sub nor the consummation by
Laser or Merger Sub of the transactions contemplated hereby, nor compliance by
Laser with any of the provisions hereof, will (a) conflict with or result in any
breach of any provisions of the certificate of incorporation or by-laws of Laser
or Merger Sub; (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material (as defined for purposes of Form 10-K)
Contract to which Laser, Merger Sub or any of their subsidiaries is a party or
by which any of them or any of their properties or assets may be bound; or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Laser, Merger Sub, any of their subsidiaries or any of their
properties or assets, except, in the case of clauses (b) and (c), for
violations, breaches or defaults which would not individually or in the
aggregate have a Laser Material Adverse Effect.
Section 5.6 Reports and Financial Statements.
(a) Laser has filed all reports, forms, registrations,
schedules, statements and other documents required to be filed by it with the
SEC since January 1, 1997 (the "Laser SEC Reports"). As of their respective
dates, the Laser SEC Reports complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder. Except to the
extent that information contained in any Laser SEC Report has been amended,
revised or superseded by a later Laser SEC Report filed and publicly available
prior to the date of this Agreement (as amended, revised or superseded by a
later filed Laser SEC Report to the date of this Agreement, the "Filed Laser SEC
Reports"), none of the Filed Laser SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated
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therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements of Laser included in
the Filed Laser SEC Reports complied as to form in all material respects with
the applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of the unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly present the
consolidated financial position of Laser and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in the case of the
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein).
(c) Except as set forth in the Filed Laser SEC Reports and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since the date of the most recent
consolidated balance sheet included in the Filed Laser SEC Reports (the "Laser
Balance Sheet Date"), neither Laser nor any of the Laser subsidiaries has any
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be recognized or disclosed on a
consolidated balance sheet of Laser and its consolidated subsidiaries or in the
notes thereto.
Section 5.7 Absence of Certain Changes or Events. Except as
set forth in the Filed Laser SEC Reports, since the Laser Balance Sheet Date,
the business of Laser and its subsidiaries has been conducted only in the
ordinary course of business consistent with past practice, and there has not
been any event, change or development which individually or in the aggregate has
had or would reasonably be expected to have a Laser Material Adverse Effect or
would impair or delay the ability of Laser to consummate the transactions
contemplated by, or to satisfy its obligations under, this Agreement.
Section 5.8 Litigation. Except as disclosed in the Filed Laser
SEC Reports, there is no suit, action, proceeding or investigation pending or,
to the knowledge of Laser, threatened against or affecting Laser or any of its
subsidiaries that individually or in the aggregate would reasonably be expected
to (i) have a Laser Material Adverse Effect (taking into account any reserve
therefor as of the most recent balance sheet included in the Filed Laser SEC
Reports) or (ii) delay in any material respect or prevent the consummation of
any of the transactions contemplated by this Agreement, nor is there any
judgment, order, decree, statute, Law, ordinance, rule or regulation of any
Governmental Entity or arbitrator outstanding against Laser or any of
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its subsidiaries having, or which would reasonably be expected to have, any
effect referred to in clause (i) or (ii) above.
Section 5.9 Information in Disclosure Documents and
Registration Statement. None of the information to be supplied by Laser for
inclusion or incorporation by reference in (a) the Registration Statement or
(b) the Information Statement, the Schedule 13E-3 or the Section 14(f) Notice
will, in the case of the Registration Statement, at the time it becomes
effective and at the Company Effective Time contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or, in the case of
the Information Statement, the Schedule 13E-3 and the Section 14(f) Notice, at
the time of the mailing thereof and, in the case of the Information Statement
and the Schedule 13E-3, at the Company Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations promulgated thereunder. The
Schedule 13E-3 will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder.
Section 5.10 Taxes.
(a) Laser and its subsidiaries have filed (or there have been
filed on their behalf) with the appropriate governmental authorities all
material Tax Returns required to be filed by them and such Tax Returns are true,
correct and complete in all material respects and disclose all Taxes required to
be paid by them for the periods covered thereby; and
(b) all material Taxes (whether or not shown on any Tax
Return) owed by Laser and its subsidiaries and required to be paid on or before
the Closing Date have been (or will be) timely paid or, in the case of Taxes
which Laser or any of its subsidiaries is presently contesting in good faith, an
adequate reserve has been established for such Taxes in accordance with GAAP.
Section 5.11 Compliance with Applicable Law. Except as
disclosed in the Filed Laser SEC Reports, Laser and its subsidiaries have
received such certificates, permits, licenses, franchises, consents, approvals,
orders, authorizations and clearances from appropriate Governmental Entities
(the "Laser Licenses") as are necessary to own or lease and operate their
respective properties and to conduct their respective businesses substantially
in the manner described in the Laser SEC Reports and as currently owned or
leased and conducted, and all such Laser Licenses are valid and in full force
and effect, except for any such certificates, permits, licenses, franchises,
consents, approvals,
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orders, authorizations and clearances which the failure to have or to be in full
force and effect would not reasonably be expected to have, individually or in
the aggregate, a Laser Material Adverse Effect. Except as disclosed in the Filed
Laser SEC Reports, Laser and its subsidiaries are in compliance in all material
respects with their respective obligations under the Laser Licenses, with only
such exceptions as, individually or in the aggregate, would not reasonably be
expected to have a Laser Material Adverse Effect. Except as disclosed in the
Filed Laser SEC Reports, Laser and its subsidiaries are in compliance with all
judgments, orders, decrees, statutes, Laws, ordinances, rules and regulations of
any Governmental Entity applicable to them, except for such noncompliance which
individually or in the aggregate would not have a Laser Material Adverse Effect.
