<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1994
REGISTRATION NOS. 33-30012 AND 33-31900
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
<TABLE>
<S> <C>
POST-EFFECTIVE AMENDMENT NO. 8 POST-EFFECTIVE AMENDMENT NO. 7
TO TO
FORM S-1 FORM S-1
REGISTRATION STATEMENT REGISTRATION STATEMENT
(NO. 33-30012) (NO. 33-31900)
UNDER UNDER
THE SECURITIES ACT OF 1933 THE SECURITIES ACT OF 1933
</TABLE>
------------------------
FORMICA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2672 34-1046753
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1680 ROUTE 23 NORTH
WAYNE, NEW JERSEY 07474
(201) 305-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES A. BROOKS, ESQ.
FORMICA CORPORATION
1680 ROUTE 23 NORTH
WAYNE, NEW JERSEY 07474
(201) 305-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
CHARLES P. DURKIN, JR.
FM HOLDINGS INC.
C/O SARATOGA PARTNERS, II, L.P.
535 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 906-7000
JAMES J. CLARK, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
check the following box. /X/
As permitted by Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement relates to $100,000,000 aggregate
principal amount of 14% Senior Subordinated Notes Due 1999 registered pursuant
to Registration Statement No. 33-30012 and $95,910,000 aggregate principal
amount of 15 3/4% Subordinated Discount Debentures Due 2001 registered pursuant
to Registration Statement No. 33-31900. This Registration Statement constitutes
Post-Effective Amendment No. 8 to Registration Statement No. 33-30012 and Post
Effective Amendment No. 7 to Registration Statement No. 33-31900.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to certain
market-making transactions in the 14% Senior Subordinated Notes Due 1999 (the
"Notes") and the 15 3/4% Subordinated Discount Debentures Due 2001 (the
"Debentures") of Formica Corporation and to sales by holders of the Debentures.
The information contained herein updates and combines certain information
contained in two registration statements previously filed with, and declared
effective by, the Securities and Exchange Commission: Registration Statement No.
33-30012 (relating to the Notes) and Registration Statement No. 33-31900
(relating to the Debentures).
<PAGE> 3
FORMICA CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
--------------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Certain Risk Factors;
Summary Historical Consolidated
Financial Data; Condensed Consolidated
Financial Data; Selected Historical
Consolidated Financial Data
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Not Applicable
6. Dilution..................................... Not Applicable
7. Selling Security Holders..................... Selling Debenture Holders
8. Plan of Distribution......................... Outside Front Cover of Prospectus;
Certain Risk Factors; Certain
Transactions and Relationships; Plan of
Distribution
9. Description of Securities to be Registered... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of the
Securities
10. Interests of Named Experts and Counsel....... Legal Matters; Experts
11. Information with Respect to Registrant....... Prospectus Summary; The Company; The Ac-
quisition; Capitalization; Selected
Historical Consolidated Financial Data;
Management's Discussion and Analysis of
Results of Operations and Financial
Condition; Business; Management;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION JUNE 22, 1994
(LOGO) FORMICA CORPORATION
$100,000,000 14% SENIOR SUBORDINATED NOTES DUE 1999
$95,910,000 15 3/4% SUBORDINATED DISCOUNT DEBENTURES DUE 2001
FORMICA CORPORATION (THE "COMPANY") IS A WHOLLY OWNED SUBSIDIARY OF FM
HOLDINGS INC., A DELAWARE CORPORATION ("HOLDINGS"), WHICH WAS ORGANIZED ON
BEHALF OF SARATOGA PARTNERS II, L.P., MASCO CORPORATION AND CERTAIN MEMBERS OF
SENIOR MANAGEMENT OF THE COMPANY TO ACQUIRE THE COMPANY (THE "ACQUISITION")
PURSUANT TO A CASH TENDER OFFER (THE "OFFER"), FOLLOWED BY THE MERGER (THE
"MERGER") OF FM ACQUISITION CORPORATION ("FM ACQUISITION"), A SUBSIDIARY OF
HOLDINGS, WITH AND INTO THE COMPANY IN 1989.
THIS PROSPECTUS RELATES TO $100,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
THE COMPANY'S 14% SENIOR SUBORDINATED NOTES DUE 1999 (THE "NOTES") AND
$95,910,000 IN AGGREGATE PRINCIPAL AMOUNT OF THE COMPANY'S 15 3/4% SUBORDINATED
DISCOUNT DEBENTURES DUE 2001 (THE "SUBORDINATED DISCOUNT DEBENTURES" AND,
TOGETHER WITH THE NOTES, THE "SECURITIES") AND, AS DESCRIBED FURTHER BELOW, IS
TO BE USED IN CONNECTION WITH SALES BY SELLING DEBENTURE HOLDERS (AS HEREINAFTER
DEFINED) AND IN CONNECTION WITH OFFERS AND SALES OF THE SECURITIES IN
MARKET-MAKING TRANSACTIONS AT NEGOTIATED PRICES RELATED TO PREVAILING MARKET
PRICES, IF ANY, AT THE TIME OF SALE.