Section 5.12 Brokers. No broker, investment banker or other
person, other than Morgan Stanley, the fees and expenses of which will be paid
by Laser (as reflected in an agreement between Morgan Stanley and Laser) is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Laser.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of Business by the Company. During the
period from the date of this Agreement to the Holdings Effective Time, except as
expressly permitted by this Agreement or with the prior written consent of Laser
or as set forth in Section 6.1 of the Company Disclosure Schedule, the Company
shall, and shall cause its subsidiaries to, carry on the business of the Company
and its subsidiaries in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable Laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact the current business
organizations of the Company and its subsidiaries, and to preserve its
relationships with those persons having business dealings with the Company and
its subsidiaries to the end that the goodwill and ongoing businesses of the
Company and its subsidiaries shall be unimpaired at the Holdings Effective Time.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Holdings Effective Time, the Company agrees as to
itself and its subsidiaries that, except as expressly permitted by this
Agreement or with the prior written consent of Laser or as set forth in Section
6.1 of the Company Disclosure Schedule:
(i) Neither the Company nor any of its subsidiaries
shall (x) declare, set aside or pay any distributions (whether in cash,
stock or
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property) with respect to its capital stock or (y) split, combine, or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock (other than dividends or stock
issuances by a wholly owned subsidiary of the Company to the Company or
another wholly owned subsidiary of the Company);
(ii) Neither the Company nor any of its subsidiaries
shall issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any options, warrants or rights to acquire, any
such shares, voting securities or convertible securities (other than
the issuance of Company Common Stock upon the exercise of Employee
Stock Options in accordance with their terms and issuances by a wholly
owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company);
(iii) The Company shall not amend its certificate of
incorporation or by-laws;
(iv) Other than as would not be material to the
Company, the Company and its subsidiaries shall not acquire or agree to
acquire (x) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or in any other manner, any
business or any corporation, limited liability company, partnership,
joint venture, association or other business organization or division
thereof or (y) any assets that individually or in the aggregate are
material to the Company and its subsidiaries;
(v) Other than as would not be material to the
Company, the Company and its subsidiaries shall not sell, lease,
license or otherwise encumber or subject to any Lien or otherwise
dispose of any of the properties or assets of the Company and its
subsidiaries, other than in the ordinary course of business consistent
with past practice or pursuant to existing contractual obligations, if
any, set forth in Section 6.1 of the Company Disclosure Schedule;
(vi) Other than in the ordinary course of business or
as would not be material to the Company, the Company and its
subsidiaries shall not (x) incur any indebtedness or (y) make any
loans, advances or capital contributions to, or investments in, any
other person (other than the Company or a subsidiary of the Company),
other than to officers and
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employees of the Company and its subsidiaries for travel, business or
relocation expenses in the ordinary course of business;
(vii) Other than in the ordinary course of business
or consistent with the Company's 1998 capital budget;
(viii) Other than in the ordinary course of business,
the Company and its subsidiaries shall not make any material Tax
election or settle or compromise any material income Tax liability;
(ix) Except in the ordinary course of business or
except as would not reasonably be expected to have a Company Material
Adverse Effect, the Company and its subsidiaries (i) shall not enter
into any Contracts and (ii) shall not modify, amend or terminate any
material Contract or agreement to which the Company or any of its
subsidiaries is, or as of the Company Effective Time will be, a party
or waive, release or assign any material rights or claims thereunder;
(x) Except as required by Law or previously existing
contractual arrangements, in the ordinary course of business consistent
with past practice or as disclosed or otherwise provided in this
Agreement, the Company will not, nor will it permit any of its
subsidiaries to, (a) increase the compensation of any of its employees,
(b) enter into any Contract with any of its employees regarding his or
her employment, compensation or benefits, or (c) adopt any plan,
arrangement or policy which would become a Company Plan or amend any
Company Plan to the extent such adoption or amendment would create or
materially increase any material liability or obligation on the part of
the Company or its subsidiaries;
(xi) The Company and its subsidiaries shall not make
any change to their accounting methods, principles or practices, except
as may be required by GAAP or Regulation S-X promulgated by the SEC or
by Law;
(xii) The Company shall not, and shall not permit any
of its subsidiaries to, create, incur, suffer to exist or assume any
material Lien on any of their assets, except as would not have a
Company Material Adverse Effect or materially impair the Company's
conduct of the business and operations of the Company and its
subsidiaries, as presently conducted;
(xiii) The Company shall not, and shall not permit
any of its subsidiaries to enter into any transaction or contract with,
or
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(except pursuant to the Affiliate Agreements) make any payment to, any
Affiliate of the Company (other than the Company's subsidiaries or its
or their officers or directors in the ordinary course of business
consistent with past practice); and
(xiv) The Company and its subsidiaries shall not
authorize, or commit or agree to take, any of the foregoing actions.
Section 6.2 Other Actions. During the period from the date
hereof to the Holdings Effective Time, the Company and Laser shall not, and
shall not permit any of their respective subsidiaries to, take any action that
would, or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Company Merger set forth
in Article VIII hereof not being satisfied.
Section 6.3 Advice of Changes. Upon obtaining knowledge of any
such occurrence, the Company and Laser shall promptly advise the other party
orally and in writing of (i) any representation or warranty made by it contained
in this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or (iii) any change or event (x) having, or which, insofar as can
reasonably be foreseen, would have, in the case of Laser, a Laser Material
Adverse Effect and, in the case of the Company, a Company Material Adverse
Effect, (y) having, or which, insofar as can reasonably be foreseen, would have,
the effect set forth in clause (i) above or (z) which has resulted, or which,
insofar as can reasonably be foreseen, would result, in any of the conditions
set forth in Article VIII hereof not being satisfied; provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section 6.4 Conduct of Business of Merger Sub. From the date
hereof to the Company Effective Time, Merger Sub shall not (i) engage in any
activities of any nature, (ii) acquire any assets, or (iii) incur any
indebtedness or assume any liabilities or obligations, in each case, except as
provided in or contemplated by this Agreement.
Section 6.5 Section 14(f) Notice. Promptly after the date
hereof, Laser shall provide to the Company in writing the information with
respect to the Laser Designees (as defined in the Holdings Merger Agreement)
required by Section 14(f) of the Exchange Act and Rule 14f-1 of the SEC.
Promptly after its receipt of such
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information, the Company shall file with the SEC and mail to all stockholders of
record of the Company the Section 14(f) Notice.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Preparation of the Registration Statement, the
Information Statement, the Schedule 13E-3 and the Section 14(f) Notice. As soon
as reasonably practicable following the date of this Agreement, Laser and the
Company shall prepare and file with the SEC the Information Statement and Laser
shall prepare and file with the SEC the Registration Statement, in which the
Information Statement will be included as a prospectus (including the financial
statements and pro forma financial information required to be set forth
therein), and the Schedule 13E-3 and the Section 14(f) Notice. Laser shall use
all reasonable best efforts to have the Registration Statement declared
effective under the Securities Act and the Schedule 13E-3 and the Section 14(f)
Notice cleared by the SEC and mailed as promptly as practicable after such
filing. The Company will use all reasonable best efforts to cause the
Information Statement and the Schedule 13E-3 and the Section 14(f) Notice to be
mailed to the Company's stockholders as promptly as practicable after it has
been cleared by the SEC. Each of Laser and the Company shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities Laws in connection
with the issuance of Laser Common Stock in connection with the Company Merger
and the Holdings Merger. The Company shall furnish all information concerning
the Company, its subsidiaries and the holders of the Company Common Stock and
Laser shall furnish all information concerning Laser and its subsidiaries, in
each case, as may be reasonably requested in connection with any such action.
Section 7.2 Access and Information; Confidentiality. The
Company and Laser shall each afford to the other and to the other's financial
advisors, legal counsel, accountants, consultants and other representatives full
access at all reasonable times throughout the period prior to the Company
Effective Time to all of its books, records, properties, plants and personnel
(provided that all such access shall be on reasonable advance notice and shall
not disrupt normal business operations) and, during such period, each shall
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal or
state securities Laws, and (b) all other information as such other party may
reasonably request, provided that no investigation pursuant to this Section 7.2
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective parties to consummate the Company Merger. Each
party and their respective affiliates, representatives and agents shall hold in
confidence all nonpublic information in accordance with the terms of the
Confidentiality Agreements between Laser and the Company dated February 4, 1998
and February 23, 1998.
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Section 7.3 Comfort Letters.