THE NOTES WERE ISSUED IN AN UNDERWRITTEN PUBLIC OFFERING BY DILLON, READ &
CO. INC. ("DILLON READ"), AN AFFILIATE OF THE COMPANY, TO REPAY $80.0 MILLION
PRINCIPAL AMOUNT OF SUBORDINATED FLOATING RATE BRIDGE NOTES (THE "BRIDGE
NOTES"), TO PAY A PORTION OF THE ACCRUED AND UNPAID INTEREST ON $125.0 MILLION
PRINCIPAL AMOUNT OF THE BRIDGE NOTES, TO REPAY APPROXIMATELY $12.0 MILLION OF
BANK DEBT INCURRED IN CONNECTION WITH THE MERGER AND TO PAY APPROXIMATELY $1.7
MILLION OF PLACEMENT AGENCY FEES AND EXPENSES INCURRED IN CONNECTION WITH THE
PRIVATE PLACEMENT OF THE SUBORDINATED DISCOUNT DEBENTURES. THE BRIDGE NOTES WERE
ISSUED BY FM ACQUISITION IN CONNECTION WITH THE OFFER AND THE MERGER TO AN
AFFILIATE OF DILLON READ. SEE "USE OF PROCEEDS" AND "THE ACQUISITION." THE
NOTES, WHICH WERE SOLD TO THE INITIAL HOLDERS THEREOF AT 100% OF THEIR FACE
AMOUNT, BEAR INTEREST AT 14% AND MATURE ON OCTOBER 1, 1999. THE COMPANY WILL NOT
RECEIVE ANY FURTHER PROCEEDS FROM THE SALE OF THE NOTES HEREUNDER. IN THE EVENT
OF A CHANGE OF CONTROL (AS DEFINED UNDER "DESCRIPTION OF SECURITIES -- CERTAIN
TERMS OF THE SECURITIES -- CHANGE OF CONTROL"), HOLDERS OF THE NOTES WILL HAVE
THE RIGHT TO REQUIRE THE COMPANY TO PURCHASE THEIR NOTES AT A PURCHASE PRICE OF
101% OF THE PRINCIPAL AMOUNT, PLUS ACCRUED AND UNPAID INTEREST. THERE CAN BE NO
ASSURANCE THAT IN THE EVENT OF A CHANGE OF CONTROL, THE COMPANY WOULD HAVE
SUFFICIENT CASH AND OTHER LIQUID ASSETS TO SATISFY SUCH OBLIGATION ON A TIMELY
BASIS. EXCEPT AS SET FORTH BELOW, THE NOTES ARE NOT REDEEMABLE PRIOR TO OCTOBER
1, 1994. ON AND AFTER OCTOBER 1, 1994, THE NOTES MAY BE REDEEMED AT THE OPTION
OF THE COMPANY AT ANY TIME, IN WHOLE OR IN PART, AND PRIOR TO OCTOBER 1, 1994,
THE NOTES MAY BE REDEEMED, AS A WHOLE, AT THE OPTION OF THE COMPANY, IF THE
COMPANY HAS ENTERED INTO CERTAIN MERGERS, CONSOLIDATIONS OR SALES OF
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND IS UNABLE TO SATISFY THE MERGER
AND CONSOLIDATION COVENANT IN THE INDENTURE GOVERNING THE NOTES (THE "NOTE
INDENTURE"), IN EACH CASE AT THE REDEMPTION PRICES SET FORTH HEREIN, PLUS
ACCRUED INTEREST. INTEREST ON THE NOTES IS PAYABLE SEMI-ANNUALLY ON EACH APRIL 1
AND OCTOBER 1. THE NOTES ARE ENTITLED TO A MANDATORY SINKING FUND PAYMENT OF
$40,000,000 ON OCTOBER 1, 1998, WHICH IS CALCULATED TO RETIRE 40% OF THE NOTES
PRIOR TO MATURITY.
THE SUBORDINATED DISCOUNT DEBENTURES WERE ALSO ISSUED TO FINANCE, IN PART,
THE ACQUISITION OF THE COMPANY BY HOLDINGS. THE SUBORDINATED DISCOUNT DEBENTURES
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), ON BEHALF OF CERTAIN HOLDERS THEREOF (THE "SELLING DEBENTURE
HOLDERS"), TO PERMIT THE PUBLIC SALE OR OTHER DISTRIBUTION THEREOF. THE SELLING
DEBENTURE HOLDERS PURCHASED PARTICIPATIONS IN $45.0 MILLION PRINCIPAL AMOUNT OF
THE BRIDGE NOTES FROM AN AFFILIATE OF DILLON READ AND AGREED, AMONG OTHER
MATTERS, TO PURCHASE THE SUBORDINATED DISCOUNT DEBENTURES FROM THE COMPANY ON A
PRIVATE PLACEMENT BASIS IN EXCHANGE FOR SUCH PARTICIPATION INTERESTS. THE
SUBORDINATED DISCOUNT DEBENTURES WERE PRIVATELY PLACED BY THE COMPANY WITH THE
SELLING DEBENTURE HOLDERS AT 46.918% OF THEIR FACE AMOUNT AND CONSEQUENTLY BEAR
ORIGINAL ISSUE DISCOUNT. SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." THE
SUBORDINATED DISCOUNT DEBENTURES BEAR NO INTEREST UNTIL OCTOBER 1, 1994. FROM
AND AFTER OCTOBER 1, 1994, THE SUBORDINATED DISCOUNT DEBENTURES WILL BEAR
INTEREST, PAYABLE SEMI-ANNUALLY ON APRIL 1 AND OCTOBER 1, AT A RATE OF 15 3/4%
PER ANNUM, COMMENCING APRIL 1, 1995. THERE IS CURRENTLY NO PUBLIC MARKET FOR THE
SUBORDINATED DISCOUNT DEBENTURES, AND THERE CAN BE NO ASSURANCE THAT A PUBLIC
MARKET WILL DEVELOP. IN THE EVENT OF A "CHANGE OF CONTROL" (AS DEFINED UNDER
"DESCRIPTION OF SECURITIES -- CERTAIN TERMS OF THE SECURITIES -- CHANGE OF
CONTROL"), HOLDERS OF THE SUBORDINATED DISCOUNT DEBENTURES WILL HAVE THE RIGHT
TO REQUIRE THE COMPANY TO PURCHASE THEIR SUBORDINATED DISCOUNT DEBENTURES AT A
PURCHASE PRICE OF 101% OF THE ACCRETED VALUE (AS DEFINED UNDER "DESCRIPTION OF
SECURITIES -- CERTAIN COVENANTS -- CERTAIN DEFINITIONS") OF THE SUBORDINATED
DISCOUNT DEBENTURES, PLUS ACCRUED INTEREST, IF ANY. THERE CAN BE NO ASSURANCE
THAT IN THE EVENT OF A CHANGE OF CONTROL, THE COMPANY WOULD HAVE
------------------------
SEE "CERTAIN RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE PURCHASE OF THE NOTES OR THE
SUBORDINATED DISCOUNT DEBENTURES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
(COVER CONTINUES ON NEXT PAGE)
THE DATE OF THIS PROSPECTUS IS JUNE , 1994.
<PAGE> 5
(Cover continued from previous page)
SUFFICIENT CASH AND OTHER LIQUID ASSETS TO SATISFY SUCH OBLIGATION ON A TIMELY
BASIS. FURTHER, SINCE THE SUBORDINATED DISCOUNT DEBENTURES ARE SUBORDINATED IN
RIGHT OF PAYMENT TO THE NOTES, THE COMPANY WILL NOT BE PERMITTED TO PURCHASE
SUBORDINATED DISCOUNT DEBENTURES UPON A CHANGE OF CONTROL UNLESS ALL NOTES
REQUIRED TO BE REPURCHASED PURSUANT TO THE "CHANGE OF CONTROL" PROVISIONS OF THE
NOTES HAVE BEEN PURCHASED FIRST. THE SUBORDINATED DISCOUNT DEBENTURES MAY BE
REDEEMED AT THE OPTION OF THE COMPANY, AT ANY TIME, AS A WHOLE OR IN PART AT THE
REDEMPTION PRICES SET FORTH HEREIN, PLUS ACCRUED INTEREST, IF ANY. PRIOR TO
OCTOBER 1, 1994, THE SUBORDINATED DISCOUNT DEBENTURES MAY ALSO BE REDEEMED BY
THE COMPANY, AS A WHOLE, AT THE REDEMPTION PRICES SET FORTH HEREIN, IF THE
COMPANY HAS ENTERED INTO CERTAIN MERGERS, CONSOLIDATIONS OR SALES OF
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND IS UNABLE TO SATISFY THE MERGER
AND CONSOLIDATION COVENANT IN THE INDENTURE GOVERNING THE SUBORDINATED DISCOUNT
DEBENTURES (THE "DEBENTURE INDENTURE"). THE SUBORDINATED DISCOUNT DEBENTURES ARE
ENTITLED TO A MANDATORY SINKING FUND PAYMENT OF $38,364,000 ON OCTOBER 1, 2000,
WHICH IS CALCULATED TO RETIRE 40% OF THE SUBORDINATED DISCOUNT DEBENTURES PRIOR
TO MATURITY.