(a) The Company shall use its reasonable best efforts to cause
to be delivered to Laser "comfort" letters of Ernst & Young, LLP, the Company's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the date on which the Information
Statement is mailed to the Company's stockholders, and addressed to Laser and
the Company, in form and substance reasonably satisfactory to Laser and as is
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
(b) Laser shall use its reasonable best efforts to cause to be
delivered to the Company "comfort" letters of Arthur Andersen, LLP, Laser's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the date on which the Information
Statement is mailed to the Company's stockholders, and addressed to the Company
and Laser, in form and substance reasonably satisfactory to the Company and as
is reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
Section 7.4 Listing Application. Laser shall prepare and
submit to the NYSE a listing application covering the Laser Shares to be issued
in connection with the Company Merger, and shall use its reasonable best efforts
to obtain, prior to the Company Effective Time, approval for the listing of such
Laser Shares, subject to official notice of issuance.
Section 7.5 Affiliates. Prior to the Company Effective Time,
the Company shall cause to be prepared and delivered to Laser a list (reasonably
satisfactory to counsel for Laser) identifying each person who, at the time the
Information Statement is mailed to the Company's stockholders, may be deemed to
be an "affiliate" of the Company, as such term is used in paragraphs (c) and (d)
of Rule 145 under the Securities Act (the "Company Rule 145 Affiliates"). The
Company shall use its reasonable best efforts to cause such person who is
identified as a Company Rule 145 Affiliate in such list to deliver to Laser on
or prior to the Company Effective Time a written agreement, in customary form,
that such Company Rule 145 Affiliate will not (i) sell, pledge, transfer or
otherwise dispose of, or in any other way reduce such Company Rule 145
Affiliate's risk relative to, any Laser Shares issued to such Company Rule 145
Affiliate in connection with the Company Merger, except pursuant to an effective
registration statement or in compliance with such Rule 145 or another exemption
from the registration requirements of the Securities Act or (ii) sell or in any
other way reduce such Rule 145 Affiliate's risk relative to any Laser Shares
received in
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the Company Merger (within the meaning of Section 201.01 of the SEC's Financial
Reporting Release No. 1) during the period commencing thirty (30) days prior to
the Company Effective Time and ending at such time as the financial results
(including combined sales and net income) covering at least thirty (30) days of
post-Merger operations have been published, except as permitted by Staff
Accounting Bulletin No. 76 issued by the SEC.
Section 7.6 HSR Act; Competition Laws. As soon as reasonably
practicable, the Company, Laser and Merger Sub shall make or cause to be made
all filings and submissions under the HSR Act (if applicable) and any other
applicable Competition Laws as may be reasonably required to be made in
connection with this Agreement and the transactions contemplated hereby. Subject
to Section 7.2 hereof, the Company will furnish to Laser and Laser will furnish
to the Company, such information and assistance as the other may reasonably
request in connection with the preparation of any such filings or submissions.
Subject to Section 7.2 hereof, the Company will provide Laser, and Laser will
provide the Company, with copies of all correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
party or any of its representatives, on the one hand, and any governmental
agency or authority or members of their respective staffs, on the other hand,
with respect to this Agreement and the transactions contemplated hereby. The
Company and Laser shall consult with one another with respect to any such
correspondence, filings or communications and shall engage in discussions with
any Governmental Entity on a joint basis.
Section 7.7 Employee Matters.
(a) From and after the Holdings Effective Time, Laser shall
honor, and shall cause the Company to honor, all employment, severance,
termination, consulting and retirement agreements to which the Company is a
party as of the Holdings Effective Time; provided, however, that (i) neither
Laser nor the Company shall have any responsibility for the Company's
obligations under that certain employment agreement entered into as of October
1, 1997, between the Company and Jerry W. Levin (except for the incentive
payment provided for in section 3.2(b) thereof (relating to the divestiture of
Coleman Safety & Security Products, Inc.), which shall be the responsibility of
the Company and paid in accordance with the terms of section 3.2(b) thereof),
and (ii) neither Laser nor the Company shall have any responsibility for the
Company's obligations under that certain employment agreement entered into as of
July 1, 1997, between the Company and Paul E. Shapiro. Except as provided in the
first sentence of Section 7.7(b) or the proviso to this sentence, from and after
the Holdings Effective Time, Laser will cause the Company to allow Company
employees to participate in Laser employee benefit plans on substantially the
same basis as similarly situated Laser employees; provided, however, that Laser
will cause the Company to continue the Company Plans for at least six (6) months
following the Holdings Effective
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Time. Laser will or will cause the Company to give Company employees full credit
for purposes of eligibility and vesting of benefits and benefit accrual for
service with the Company and its affiliates prior to the Holdings Effective Time
under each Laser employee benefit plan; provided, however, that no such
crediting of service results in duplication of benefits. With respect to any
welfare benefit plans maintained for the benefit of Company employees from and
after the Holdings Effective Time, Laser shall (i) cause there to be waived any
pre-existing condition limitations and (ii) give effect, in determining any
deductible and maximum out-of-pocket limitations, to claims incurred and amounts
paid by, and amounts reimbursed to, such employees with respect to similar plans
maintained by the Company for such employee's benefit immediately prior to the
Holdings Effective Time. Laser acknowledges that, for the purposes of certain of
such Company Plans and certain of such other employment, severance, termination,
consulting and retirement agreements to which the Company is currently a party,
the consummation of the Holdings Merger will constitute a "change in control" of
the Company (as such term is defined in such plans and agreements). Laser agrees
to cause the Company, after the Holdings Effective Time, to pay all amounts
provided under such Company Plans and agreements as a result of a change in
control of the Company in accordance with their respective terms and to honor,
and to cause the Company to honor, all rights, privileges and modifications to
or with respect to any such Company Plans or agreements which become effective
as a result of such change in control.
(b) Laser shall cause the Company to continue the Company's
Executive Annual Incentive Policy for the remainder of 1998, and participants
therein shall not be eligible for participation in an analogous Laser incentive
plan in respect of 1998. Laser shall honor, and shall cause the Company to
honor, the Company's Executive Severance Policy without any amendment adverse to
participants. Laser shall provide severance benefits for employees of the
Company, who are not participants in Company's Executive Severance Policy and
who do not have employment agreements with the Company, under the Laser
severance policy on the same basis as similarly situated Laser employees
provided that severance benefits shall be no less than those set forth on
Schedule 7.7(b).
(c) Effective as of the ninety-first (91st) day following the
Holdings Effective Time, the participants in the Executive Severance Policy set
forth on Schedule 7.7(c) may voluntarily terminate their employment, which
termination will be deemed to be for "Good Reason" under the Executive Severance
Policy as a result of the consummation of the Holdings Merger.
(d) Laser and the Company agree to take all necessary action
to provide that, effective as of the Holdings Effective Time, all outstanding
Employee Stock Options shall be vested and exercisable as of the Holdings
Effective Time, and between the Holdings Effective Time and the Company
Effective Time, Laser shall
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cause the Company to maintain a broker-dealer cashless exercise procedure for
the exercise of Employee Stock Options. Laser and the Company agree to take all
other actions necessary to provide for the cancellation, effective at the
Company Effective Time, of each outstanding Employee Stock Option and, in
settlement therefor, a payment to the holder of the Employee Stock Option in
cash by Laser or the Company at the Company Effective Time equal to the product
of (i) the total number of shares of Company Common Stock subject to such
Employee Stock Option, and (ii) the excess of $27.50 over the exercise price per
share of Company Common Stock subject to such Employee Stock Option, less any
applicable withholding taxes.