THE NOTES AND THE SUBORDINATED DISCOUNT DEBENTURES ARE UNSECURED
OBLIGATIONS SUBORDINATED IN RIGHT OF PAYMENT TO ALL SENIOR DEBT (AS DEFINED
UNDER "DESCRIPTION OF SECURITIES -- CERTAIN TERMS OF THE SECURITIES --
SUBORDINATION") OF THE COMPANY. WITH RESPECT TO THE SUBORDINATED DISCOUNT
DEBENTURES, SENIOR DEBT INCLUDES THE NOTES. AS OF MARCH 31, 1994, THE AMOUNT OF
SENIOR DEBT, INCLUDING THE AMOUNT OF INDEBTEDNESS OF THE COMPANY'S SUBSIDIARIES
NOT GUARANTEED BY THE COMPANY, RELATING TO THE NOTES AND THE SUBORDINATED
DISCOUNT DEBENTURES WAS APPROXIMATELY $86 MILLION AND $186 MILLION,
RESPECTIVELY. ALTHOUGH BOTH THE NOTE INDENTURE AND THE DEBENTURE INDENTURE
CONTAIN LIMITATIONS ON THE AMOUNT OF ADDITIONAL DEBT (INCLUDING SENIOR DEBT)
WHICH THE COMPANY MAY INCUR, UNDER CERTAIN CIRCUMSTANCES THE AMOUNT OF SUCH DEBT
COULD BE SUBSTANTIAL AND, IN ANY CASE, SUCH DEBT MAY BE SENIOR DEBT. SEE
"DESCRIPTION OF THE SECURITIES -- CERTAIN COVENANTS -- LIMITATION OF DEBT." SEE
"CERTAIN RISK FACTORS -- SUBORDINATION AND EFFECT OF ASSET ENCUMBRANCES" AND
"DESCRIPTION OF THE SECURITIES -- CERTAIN TERMS OF THE
SECURITIES -- Subordination."
------------------------
THE SELLING DEBENTURE HOLDERS DIRECTLY, THROUGH AGENTS DESIGNATED FROM TIME
TO TIME, OR THROUGH DEALERS OR UNDERWRITERS ALSO TO BE DESIGNATED, MAY SELL THE
SUBORDINATED DISCOUNT DEBENTURES FROM TIME TO TIME ON TERMS TO BE DETERMINED AT
THE TIME OF SALE. TO THE EXTENT REQUIRED, THE PRINCIPAL AMOUNT OF SUBORDINATED
DISCOUNT DEBENTURES TO BE SOLD, THE NAMES OF THE SELLING DEBENTURE HOLDERS, THE
RESPECTIVE PURCHASE PRICES AND PUBLIC OFFERING PRICES, THE NAMES OF ANY AGENT,
DEALER OR UNDERWRITER, AND ANY APPLICABLE COMMISSIONS OR DISCOUNTS WITH RESPECT
TO A PARTICULAR OFFER WILL BE SET FORTH IN AN ACCOMPANYING PROSPECTUS
SUPPLEMENT. SEE "PLAN OF DISTRIBUTION." AS OF THE DATE OF THIS PROSPECTUS, THE
SELLING DEBENTURE HOLDERS HAVE SOLD APPROXIMATELY $94.8 MILLION AGGREGATE
PRINCIPAL AMOUNT OF THE SUBORDINATED DISCOUNT DEBENTURES.
THE COMPANY WILL NOT RECEIVE ANY FURTHER PROCEEDS FROM SALES OF SECURITIES
PURSUANT TO THIS PROSPECTUS, BUT BY AGREEMENT WILL PAY ALL OF THE EXPENSES
ASSOCIATED WITH THIS PROSPECTUS OTHER THAN COMMISSIONS AND DISCOUNTS PAYABLE TO
DEALERS, AGENTS OR UNDERWRITERS. SEE "USE OF PROCEEDS" AND SEE "PLAN OF
DISTRIBUTION" HEREIN FOR INDEMNIFICATION ARRANGEMENTS FOR THE DEALERS, AGENTS
AND UNDERWRITERS.
THE SELLING DEBENTURE HOLDERS AND ANY BROKER-DEALERS, AGENTS OR
UNDERWRITERS THAT PARTICIPATE WITH THE SELLING DEBENTURE HOLDERS IN THE
DISTRIBUTION OF THE SUBORDINATED DISCOUNT DEBENTURES MAY BE DEEMED TO BE
"UNDERWRITERS" WITHIN THE MEANING OF THE SECURITIES ACT, AND ANY COMMISSIONS
RECEIVED BY THEM AND ANY PROFIT ON THE RESALE OF THE SUBORDINATED DISCOUNT
DEBENTURES PURCHASED BY THEM MAY BE DEEMED TO BE UNDERWRITING COMMISSIONS OR
DISCOUNTS UNDER THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION" HEREIN FOR
INDEMNIFICATION ARRANGEMENTS AMONG THE COMPANY AND THE SELLING DEBENTURE
HOLDERS.
THIS PROSPECTUS IS ALSO TO BE USED BY DILLON READ, AN AFFILIATE OF THE
COMPANY, IN CONNECTION WITH OFFERS AND SALES OF THE NOTES AND THE SUBORDINATED
DISCOUNT DEBENTURES IN MARKET-MAKING TRANSACTIONS AT NEGOTIATED PRICES RELATED
TO PREVAILING MARKET PRICES AT THE TIME OF SALE. DILLON READ MAY ACT AS
PRINCIPAL OR AGENT IN SUCH TRANSACTIONS. SEE "OWNERSHIP OF CAPITAL STOCK OF THE
COMPANY AND HOLDINGS" FOR A DESCRIPTION OF THE OWNERSHIP OF CAPITAL STOCK OF THE
COMPANY BY AFFILIATES OF DILLON READ.
------------------------
2
<PAGE> 6
SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
The Company designs, manufactures and distributes decorative laminates and
other surfacing products worldwide and is the largest producer of high pressure
decorative laminates in the world. Decorative laminates are principally used in
commercial and residential interior surfacing applications for their durability,
design features, construction versatility and ease of maintenance. Among the
numerous commercial applications of FORMICA(R) brand laminates are work
surfaces, furniture, flooring, panels, countertops and interior walls in
offices, computer centers, hospitals, schools, restaurants, hotels, retail
stores, ships, buses and railroad cars. FORMICA brand laminates are used for
such traditional residential applications as kitchen cabinetry, countertops and
bathroom vanities as well as for horizontal and vertical surfaces in living
rooms, family rooms and dining rooms. The Company estimates that of its 1993 net
sales approximately one-half were derived from products used in commercial
applications and one-half from products used in residential applications. In
addition, the Company estimates that approximately two-thirds of its 1993 net
sales were derived from products used in renovation or remodeling projects while
approximately one-third of its 1993 net sales were derived from products used in
new construction.
The Company has an extensive global presence and is a leading manufacturer
and distributor of high pressure decorative laminates in North America, Europe
and the Far East. In addition, the Company manufactures SURELL(R) solid
surfacing material and distributes this product in such markets. The Company's
ten manufacturing facilities are located in the United States, Canada, the
United Kingdom, France, Spain, Germany and Taiwan. The Company's products are
marketed under the FORMICA brand name and (LOGO) mark through thousands of
locations worldwide by a domestic and international independent distributor and
dealer network and the Company's own sales force to major distributors and
manufacturers of finished products and to architects and designers who specify
products for commercial and residential interiors. The Company maintains design
facilities in the United States and Europe and has won numerous design and new
product development awards. The location of the Company's manufacturing
facilities and design centers and its worldwide distribution network enable the
Company to be responsive to its customers' delivery and design needs.
In addition to the introduction of new products designed and developed
internally, the Company has begun worldwide marketing and distribution of
several new products. These products include NUVELTM, a solid surfacing material
developed by the General Electric Company ("GE"), which has the features of
traditional solid surfacing materials but can be installed at a lower cost;
GRANULONTM, a densified liquid composite used as a spray-on surfacing material;
and specialty wood veneer laminates that will be distributed under the FORMICA
brand name. The Company has also entered into a cooperative enterprise agreement
to distribute locally produced laminate products in the People's Republic of
China.
Formica was founded in 1913 and created the world's first decorative
laminate in 1927. In September 1989 all of the Capital Stock of the Company was
acquired by Holdings, a corporation organized by Saratoga Partners II, L.P>
("Saratoga"), Masco and certain members of senior management of the Company.
Saratoga is a limited partnership organized to invest in the equity of corporate
buyouts and is managed by Dillon Read. See "Ownership of the Capital Stock of
the Company and Holdings."
3
<PAGE> 7
THE ACQUISITION
FM Acquisition was organized on behalf of Holdings to effect the
acquisition of the Company (the "Acquisition"). Pursuant to an Agreement and
Plan of Merger dated as of February 6, 1989, as amended (the "Merger
Agreement"), FM Acquisition commenced the Offer on February 10, 1989 for all
outstanding shares of Common Stock and Class B Common Stock of the Company
(collectively, the "Shares"). On May 3, 1989, in connection with the
consummation of the Offer, FM Acquisition acquired 14,046,912 Shares,
representing approximately 87.3% of the outstanding Shares.
A Special Meeting of Stockholders of the Company was held on September 7,
1989, at which holders of Shares approved and adopted the Merger Agreement. FM
Acquisition was merged with and into the Company on September 11, 1989, with the
Company being the surviving corporation of the Merger.
At the effective time of the Merger (the "Effective Time"), each
outstanding Share (other than Shares held in the Company's treasury or by FM
Acquisition) was converted into the right to receive $19.00 per Share in cash,
without interest. Each employee option to purchase Shares outstanding
immediately prior to the Effective Time was cancelled in exchange for a cash
payment from the Company (subject to any applicable withholding taxes) equal to
the product of (x) the total number of Shares subject to such options and (y)
the excess of $19.00 over the exercise price per Share subject to such options.
For additional information concerning the Acquisition, see "The Acquisition."
Approximately $390.6 million was required to (i) acquire all of the Shares
pursuant to the Offer and the Merger (including payments in respect of options
and restricted stock), (ii) refinance certain indebtedness of the Company and
its subsidiaries, and (iii) pay the fees, expenses and other transaction costs
(including cash interest due on FM Acquisition's Bridge Notes and in respect of
borrowings under a tender offer facility with certain banks (the "Tender Offer
Facility") on consummation of the Merger) incurred in connection with the
Acquisition and related financings (other than fees, expenses and transaction
costs related to the offering of the Notes and the private placement of the
Subordinated Discount Debentures).
The funds required for the Acquisition and related transactions were
obtained (i) pursuant to the terms of several credit agreements (collectively,
the "Merger Credit Agreement") among the Company, certain of the Company's
subsidiaries and certain banks named therein and Canadian Imperial Bank of
Commerce, as agent ("CIBC"), (ii) from the issuance of the Bridge Notes to The
Travelers Insurance Company ("Travelers"), which was then a subsidiary of Dillon
Read's ultimate parent company, and (iii) from the proceeds of the sale of
Holdings capital stock to Saratoga and other affiliates of Dillon Read other
than Dillon, Read Interfunding Inc. ("DR Interfunding"), a subsidiary of Dillon
Read's parent company (collectively, the "Saratoga Investors"), Masco and
employees of the Company and its subsidiaries. In addition, the cash cost of the
Acquisition was reduced through the exchange by Company employees of Shares for
shares of Holdings capital stock and through the surrender by Company employees
of options to purchase Shares in consideration of the grant by Holdings of
options to purchase Holdings capital stock. Upon consummation of the Merger,
borrowings under the Tender Offer Facility of approximately $114.0 million, plus
accrued interest, were refinanced with the proceeds of the borrowings under the
Merger Credit Agreement. Borrowings under the Tender Offer Facility and the
Merger Credit Agreement (collectively, the "Bank Financing"), the issuance of
the Bridge Notes (the "Bridge Financing"), the issuance of Holdings capital
stock to the Saratoga Investors, Masco and employees of the Company and its
subsidiaries (the "Equity Financing"), and the issuance of the Notes and the
Subordinated Discount Debentures, in each case after giving effect to the
application of the proceeds therefrom, are hereinafter referred to collectively
as the "Financing." See "The Acquisition -- Financing the Acquisition." For
additional information concerning the Acquisition and the financing therefor,
see "The Acquisition" and "Description of Merger Credit Agreement."