(e) Laser agrees that, at or prior to the Holdings Effective
Time, Holdings may cause the Company to (i) assume sponsorship of the pension,
retirement, savings, retiree health care and life insurance and other plans
maintained by New Coleman Holdings, Inc. that are reflected in footnotes 7 and
12 to the 1996 financial statements included in the Company's 1996 Annual Report
on SEC Form 10-K (as such plans may have been changed in the ordinary course of
business since December 31, 1996) (the "Plans"), and (ii) assume the liabilities
and obligations of New Coleman Holdings, Inc. under the Plans to the extent
reflected in such footnotes (as such liabilities and obligations may have
changed in the ordinary course of business since December 31, 1996). The
documents used to effect such assumption shall be in form and substance
reasonably satisfactory to Parent Holdings and Laser.
Section 7.8 Continuance of Existing Indemnification Rights.
(a) For six (6) years after the Company Effective Time (and
during the period following the Holdings Effective Time but prior to the Company
Effective Time), Laser shall, or shall cause the Surviving Corporation to,
indemnify, defend and hold harmless any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Company Effective
Time, a director or officer of the Company (an "Indemnified Person") against all
losses, claims, damages, liabilities, costs and expenses (including attorneys'
fees and expenses), judgments, fines, losses and amounts paid in settlement in
connection with any actual or threatened action, suit, claim, proceeding or
investigation (each, a "Claim") to the extent that any such Claim is based on,
or arises out of: (i) the fact that such Indemnified Person is or was a director
or officer of the Company or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise; or (ii) this Agreement or the Holdings
Merger Agreement or any of the transactions contemplated hereby or thereby, in
each case to the extent that any such Claim pertains to any matter or fact
arising, existing or occurring prior to or at the Company Effective Time,
regardless of whether such Claim is asserted or claimed prior to, at or after
the Company Effective Time, to the full extent permitted under the DGCL, the
Company's certificate of incorporation or by-laws or any indemnification
agreement in effect at the date hereof, including provisions relating to
advancement of
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expenses incurred in the defense of any such Claim; provided, however, that
neither Laser nor the Surviving Corporation shall be required to indemnify any
Indemnified Person in connection with any proceeding (or portion thereof)
involving any Claim initiated by such Indemnified Person against the Company
unless the initiation of such proceeding (or portion thereof) was authorized by
the Board of Directors of the Company or unless such proceeding is brought by an
Indemnified Person to enforce rights under this Section 7.8; and provided
further that in the event any Claim is asserted or made within such period, all
such rights, liabilities and limitations in respect of any such Claim shall
continue until disposition thereof. Without limiting the generality of the
preceding sentence, in the event any Indemnified Person becomes involved in any
Claim after the Company Effective Time, Laser shall, or shall cause the
Surviving Corporation to, periodically advance to such Indemnified Person its
legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the providing by such
Indemnified Person of an undertaking to reimburse all amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such Indemnified Person is not entitled thereto.
(b) Laser and the Company agree that all rights to
indemnification, and all limitations with respect thereto, existing in favor of
any Indemnified Person, as provided in the Company's certificate of
incorporation or by-laws and any indemnification agreement in effect at the
date hereof, shall survive the Holdings Merger and the Company Merger and shall
continue in full force and effect, without any amendment thereto, for a period
of six (6) years from the Company Effective Time (and during the period
following the Holdings Effective Time but prior to the Company Effective Time)
to the extent such rights and limitations are consistent with the DGCL;
provided, however, that in the event any Claim is asserted or made within such
period, all such rights, liabilities and limitations in respect of any such
Claim shall continue until disposition thereof; provided further that any
determination required to be made with respect to whether an Indemnified
Person's conduct complies with the standards set forth under the DGCL, the
Company's certificate of incorporation or by-laws or any such agreement, as the
case may be, shall be made by independent legal counsel selected by such
Indemnified Person and reasonably acceptable to Laser; and provided further that
nothing in this Section 7.8 shall impair any rights or obligations of any
current or former director or officer of the Company.
(c) Laser or the Surviving Corporation shall use reasonable
best efforts to obtain a liability insurance policy ("D&O Insurance") for the
benefit of the Company's existing and former directors and officers commencing
at the Holdings Effective Time and for a period of not less than six (6) years
after the Company Effective Time providing substantially similar coverage in
amounts and on terms no less advantageous than that currently provided to such
existing and former directors and officers; provided further that neither Laser
nor the Surviving Corporation shall be required to pay an annual premium for D&O
Insurance in excess of 200% of the last
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annual premium paid prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount.
(d) The provisions of this Section 7.8 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person, his or her
heirs and his or her personal representatives.
Section 7.9 Expenses. Whether or not the Company Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
Section 7.10 Public Announcements. Laser and the Company shall
consult with each other before issuing their respective initial press releases
to be issued with respect to the transactions contemplated by this Agreement and
the Holdings Merger.
Section 7.11 Reasonable Best Efforts. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable, to
consummate and make effective, in the most expeditious manner practicable, the
Company Merger and the other transactions contemplated by this Agreement,
including, but not limited to: (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from all Governmental Entities and
the making of all necessary registrations and filings with, and the taking of
all other reasonable steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity (including
those in connection with the HSR Act, if applicable); (ii) the obtaining of all
necessary consents, approvals or waivers from persons other than Governmental
Entities; (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed; and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to require any party hereto to enter into any agreement with any
Governmental Entity or to consent to any order, decree or judgment requiring
such party to hold, separate or divest, or to restrict the dominion or control
of such party or any of its Affiliates over, any of the assets, properties or
businesses of such party or its Affiliates in existence on the date hereof.
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect
the Company Merger. The respective obligations of each party to effect the
Company Merger shall be subject to the satisfaction or waiver, to the extent
permitted by Law, at or prior to the Company Effective Time of the following
conditions:
(a) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceeding for such purpose shall be pending before or threatened by the
SEC; and all applicable time periods required under the Securities Act and the
Exchange Act following the mailing of the Information Statement to the Company's
stockholders shall have lapsed.
(b) The Laser Shares shall have been approved for listing on
the NYSE, subject to official notice of issuance.
(c) No preliminary or permanent injunction or other order by
any federal or state court in the United States of competent jurisdiction which
prohibits the consummation of the Company Merger shall have been issued and
remain in effect.
(d) The Holdings Merger shall have been consummated in
accordance with its terms and the applicable provisions of the DGCL.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement shall terminate
automatically upon the termination of the Holdings Merger Agreement in
accordance with its terms.
Section 9.2 Effect of Termination. In the event of termination
of this Agreement as provided in Section 9.1 hereof, this Agreement shall
forthwith become void and there shall be no liability on the part of any of the
parties; provided that the provisions of Sections 7.2 and 7.9 and of this
Article IX shall continue and that nothing herein shall relieve any party from
liability for any willful breach hereof.