4
<PAGE> 8
THE OFFERING
THE NOTES
<TABLE>
<S> <C>
Securities Offered............ $100,000,000 principal amount of Notes issued pursuant to the
Indenture dated as of September 15, 1989 between the Company
and United Jersey Bank, as Trustee (the "Note Trustee").
Interest Rate................. 14% per annum.
Interest Payment Dates........ April 1 and October 1.
Maturity...................... October 1, 1999.
Mandatory Sinking Fund........ A sinking fund payment of $40,000,000 on October 1, 1998 is
calculated to retire 40% of the Notes prior to maturity. The
Company may deliver Notes acquired or redeemed by it (other
than through operation of the sinking fund) in lieu of cash
in making such sinking fund payment.
Optional Redemption........... The Notes are not redeemable prior to October 1, 1994, except
as set forth below. On and after October 1, 1994, the Notes
may be redeemed at the option of the Company at any time, in
whole or in part and, prior to October 1, 1994, the Notes may
be redeemed, as a whole, at the option of the Company, if the
Company has entered into certain mergers, consolidations or
sales of substantially all of the Company's assets and is
unable to satisfy the merger and consolidation covenant in
the Note Indenture, in each case at the redemption prices set
forth herein, plus accrued interest.
Change of Control............. In the event of a Change of Control (as defined under
"Description of Securities -- Certain Terms of the
Securities -- Change of Control"), holders of Notes will have
the right to require the Company to repurchase their Notes at
a purchase price equal to 101% of the principal amount of the
Notes to be repurchased, plus accrued and unpaid interest to
the date of repurchase. There can be no assurance that in the
event of a Change of Control, the Company would have
sufficient cash and other liquid assets to satisfy such
obligation on a timely basis.
Ranking....................... The Notes are subordinated in right of payment to all Senior
Debt (as defined under "Description of Securities -- Certain
Terms of the Securities -- Subordination") of the Company,
which includes borrowings under the Merger Credit Agreement.
As of March 31, 1994, the amount of Senior Debt, including
the amount of indebtedness of the Company's subsidiaries not
guaranteed by the Company, was approximately $86 million.
Additional senior debt may be incurred to the extent
permitted by the Merger Credit Agreement and the Note
Indenture. Claims of holders of the Notes as creditors of the
Company will be junior in right of payment to all liabilities
(whether or not for borrowed money) including those of trade
creditors of the Company's subsidiaries, and such creditors
will have priority with respect to the assets and earnings of
such subsidiaries over the claims of creditors of the
Company, including holders of the Notes. See "Certain Risk
Factors -- Subordination and Effect of Asset Encumbrances."
Certain Covenants............. The Note Indenture contains covenants which, among other
matters, limit the incurrence of additional indebtedness,
restrict the payment of dividends and the making of other
distributions and of certain loans and investments by the
Company and its subsidiaries, limit asset sales, limit the
ability of the Company and its subsidiaries to create liens,
limit the ability of the Company to enter into certain
transactions with affiliates and restrict the ability of the
Company to merge or consolidate or to transfer substantially
all its assets.
For more complete information regarding the Notes, see "Description of the Securities."
</TABLE>
5
<PAGE> 9
THE SUBORDINATED DISCOUNT DEBENTURES
<TABLE>
<S> <C>
Securities Offered............ $95,910,000 principal amount of Subordinated Discount
Debentures issued pursuant to the Indenture dated as of
September 15, 1989 between the Company and The Bank of New
York, as Trustee (the "Debenture Trustee").
Interest Rate................. The Subordinated Discount Debentures bear no interest until
October 1, 1994. From and after October 1, 1994, the
Subordinated Discount Debentures will bear interest at a rate
of 15 3/4% per annum.
Interest Payment Dates........ April 1 and October 1, commencing April 1, 1995.
Maturity...................... October 1, 2001.
Original Issue Discount....... The Subordinated Discount Debentures were privately placed
with the Selling Debenture Holders at 46.918% of their face
amount and consequently bear original issue discount within
the meaning of the Internal Revenue Code of 1986, as amended.
See "Certain Federal Income Tax Consequences."
Mandatory Sinking Fund........ A sinking fund payment of $38,364,000 on October 1, 2000 is
calculated to retire 40% of the Subordinated Discount
Debentures prior to maturity. The Company may deliver
Subordinated Discount Debentures acquired or redeemed by it
(other than through operation of the sinking fund) in lieu of
cash in making such sinking fund payment.
Optional Redemption........... The Subordinated Discount Debentures are redeemable, at the
option of the Company at any time, in whole or in part, at
the redemption prices set forth herein, plus accrued
interest, if any. Prior to October 1, 1994, the Subordinated
Discount Debentures may also be redeemed by the Company, as a
whole, at the redemption prices set forth herein upon certain
mergers, consolidations or sales of substantially all of the
Company's assets.
Change of Control............. In the event of a Change of Control (as defined under
"Description of Securities -- Certain Terms of the
Securities -- Change of Control"), holders of Subordinated
Discount Debentures will have the right to require the
Company to repurchase their Subordinated Discount Debentures
at a purchase price equal to 101% of the Accreted Value of
the Subordinated Discount Debentures to be repurchased, plus
accrued and unpaid interest to the date of repurchase, if
any. There can be no assurance that in the event of a Change
of Control, the Company would have sufficient cash and other
liquid assets to satisfy such obligation on a timely basis.
Ranking....................... The Subordinated Discount Debentures are subordinated in
right of payment to all Senior Debt (as defined under
"Description of Securities -- Certain Terms of the
Securities -- Subordination") of the Company, which includes
borrowings under the Merger Credit Agreement and the Notes.
As of March 31, 1994, the amount of Senior Debt, including
the amount of indebtedness of the Company's subsidiaries not
guaranteed by the Company, was approximately $186 million.
Additional senior debt may be incurred to the extent
permitted by the Merger Credit Agreement and the Debenture
Indenture. Claims of holders of the Subordinated Discount
Debentures as creditors of the Company will be junior in
right of payment to all liabilities (whether or not for
borrowed money) including those of trade creditors of the
Company's subsidiaries, and such creditors will have priority
with respect to the assets and earnings of such subsidiaries
over the claims of creditors of the Company, including
holders of the Subordinated Discount Debentures. See "Certain
Risk Factors -- Subordination and Effect of Asset
Encumbrances."
Certain Covenants............. The Debenture Indenture contains covenants which, among other
matters, limit the incurrence of additional indebtedness,
restrict the payment of dividends and the making of other
distributions and of certain loans and investments by the
Company and its subsidiaries, limit asset sales, limit the
ability of the Company and its subsidiaries to create liens,
limit the ability of the Company to enter into certain
transactions with affiliates and restrict the ability of the
Company to merge or consolidate or to transfer substantially
all its assets.