Section 9.3 Amendment. This Agreement may be amended by the
parties pursuant to a writing adopted by action taken by all of the parties at
any time
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prior to (but not following) the consummation of the Holdings Merger. This
Agreement may not be amended except by an instrument in writing signed by all
the parties hereto.
Section 9.4 Extension; Waiver. At any time prior to (but not
following) the consummation of the Holdings Merger any party hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only as against such party and only if set forth in an instrument in writing
signed by such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 No Survival of Representations and Warranties. No
representations or warranties contained herein shall survive beyond the Company
Effective Time. This Section 10.1 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Company
Effective Time.
Section 10.2 Notices. All notices or other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended, if delivered
by registered or certified mail, return receipt requested, or by a national
courier service, or if sent by telecopier; provided that the telecopy is
promptly confirmed by telephone confirmation thereof, to the person at the
address set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:
(a) If to Laser, to:
Sunbeam Corporation
1615 South Congress Avenue
Suite 200
Delray Beach, Florida 33445
Facsimile: (561) 243-2191
Attention: David C. Fannin, Esq.
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19801
Facsimile: (302) 651-3001
Attention: Richard L. Easton, Esq.
(b) If to the Company, to:
CLN Holdings Inc.
5900 North Andrews Avenue, Suite #700-A
Fort Lauderdale, Florida 33309
Facsimile: (954) 772-3352
Attention: General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000
Attention: Adam O. Emmerich, Esq.
Any such notification shall be deemed delivered (i) upon receipt, if delivered
personally, (ii) on the next business day, if sent by national courier service
for next business day delivery or (iii) the business day received, if sent by
telecopier.
Section 10.3 Descriptive Headings. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 10.4 Entire Agreement; No Third-Party Beneficiary.
This Agreement (including the Exhibits, Disclosure Schedules and other documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them, with respect to the subject matter hereof; (b)
except for the provisions of Sections 7.7(c) and 7.8 hereof, is not intended to
confer upon any other person any rights or remedies hereunder.
Section 10.5 Interpretation. When a reference is made in this
Agreement to an Article, Section or Annex, such reference shall be to an Article
or Section of, or
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an Annex to, this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party to
whom such information is to be made available. All terms defined in this
Agreement shall have the defined meanings used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns and, in the case of an individual, to his heirs
and estate, as applicable.
Section 10.6 Severability. If any provision of this Agreement
or the application thereof to any person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby. Upon any such determination, the
parties shall negotiate in good faith in an effort to agree upon a suitable and
equitable substitute provision to effect original intent of the parties.
Section 10.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of Law or otherwise by any of the parties without
the prior written consent of the other parties. Any assignment in violation of
the preceding sentence shall be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 10.8 Disclosure Schedules. Matters reflected on the
Company Disclosure Schedule are not necessarily limited to matters required by
this Agreement to be reflected therein and the inclusion of such matters shall
not be deemed an admission that such matters were required to be reflected on
the Company Disclosure Schedule. Such additional matters are set forth for
informational purposes only and do not necessarily include other matters of a
similar nature. Capitalized terms used in the
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Company Disclosure Schedule but not otherwise defined therein shall have the
respective meanings assigned to such terms in this Agreement.
Section 10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of Law.
Section 10.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at Law or equity.
Section 10.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
Section 10.12 Certain Terms. As used herein, (i) the term "material
adverse effect" (including as used in any definition), with respect to any
Person, shall exclude any change, event, effect or circumstance (a) arising in
connection with the announcement or performance of the transactions contemplated
by this Agreement or the Holdings Merger Agreement and (b) affecting the United
States economy generally or such Person's industries generally; and (ii) "to the
knowledge of the Company" shall mean to the actual knowledge of Paul E. Shapiro,
Jerry W. Levin and Steven R. Isko.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
SUNBEAM CORPORATION
By: /s/ Russell A. Kersh
-------------------------------------
Name: Russell A. Kersh
Title: Executive Vice President
CAMPER ACQUISITION CORP.
By: /s/ Russell A. Kersh
------------------------------------
Name: Russell A. Kersh
Title: President
THE COLEMAN COMPANY, INC.
By: /s/ Paul E. Shapiro
------------------------------------
Name: Paul E. Shapiro
Title: Executive Vice President
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ANNEX II
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to section 251 (other than a merger
effected pursuant to section 251(g) of this title), section 252, section 254,
section 257, section 258, section 263, or section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
section 251 of this title.
<PAGE>
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the fore going subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
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(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not
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<PAGE>
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
II-4
<PAGE>
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of
the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting
II-5
<PAGE>
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
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<PAGE>
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
II-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
Delaware corporation to indemnify officers, directors, employees and agents for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action, which they had no reasonable cause to believe was unlawful.
The DGCL provides that a corporation may pay expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate), and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, to be liable to the corporation, unless and only to
the extent a court determines that the person is entitled to indemnity for such
expenses as the court deems proper.
The Sunbeam by-laws provide that every person will be indemnified against
any and all judgments, fines, amounts paid in settling or otherwise disposing of
threatened, pending or completed actions, suits or proceedings, whether by fact
that he is or was a director or officer of Sunbeam or is or was serving at the
request of Sunbeam as a director or officer of another corporation. Expenses so
incurred by any such person defending or investigating a threatened or pending
civil or criminal action or proceeding shall at his request be paid by Sunbeam
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by Sunbeam.
The DGCL permits a Delaware corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for a
breach of the director's fiduciary duty as a director, except for liability (1)
for any breach of the Director's duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions or (iv) for any transaction from which the
II-1
<PAGE>
director derived an improper personal benefit. The Sunbeam certificate of
incorporation contains provisions limiting the liability of Sunbeam's directors
to the fullest extent currently permitted by the DGCL for monetary damages for
breach of their fiduciary duty as directors. While these provisions provide
directors with protection from awards for monetary damages for breaches of their
duty of care, they do not eliminate such duty. Accordingly, these provisions
will have no effect on the availability of equitable remedies such as an
injunction or rescission based on a director's breach of his or her duty of
care.
Item 21. Exhibits and Financial Statement Schedules
(a) The following is a list of Exhibits included as part of this
Registration Statement. Sunbeam agrees to furnish supplementally a copy of any
omitted schedule to the SEC upon request. Items marked with an asterisk are
filed herewith.
Exhibit Description of Exhibit
2.1 - Agreement and Plan of Merger among Sunbeam Corporation, Camper
Acquisition Corp., and The Coleman Company, Inc., dated as of February
27, 1998(7)
2.2 - Agreement and Plan of Merger among Sunbeam Corporation, Laser
Acquisition Corp., CLN Holdings, Inc., and Coleman (Parent) Holdings,
Inc., dated as of February 27, 1998(7)
3.1 - Amended and Restated Certificate of Incorporation of Sunbeam(3)
3.2 - By-laws of Sunbeam, as amended(11)
4.1 - Registration Rights Agreement, dated March 25, 1998, by and among
Sunbeam and Morgan Stanley & Co., Inc., with respect to the Zero Coupon
Convertible Senior Subordinated Debentures due 2018(8)
4.2 - Registration Rights Agreement, dated as of March 29, 1998, between
Sunbeam and Coleman (Parent) Holdings, Inc.(9)
4.3 - Settlement Agreement, dated as of August 12, 1998, by and between
Sunbeam and Coleman (Parent) Holdings, Inc.(10)
4.4 - Amendment to Registration Rights Agreement, dated as of August 12, 1998,
between Sunbeam and Coleman (Parent) Holdings, Inc.(11)
4.5 - Warrant Agreement, dated as of ____, 1999, between Sunbeam Corporation
and [The Bank of New York], as Warrant Agent+
5.1 - Opinion of _______ of Sunbeam Corporation, regarding the legality of the
securities being registered+
10.1 - Employment Agreement, dated as of February 20, 1998, by and between
Sunbeam and Albert J. Dunlap(7)
II-2
<PAGE>
10.2 - Employment Agreement, dated as of February 20, 1998, by and between
Sunbeam and Russell A. Kersh(7)
10.3 - Employment Agreement, dated as of February 20, 1998, by and between
Sunbeam and David C. Fannin(8)
10.4 - Employment Agreement, dated as of January 1, 1997, by and between
Sunbeam and Donald Uzzi(5)
10.5 - Sunbeam Executive Benefit Replacement Plan(7)
10.6 - Amended and Restated Sunbeam Corporation Stock Option Plan(13)
10.7 - Performance Based Compensation Plan(7)
10.8 - Tax Sharing Agreement, dated as of October 31, 1990, by and among
Sunbeam, SAIL, SOHO, Montey and the subsidiaries of Sunbeam listed
therein(1)
10.9 - Receivables Sale and Contribution Agreement, dated as of December 4,
1997, between Sunbeam Products, Inc. and Sunbeam Asset Diversification,
Inc.(7)
10.10 - Receivables Purchase and Servicing Agreement, dated as of December 4,
1997, between Sunbeam Products, Inc., Llama Retail, L.P., Capital USA,
LLC and Sunbeam Asset Diversification, Inc.(8)
10.11 - Agreement and Plan of Merger between Sunbeam Corporation, Java
Acquisition Corp., and Signature Brands USA, Inc., dated as of February
28, 1998(7)
10.12 - Stock Purchase Agreement among Java Acquisition Corp. and the Sellers
named therein, dated as of February 28, 1998(7)
10.13 - Agreement and Plan of Merger by and among Sunbeam Corporation, Sentinel
Acquisition Corp., and First Alert, Inc., dated as of February 28,
1998(7)
10.14 - Stock Sale Agreement among Sunbeam Corporation and the Stockholders
named therein, dated as of February 28, 1998(8)
10.15 - Credit Agreement, dated as of March 30, 1998, among Sunbeam Corporation,
the Borrowers referred to therein, the Lenders party thereto, Morgan
Stanley Senior Funding, Inc., Bank of America National Trust and Savings
Association and First Union National Bank(8)
10.16 - First Amendment to Credit Agreement, dated as of May 8, 1998, among
Sunbeam Corporation, the Subsidiary Borrowers referred to therein, the
Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank(8)
10.17 - Second Amendment to Credit Agreement, dated as of June 30, 1998, among
Sunbeam, the Subsidiary Borrowers referred to therein, the Lenders party
thereto, Morgan Stanley Senior Funding, Inc., Bank America National
Trust and Savings Association and First Union National Bank(11)
10.18 - Third Amendment to Credit Agreement, dated as of October 19, 1998, among
Sunbeam, the Subsidiary Borrowers referred to therein, the Lenders party
thereto,
II-3
<PAGE>
Morgan Stanley Senior Funding, Inc., Bank America National Trust and
Savings Association and First Union National Bank(11)
10.19 - Fourth Amendment to Credit Agreement dated as of April 10, 1999, among
Sunbeam, the Subsidiary Borrowers referred to therein, the Lenders party
thereto, Morgan Stanley Senior Funding, Inc., Bank America National
Trust and Savings Association and First Union National Bank(14)
10.20 - Fifth Amendment to Credit Agreement, Third Waiver and Agreement dated as
of April 15, 1999, among Sunbeam, the Subsidiary Borrowers referred to
therein, the Lenders party thereto, Morgan Stanley Funding, Bank America
National Trust and Savings Association and First Union National Bank(14)
10.21 - Employment Agreement between Sunbeam and Jerry W. Levin, dated as of
June 15, 1998(11)
10.22 - Employment Agreement between Sunbeam and Paul Shapiro, dated as of June
15, 1998(11)
10.23 - Employment Agreement between Sunbeam and Bobby Jenkins, dated as of June
15, 1998(11)
10.24 - Agreement between Sunbeam and David Fannin, dated August 20, 1998(11)
10.25 - First Amendment to Receivables Sale and Contribution Agreement, dated
April 2, 1998, between Sunbeam Products, Inc. and Sunbeam Assets
Diversification, Inc.(11)
10.26 - First Amendment to Receivables Purchase and Servicing Agreement, dated
April 2, 1998, between Llama Retail Funding, L.P., Capital USA, LLC,
Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc.(11)
10.27 - Second Amendment to Receivables Purchase and Servicing Agreement, dated
July 29, 1998, between Llama Retail Funding, L.P., Capital USA, LLC,
Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc.(11)
10.28 - Sunbeam Corporation Management Incentive Compensation Plan(15)
10.29 - Stock Option Replacement Program(15)
10.30 - Amendment No. 1 to Agreement and Plan of Merger, dated as of March 29,
1998, among Sunbeam, Laser Acquisition Corp., Coleman (Parent) Holdings
Inc., and CLN Holdings Inc.(14)
10.31 - Employment Agreement between Sunbeam and Janet G. Kelley, dated as of
December 16, 1998(16)
10.32 - Employment Agreement between Sunbeam and Karen K. Clark, dated as of
August 31, 1998(16)
10.33 - Employment Agreement dated as of October 1, 1998 between Sunbeam and
Jack Hall(15)
II-4
<PAGE>
10.34 - Compensation and Indemnification Agreement entered into as of June 29,
1998, between Sunbeam and each of Howard G. Kristol, Charles M. Elson,
Peter A. Langerman and Faith Whittlesey(15)
10.35 - Agreement between Sunbeam Asset Diversification, Inc. and Capital USA,
LLC amending the Receivables Purchase Agreement among Llama Retail
Funding, L.P., Sunbeam Asset Diversification, Inc., Capital USA, LLC and
Sunbeam Products, Inc.(15)
12.1 - Computation of Ratio of Earnings to Fixed Charges
16.1 - Letter re Change in Certifying Accountant(12)
21.1 - Subsidiaries of the Registrant(16)
23.1 - Consent of Arthur Andersen LLP*
23.2 - Consent of Deloitte & Touche LLP*
23.3 - Consent of Ernst & Young LLP*
23.4 - Consent of ___________ of Sunbeam Corporation (included in Exhibit 5.1)+
24.1 - Power of Attorney (included on the signature page of this Registration
Statement)
99.1 - Press Release, dated January 28, 1997 regarding Sunbeam's 1997
earnings(7)
99.2 - Press Release, dated March 2, 1998 regarding Sunbeam's acquisitions of
the Coleman Company, Inc., Signature Brands USA, Inc. and First Alert,
Inc.(7)
99.3 - Press Release, dated August 12, 1998 regarding issuance of warrants to
MacAndrews & Forbes Holding, Inc.(11)
99.4 - Press Release, dated August 24, 1998 regarding Sunbeam's new strategy
and senior management team(11)
99.5 - Press Release, dated October 20, 1998 regarding Sunbeam's restatement of
its financial results(11)
- -----------
(1) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990.