</TABLE>
6
<PAGE> 10
For more complete information regarding the Subordinated Discount
Debentures, see "Description of the Securities."
USE OF PROCEEDS
The Notes were issued in an underwritten public offering by the Company
which was completed in October 1989. The Subordinated Discount Debentures were
issued in October 1989 pursuant to a previously completed private placement to
the Bridge Participants (as hereinafter defined) in exchange for their
participation interests in approximately $45.0 million of Bridge Notes and have
been registered under the Securities Act on behalf of the Selling Debenture
Holders to permit the public sale or other distribution thereof.
The proceeds received by the Company from the sale of the Notes
(approximately $95.5 million) were used to repay at par $80.0 million in
aggregate principal amount of Bridge Notes, to pay a portion of the accrued and
unpaid interest on $125.0 million principal amount of Bridge Notes issued in
connection with the Acquisition to an affiliate of Dillon Read, to repay
approximately $12.0 million of borrowings under the Merger Credit Agreement and
to pay approximately $1.7 million of placement agency fees and expenses incurred
in connection with the private placement of the Subordinated Discount
Debentures. The interest rate on the Bridge Notes at the time the Securities
were issued was approximately 14.56% per annum. The borrowings under the Merger
Credit Agreement that were repaid bore interest at 12.0% per annum. For further
information concerning the Bridge Notes, the Bridge Participants and the Merger
Credit Agreement, see "The Acquisition -- Financing the Acquisition" and
"Description of Merger Credit Agreement." For information concerning certain
fees paid or to be paid to Dillon Read and its affiliates in connection with the
Transactions (as hereinafter defined) and certain investments by affiliates of
Dillon Read in the equity of the Company's parent company, see "Certain
Transactions and Relationships."
The Company will not receive any further proceeds from the sale of
Securities pursuant to this Prospectus, but has agreed to pay all expenses
associated with this Prospectus other than commissions and discounts payable to
dealers, agents and underwriters. The initial expense of registering the
Subordinated Discount Debentures was approximately $110,000. See "Use of
Proceeds."
CERTAIN RISK FACTORS
Prospective purchasers of the Notes and Subordinated Discount Debentures
should consider carefully the specific factors set forth under "Certain Risk
Factors," as well as the other information set forth in this Prospectus.
7
<PAGE> 11
SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated operating
results of the Company for the three month period ended March 31, 1994 and 1993
and the five-year period ended December 31, 1993. The selected historical
consolidated financial data of the Company for the five-year period ended
December 31, 1993 were derived from the consolidated financial statements of the
Company, which were audited by Arthur Andersen & Co., independent public
accountants. The report of such accountants with respect to the years ended
December 31, 1993, 1992 and 1991 appears elsewhere in this Prospectus. The
financial data of the Company for the three month period ended March 31, 1994
and 1993 were derived from the unaudited consolidated financial statements
included elsewhere in this Prospectus.
Selected financial information (other than net sales) for the Company on a
post-Acquisition basis of accounting (i.e., for the Company after May 3, 1989)
is not comparable to the information for the Company on a pre-Acquisition basis
of accounting (i.e, for the Company through May 3, 1989) because of changes in
the organizational structure, recorded asset values, cost structure and
capitalization of the Company resulting from a leveraged buyout transaction in
May 1989.
The following financial information should be read in conjunction with "The
Acquisition--Financing the Acquisition," "Capitalization," "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the consolidated financial statements
of the Company included elsewhere in this Prospectus.
8
<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
POST-
PRE-ACQUISITION BASIS OF ACCOUNTING ACQUISITION
------------------------------------------------------------------------------ BASIS OF
ACCOUNTING
THREE MONTHS ----------
ENDED MAY 4, 1989 JANUARY 1,
MARCH 31, YEARS ENDED DECEMBER 31, TO 1989
------------------- ----------------------------------------- DECEMBER 31, TO MAY 3,
1994 1993 1993 1992 1991 1990 1989 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $107,592 $103,183 $447,079 $446,217 $421,181 $436,546 $277,347 $131,010
Cost of sales..................... 76,284 73,751 319,873 314,457 293,224 299,233 188,255 90,773
-------- -------- -------- -------- -------- -------- ------------ ----------
Gross profit...................... 31,308 29,432 127,206 131,760 127,957 137,313 89,092 40,237
Selling, general and
administrative expenses......... 24,637 24,053 98,773 94,236 88,336 97,412 59,624 30,049(1)
-------- -------- -------- -------- -------- -------- ------------ ----------
Operating income.................. 6,671 5,379 28,433 37,524 39,621 39,901 29,468 10,188
Other income (expense), net....... 787 609 6,993(2) 14,712(2) 3,872 2,515 3,289 (4,699)(1)
-------- -------- -------- -------- -------- -------- ------------ ----------
Income before interest expense,
income taxes and accounting
change.......................... 7,458 5,988 35,426 52,236 43,493(3) 42,416 32,757 5,489
Interest expense.................. 9,625 11,914 47,352 52,805 53,114 51,429 31,710 3,564
-------- -------- -------- -------- -------- -------- ------------ ----------
Income (loss) before income taxes
and accounting change........... (2,167) (5,926) (11,926) (569) (9,621) (9,013) 1,047 1,925
Provision (benefit) for income
taxes........................... (223) (3,193) (8,564) 1,066 (2,492) 716 789 5,072
Income (loss) before accounting
change.......................... (1,944) (2,733) (3,362) (1,635) (7,129) (9,729) 258 (3,147)
Accounting change -- cumulative
effect to January 1, 1993, of
accounting for income taxes..... -- (2,850) (2,850) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------ ----------
Net income (loss)................. $ (1,944) $ 117 $ (512) $ (1,635) $ (7,129) $ (9,729) $ 258 $ (3,147)
======== ======== ======== ======== ======== ======== ============ ==========
BALANCE SHEET DATA (END OF
PERIOD):
Working capital................... $ 86,466 $ 94,065 $ 77,069 $ 90,299 $ 91,176 $ 82,837 $ 76,514 $ 89,740
Total assets...................... 546,256 565,303 541,631 562,843 589,779 635,474 594,335 324,070
Total debt........................ 286,128 343,585 266,531 318,579 325,762 346,912 320,239 69,525
Stockholder's equity.............. 78,327 39,419 80,362 39,333 44,448 50,971 63,323 163,326
OTHER DATA:
Capital expenditures.............. $ 2,029 $ 1,166 $ 10,916 $ 10,811 $ 8,555 $ 12,778 $ 10,617 $ 2,634
Depreciation and amortization..... 5,934 6,197 24,152 25,253 24,568 23,689 14,311 4,879
Ratio of earnings to fixed
charges(4)...................... -- -- -- -- -- -- 1.0x 1.4x
Deficiency of earnings available
to cover fixed charges(4)....... (2,167) (5,926) (11,926) (569) (9,621) (9,013) -- --
Earnings before interest, taxes,
depreciation and amortization
("EBITDA")(5)................... $ 13,392 $ 12,185 $ 59,578 $ 77,489 $ 68,061 $ 66,105 $ 47,068 $ 10,368
Ratio of EBITDA to interest(5).... 1.3 1.5 1.3 1.3
Ratio of EBITDA to cash
interest(5)..................... 1.8 1.9 1.6 1.6
Ratio of total debt to
EBITDA(5)....................... 4.5 4.1 4.8 5.2
</TABLE>
- ---------------
(1) Selling, general and administrative expenses and other income (expense), net
include approximately $1,400 and $5,600, respectively, in fees and expenses
incurred in connection with the tender offer consummated on May 3, 1989 in
connection with the Acquisition for all of the then outstanding shares of
Formica (the "Tender Offer").