(2) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
(6) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1997.
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<PAGE>
(7) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997.
(8) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
(9) Incorporated by reference to Sunbeam's Report on Form 8-K filed April 13,
1998.
(10) Incorporated by reference to Sunbeam's Report on Form 8-K filed August 14,
1998.
(11) Incorporated by reference to Sunbeam's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to Sunbeam's Report on Form 8-K filed November
30, 1998.
(13) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(14) Incorporated by reference to the Annual Report on Form 10-K filed by the
Coleman Company, Inc. for the fiscal year ended December 31, 1998.
(15) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
(16) Incorporated by reference to Sunbeam's Registration Statement on Form S-1
(No. 333-71819), filed with the Securities and Exchange Commission on
February 4, 1999.
* Filed herewith
+ To be filed by amendment.
Item 22. Undertakings
(a) 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-effectiveamendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement.
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<PAGE>
(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.
(b) 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 Section 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 a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) 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
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<PAGE>
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 Securities Act of 1933 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 Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Information
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4,
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.
(f) 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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boca
Raton, State of Florida, on this 14th day of May, 1999.
SUNBEAM CORPORATION
By: /s/ Bobby G. Jenkins
----------------------
Bobby G. Jenkins
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul E. Shapiro and Bobby G. Jenkins, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and all
capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Registration Statement on Form S-4 and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or his substitutes, may lawfully do or cause to be done by virtue
thereof.
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
Signature Title Date
--------- ----- ----
/s/ Jerry W. Levin Chairman of the Board of May 14, 1999
- ---------------------- Directors, President, Chief
Jerry W. Levin Executive Officer and
Director
/s/ Peter A. Langerman Director May 14, 1999
- ----------------------
Peter A. Langerman
/s/ Charles M. Elson Director May 14, 1999
- ----------------------
Charles M. Elson
/s/ Howard Gittis Director May 14, 1999
- ----------------------
Howard Gittis
/s/ John H. Klein Director May 14, 1999
- ----------------------
John H. Klein
/s/ Howard G. Kristol Director May 14, 1999
- ----------------------
Howard G. Kristol
/s/ Faith Whittlesey Director May 14, 1999
- ----------------------
Faith Whittlesey
/s/ Bobby G. Jenkins Executive Vice President and May 14, 1999
- ---------------------- Chief Financial Officer
Bobby G. Jenkins
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<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
<S> <C>
2.1 - Agreement and Plan of Merger among Sunbeam Corporation, Camper
Acquisition Corp., and The Coleman Company, Inc., dated as of
February 27, 1998(7)
2.2 - Agreement and Plan of Merger among Sunbeam Corporation, Laser
Acquisition Corp., CLN Holdings, Inc., and Coleman (Parent)
Holdings, Inc., dated as of February 27, 1998(7)
3.1 - Amended and Restated Certificate of Incorporation of Sunbeam(3)
3.2 - By-laws of Sunbeam, as amended(11)
4.1 - Registration Rights Agreement, dated March 25, 1998, by and among
Sunbeam and Morgan Stanley & Co., Inc., with respect to the Zero
Coupon Convertible Senior Subordinated Debentures due 2018(8)
4.2 - Registration Rights Agreement, dated as of March 29, 1998,
between Sunbeam and Coleman (Parent) Holdings, Inc.(9)
4.3 - Settlement Agreement, dated as of August 12, 1998, by and between
Sunbeam and Coleman (Parent) Holdings, Inc.(10)
4.4 - Amendment to Registration Rights Agreement, dated as of August 12,
1998, between Sunbeam and Coleman (Parent) Holdings, Inc.(11)
4.5 - Warrant Agreement, dated as of ____, 1999, between Sunbeam
Corporation and [The Bank of New York], as Warrant Agent+
5.1 - Opinion of ________ of Sunbeam Corporation, regarding the legality
of the securities being registered+
10.1 - Employment Agreement, dated as of February 20, 1998, by and
between Sunbeam and Albert J. Dunlap(7)
10.2 - Employment Agreement, dated as of February 20, 1998, by and
between Sunbeam and Russell A. Kersh(7)
10.3 - Employment Agreement, dated as of February 20, 1998, by and
between Sunbeam and David C. Fannin(8)
10.4 - Employment Agreement, dated as of January 1, 1997, by and between
Sunbeam and Donald Uzzi(5)
10.5 - Sunbeam Executive Benefit Replacement Plan(7)
10.6 - Amended and Restated Sunbeam Corporation Stock Option Plan(13)
10.7 - Performance Based Compensation Plan(7)
10.8 - Tax Sharing Agreement, dated as of October 31, 1990, by and among
Sunbeam, SAIL, SOHO, Montey and the subsidiaries of Sunbeam listed
therein(1)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.9 - Receivables Sale and Contribution Agreement, dated as of December
4, 1997, between Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(7)
10.10 - Receivables Purchase and Servicing Agreement, dated as of December
4, 1997, between Sunbeam Products, Inc., Llama Retail, L.P.,
Capital USA, LLC and Sunbeam Asset Diversification, Inc.(8)
10.11 - Agreement and Plan of Merger between Sunbeam Corporation, Java
Acquisition Corp., and Signature Brands USA, Inc., dated as of
February 28, 1998(7)
10.12 - Stock Purchase Agreement among Java Acquisition Corp. and the
Sellers named therein, dated as of February 28, 1998(7)
10.13 - Agreement and Plan of Merger by and among Sunbeam
Corporation, Sentinel Acquisition Corp., and First Alert, Inc.,
dated as of February 28, 1998(7)
10.14 - Stock Sale Agreement among Sunbeam Corporation and the
Stockholders named therein, dated as of February 28, 1998(8)
10.15 - Credit Agreement, dated as of March 30, 1998, among Sunbeam
Corporation, the Borrowers referred to therein, the Lenders party
thereto, Morgan Stanley Senior Funding, Inc., Bank of America
National Trust and Savings Association and First Union National
Bank(8)
10.16 - First Amendment to Credit Agreement, dated as of May 8, 1998,
among Sunbeam Corporation, the Subsidiary Borrowers referred to
therein, the Lenders party thereto, Morgan Stanley Senior Funding,
Inc., Bank America National Trust and Savings Association and
First Union National Bank(8)
10.17 - Second Amendment to Credit Agreement, dated as of June 30, 1998,
among Sunbeam, the Subsidiary Borrowers referred to therein, the
Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank
America National Trust and Savings Association and First Union
National Bank(11)
10.18 - Third Amendment to Credit Agreement, dated as of October 19, 1998,
among Sunbeam, the Subsidiary Borrowers referred to therein, the
Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank
America National Trust and Savings Association and First Union
National Bank(11)
10.19 - Fourth Amendment to Credit Agreement dated as of April 10, 1999,
among Sunbeam, the Subsidiary Borrowers referred to therein, the
Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank
America National Trust and Savings Association and First Union
National Bank(14)
10.20 - Fifth Amendment to Credit Agreement, Third Waiver and Agreement
dated as of April 15, 1999, among Sunbeam, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan
Stanley Funding, Bank America National Trust and Savings
Association and First Union National Bank(14)
10.21 - Employment Agreement between Sunbeam and Jerry W. Levin, dated as
of June 15, 1998(11)
</TABLE>
<PAGE>
<TABLE>
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10.22 - Employment Agreement between Sunbeam and Paul Shapiro, dated as of
June 15, 1998(11)
10.23 - Employment Agreement between Sunbeam and Bobby Jenkins, dated as
of June 15, 1998(11)
10.24 - Agreement between Sunbeam and David Fannin, dated August 20,
1998(11)
10.25 - First Amendment to Receivables Sale and Contribution Agreement,
dated April 2, 1998, between Sunbeam Products, Inc. and Sunbeam
Assets Diversification, Inc.(11)
10.26 - First Amendment to Receivables Purchase and Servicing Agreement,
dated April 2, 1998, between Llama Retail Funding, L.P., Capital
USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.27 - Second Amendment to Receivables Purchase and Servicing Agreement,
dated July 29, 1998, between Llama Retail Funding, L.P., Capital
USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.28 - Sunbeam Corporation Management Incentive Compensation Plan(15)
10.29 - Stock Option Replacement Program(15)
10.30 - Amendment No. 1 to Agreement and Plan of Merger, dated as of March
29, 1998, among Sunbeam, Laser Acquisition Corp., Coleman (Parent)
Holdings Inc., and CLN Holdings Inc.(14)
10.31 - Employment Agreement between Sunbeam and Janet G. Kelley, dated as
of December 16, 1998(16)
10.32 - Employment Agreement between Sunbeam and Karen K. Clark, dated as
of August 31, 1998(16)
10.33 - Employment Agreement dated as of October 1, 1998 between Sunbeam
and Jack Hall(15)
10.34 - Compensation and Indemnification Agreement entered into as of
June 29, 1998, between Sunbeam and each of Howard G. Kristol,
Charles M. Elson, Peter A. Langerman and Faith Whittlesey(15)
10.35 - Agreement between Sunbeam Asset Diversification, Inc. and Capital
USA, LLC amending the Receivables Purchase Agreement among Llama
Retail Funding, L.P., Sunbeam Asset Diversification, Inc., Capital
USA, LLC and Sunbeam Products, Inc.(15)
12.1 - Computation of Ratio of Earnings to Fixed Charges
16.1 - Letter re Change in Certifying Accountant(12)
21.1 - Subsidiaries of the Registrant(16)
23.1 - Consent of Arthur Andersen LLP*
23.2 - Consent of Deloitte & Touche LLP*
23.3 - Consent of Ernst & Young LLP*
23.4 - Consent of ___________ of Sunbeam Corporation (included in Exhibit
5.1)+
24.1 - Power of Attorney (included on the signature page of this
Registration Statement)
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99.1 - Press Release, dated January 28, 1997 regarding Sunbeam's 1997
earnings(7)
99.2 - Press Release, dated March 2, 1998 regarding Sunbeam's
acquisitions of the Coleman Company, Inc., Signature Brands
USA, Inc. and First Alert, Inc.(7)
99.3 - Press Release, dated August 12, 1998 regarding issuance of
warrants to MacAndrews & Forbes Holding, Inc.(11)
99.4 - Press Release, dated August 24, 1998 regarding Sunbeam's new
strategy and senior management team(11)
99.5 - Press Release, dated October 20, 1998 regarding Sunbeam's
restatement of its financial results(11)
</TABLE>
- ----------
(1) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990.
(2) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
(6) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1997.
(7) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997.
(8) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
(9) Incorporated by reference to Sunbeam's Report on Form 8-K filed April 13,
1998.
(10) Incorporated by reference to Sunbeam's Report on Form 8-K filed August 14,
1998.
(11) Incorporated by reference to Sunbeam's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to Sunbeam's Report on Form 8-K filed November
30, 1998.
(13) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(14) Incorporated by reference to the Annual Report on Form 10-K filed by the
Coleman Company, Inc. for the fiscal year ended December 31, 1998.
<PAGE>
(15) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
(16) Incorporated by reference to Sunbeam's Registration Statement on Form S-1
(No. 333-71819), filed with the Securities and Exchange Commission on
February 4, 1999.
* Filed herewith
+ To be filed by amendment
<PAGE>
Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges
(in thousands of dollars, except ratios)
<TABLE>
<CAPTION>
Historical Pro forma
Fiscal Years Ended
----------------------------------------------------------------------------------------------
Pro forma Pro forma
before after
1/1/95 12/31/95 12/29/96 12/28/97 12/31/98 Coleman Coleman
---------- ---------- ---------- ---------- ---------- Merger Merger
12/31/98 12/31/98
---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations ... $144,794.0 $ 60,635.0 $(261,805.0) $ 92,670.0 $(796,348.0) $(822,134.0) $(838,849.0)
Add: Fixed charges,
below ................... 10,774.3 15,571.7 16,654.7 14,747.7 141,257.7 154,395.7 161,834.7
Less: Interest capitalized (867.0) (3,268.0) (400.0) (900.0) (800.0) (800.0) (800.0)
----------------------------------------------------------------------------------------------
$154,701.3 $ 72,938.7 $(245,550.3) $106,517.7 $(655,890.3) $(668,538.3) $(677,814.3)
----------------------------------------------------------------------------------------------
Fixed Charges:
Interest expense .......... $ 6,974.0 $ 9,437.0 $ 13,588.0 $ 11,381.0 $131,091.0 $144,229.0 $151,668.0
Capitalized interest ...... 867.0 3,268.0 400.0 900.0 800.0 800.0 800.0
1/3 rent expense .......... 2,933.3 2,866.7 2,666.7 2,466.7 9,366.7 9,366.7 9,366.7
----------------------------------------------------------------------------------------------
$ 10,774.3 $ 15,571.7 $ 16,654.7 $ 14,747.7 $141,257.7 $154,395.7 $161,834.7
----------------------------------------------------------------------------------------------
Ratio of earnings to fixed
charges ................... 14.4 4.7 7.2
Amount by which earnings
do not meet fixed
charges ................... $262,205.0 $797,148.0 $822,934.0 $839,649.0
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report dated October 16, 1998, (and to all references to our Firm) included in
or made part of this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
May 11, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-52333 of Sunbeam Corporation on Form S-4 of our report dated April 16,
1999, appearing in the Prospectus, which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
May 12, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-52333) and related Prospec
tus of Sunbeam Corporation for the registration of 12,179,452 shares of its
common stock and to the incorporation by reference therein of our report dated
April 15, 1999, with respect to the consolidated financial statements of The
Coleman Company, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Wichita, Kansas
May 12, 1999