(2) Includes $1,900 for the year ended December 31, 1993 relating to the
reversal of other long-term liabilities associated with reserves
attributable to the realization of the Company's investment in a product
line which, based upon current and anticipated operating results, management
believed were no longer needed. Includes $9,100 for the year ended December
31, 1992 relating to a reduction of other long-term liabilities attributable
to changes in certain of the Company's postretirement medical benefit plans
(See Notes 2, 6 and 10 to the Company's Consolidated Financial Statements)
and $2,000 relating to the reversal of other long-term liabilities as a
result of the release of certain warranties and representations made by
Formica in connection with the prior sale of a subsidiary.
(footnotes continued on following page)
9
<PAGE> 13
(3) Includes $3,400 representing the settlement of a claim by Formica against a
third party. This settlement primarily represented a reimbursement of costs
incurred by Formica and was recorded as a reduction of cost of sales of
$2,800 and selling, general and administrative expenses of $400, and as an
increase to other income, net of $200.
(4) For purposes of these computations, earnings consist of income (loss) before
accounting change and income taxes plus fixed charges. Fixed charges consist
of interest on indebtedness (including amortization of debt issuance costs)
plus that portion of lease rental expense representative of interest (deemed
to be one-third of lease rental expense).
(5) EBITDA represents net income plus interest expense, income tax expense, and
depreciation and amortization expense. EBITDA and the related ratios are
presented not as a measure of operating results or as a measure of liquidity
to evaluate the Company's cash flows but rather as a measure of the
Company's ability to service its debt. Currently, under the Credit
Documents, Formica is prohibited from making loans, paying dividends and
otherwise making distributions to Holdings.
10
<PAGE> 14
THE COMPANY
The Company designs, manufactures and distributes decorative laminates and
other surfacing products worldwide and is the largest producer of high pressure
decorative laminates in the world. Decorative laminates are principally used in
commercial and residential interior surfacing applications for their durability,
design features, construction versatility and ease of maintenance. Among the
numerous commercial applications of FORMICA brand laminates are work surfaces,
furniture, flooring, panels, countertops and interior walls in offices, computer
centers, hospitals, schools, restaurants, hotels, retail stores, ships, buses
and railroad cars. FORMICA brand laminates are used for such traditional
residential applications as kitchen cabinetry, countertops and bathroom vanities
as well as for horizontal and vertical surfaces in living rooms, family rooms
and dining rooms. The Company estimates that of its 1993 net sales approximately
one-half were derived from products used in commercial applications and one-half
from products used in residential applications. In addition, the Company
estimates that approximately two-thirds of its 1993 net sales were derived from
products used in renovation or remodeling projects while approximately one-third
of its 1993 net sales were derived from products used in new construction.
The Company has an extensive global presence and is a leading manufacturer
and distributor of high-pressure decorative laminates in North America, Europe
and the Far East. In addition, the Company manufactures SURELL solid surfacing
material and distributes this product in such markets. The Company's ten
manufacturing facilities are located in the United States, Canada, the United
Kingdom, France, Spain, Germany and Taiwan. The Company's products are marketed
under the FORMICA brand name and (LOGO) mark through thousands of locations
worldwide by a domestic and international independent distributor and dealer
network and the Company's own sales force to major distributors and
manufacturers of finished products and to architects and designers who specify
products for commercial and residential interiors. The Company maintains design
facilities in the United States and Europe and has won numerous design and new
product development awards. The location of the Company's manufacturing
facilities and design centers and its worldwide distribution network enable the
Company to be responsive to its customers' delivery and design needs.
The Company continues to focus its marketing efforts on its higher margin
premium products such as its DESIGN CONCEPTS(R) and FORMATIONS(R) decorative
laminate collections and COLORCORE(R) surfacing material, a solid
"color-through" laminate, and SURELL, a solid surfacing material. Other premium
products have been developed for special applications such as fire-rated
materials for shipbuilding, static-free flooring for computer centers and
metallic, leather, slate and granite appearances. The Company maintains a
continuing program of research and development in order to broaden the range of
products which it offers to its customers and to introduce new products,
including solid surfacing products. Its efforts emphasize improving product
design and performance and the development of new product applications as well
as improving manufacturing processes.
In addition to the introduction of new products designed and developed
internally, the Company has begun worldwide marketing and distribution of
several new products. These products include NUVEL, a solid surfacing material
developed by GE, which has the features of traditional solid surfacing materials
but can be installed at a lower cost; GRANULON, a densified liquid composite
used as a spray-on surfacing material; and specialty wood veneer laminates that
will be distributed under the FORMICA brand name. The Company has also entered
into a cooperative enterprise agreement to distribute locally produced laminate
products in the People's Republic of China.
Formica was founded in 1913 and created the world's first decorative
laminate in 1927. Formica operated independently until 1956 when it was acquired
by American Cyanamid Company ("American Cyanamid"). In May 1985 a group of
investors acquired Formica (except for certain assets in Taiwan and the United
States which have since been acquired). In September 1989, all of the capital
stock of the Company was acquired by Holdings, a corporation organized by
Saratoga, Masco and certain members of senior management of the Company. See
"Ownership of the Capital Stock of the Company and Holdings." Saratoga is a
limited partnership organized to invest in the equity of corporate buyouts and
is managed by Dillon Read, an investment banking and securities brokerage and
trading firm. Masco is principally engaged in the business of manufacturing
building and home improvement, home furnishing and other specialty consumer
products.
11
<PAGE> 15
The principal executive offices of the Company are located at 1680 Route 23
North, Wayne, New Jersey 07474. Its telephone number is (201) 305-9400.
CERTAIN RISK FACTORS
Prospective purchasers of the Securities should consider carefully the
specific risk factors set forth below as well as the other information contained
in this Prospectus.
SUBSTANTIAL LEVERAGE
The Company and its subsidiaries have incurred substantial indebtedness in
connection with the Acquisition, including under the Merger Credit Agreement and
through the issuance of the Securities. As a result, the Company is highly
leveraged and its consolidated indebtedness is substantially greater than was
the case immediately prior to the Merger. As a result of the Acquisition and the
Financing (collectively, the "Transactions"), the Company's consolidated
long-term debt and consolidated ratio of debt (consisting of current and
noncurrent portions of long-term debt) to stockholder's equity was approximately
$268.0 million and 3.4 to 1, respectively, at March 31, 1994.
This degree of leverage of the Company will have important consequences to
holders of the Securities including the following: (i) a substantial portion of
the Company's cash flow from operations will be required to be dedicated to the
payment of the Company's interest expense and principal repayment obligations
under the Merger Credit Agreement and the Securities; (ii) all of the loans made
pursuant to the Merger Credit Agreement will become due prior to the time the
Securities will become due and the indebtedness of the Company represented by
the Notes will become due prior to the time the Subordinated Discount Debentures
will become due, and may adversely affect the Company's ability to pay principal
of and cash interest when due on the Securities; (iii) a substantial portion of
the loans made pursuant to the Merger Credit Agreement will be direct
obligations of the Company's significant foreign subsidiaries (collectively, the
"Foreign Borrowers," together with the Company, the "Merger Borrowers"), which
in 1993 accounted for approximately 40% of the Company's consolidated operating
income while the Securities will be direct obligations of the Company; (iv)
substantially all of the assets of the Company and its subsidiaries have been
pledged to secure the loans made pursuant to the Merger Credit Agreement; (v)
the ability of the Company to obtain additional financing in the future for
working capital, capital expenditures or other purposes, should it need to do
so, may be impaired; (vi) the Company may be at a competitive disadvantage to
some of its competitors because the Company is more highly leveraged than
certain other manufacturers of decorative laminates and other surfacing products
and some of its competitors are owned by larger enterprises that have financial
resources that are greater than those of the Company; and (vii) the Company's
high degree of leverage will make it more vulnerable to a downturn in its
business, which historically has been sensitive to changes in general economic
conditions, or an increase in its cost structure (including the price of raw
materials). See " -- Foreign Operations and Borrowings," " -- Subordination and
Effect of Asset Encumbrances," "The Acquisition -- Financing the Acquisition,"
"Capitalization," "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Description of Merger Credit Agreement."
ABILITY TO SERVICE DEBT; HISTORICAL LOSSES
The Company's consolidated earnings before fixed charges for the three
months ended March 31, 1994 and year ended December 31, 1993 were inadequate to
cover its fixed charges by $2.2 million and $11.9 million, respectively. The
Company's net loss for the three months ended March 31, 1994 and year ended
December 31, 1993 was approximately $1.9 million and $0.5 million, respectively.
The net book value of the Company's trademarks and patents was approximately
$91.0 million at March 31, 1994. Additionally, the net book value of the
Company's goodwill was approximately $38.0 million at March 31, 1994. These
combined assets represent a significant portion of the Company's total
consolidated assets and, in total, exceed the Company's total consolidated
stockholder's equity of $78.3 million at March 31, 1994. Although management
undertakes periodic reviews of the value of its intangible assets in accordance
with U.S. generally accepted accounting principles, there can be no assurance
that the value of these assets will be fully realized in the future.
The Company's indebtedness bears interest at higher average rates than the
Company's pre-Acquisition indebtedness, and the obligations of the Merger
Borrowers under the Merger Credit Agreement generally bear
12
<PAGE> 16
interest at floating rates, causing the Company to be significantly more
sensitive to prevailing interest rates than was historically the case for the
Company and its subsidiaries. The weighted average interest rate on the
Company's outstanding indebtedness as of March 31, 1994 and December 31, 1993
was approximately 12.9% and 13.2%. Although the Company has interest rate swap
agreements outstanding at March 31, 1994, with respect to approximately $18.6
million of the indebtedness under the Merger Credit Agreement, any increases in
interest rates will adversely affect the Merger Borrowers' ability to make
payments of interest and principal under the Merger Credit Agreement, the Notes,
the Subordinated Discount Debentures and the Company's other indebtedness.
The Merger Borrowers are obligated under the Merger Credit Agreement to
make substantial principal and interest payments on indebtedness incurred
pursuant to the Merger Credit Agreement prior to the maturity of the Notes and
the Subordinated Discount Debentures. In aggregate, the Merger Borrowers are
required to make payments of principal due under the Revolving Credit Facilities
(as herein defined), so as to reduce the commitments thereunder, and under the
Foreign Credit Documents (as herein defined) in accordance with the following
schedule as to each annual period following the Effective Time and in the
following amounts (expressed in United States dollars determined using March 31,
1994 exchange rates): 1994 -- $18.3 million; 1995 -- $13.4 million;
1996 -- $19.4 million; and 1997 -- remainder. On September 11, 1991, 1992 and
1993 the commitments were reduced by $11.0 million, $12.5 million and $31.3
million, respectively (expressed in United States dollars using March 31, 1994
exchange rates). See "Description of Merger Credit Agreement." In addition, the
Notes will mature on October 1, 1999 and a sinking fund payment calculated to
retire 40% of the Notes prior to maturity is due on October 1, 1998. The
Subordinated Discount Debentures may not be redeemed prior to the repayment in
full of the Notes. See "Description of the Securities."
The Company's ability to make payments of principal and interest on its
indebtedness, and to comply with its covenants described below, is dependent
upon the Company's future performance and business growth which are subject to
financial, economic, competitive and other factors affecting the Company, many
of which are beyond its control. There can be no assurance that the Company will
be able to generate sufficient cash flow to cover required principal and
interest payments. If the Company is unable to generate sufficient funds to meet
its debt service obligations, it may have to refinance some or all of its debt,
sell assets, restructure its operations or raise additional equity. No assurance
can be given that any of the foregoing could be accomplished or, if
accomplished, would raise sufficient funds for the Company to satisfy its debt
service obligations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
RESTRICTIONS IMPOSED BY THE MERGER CREDIT AGREEMENT AND
CONSEQUENCES OF DEFAULT
The Merger Credit Agreement contains a number of covenants that, among
other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur debt, pay dividends, create liens, make capital
expenditures and make certain investments or acquisitions and otherwise restrict
corporate activities. The indebtedness outstanding under the Merger Credit
Agreement is secured by liens on substantially all of the assets of the Company
and the Foreign Borrowers, including inventory and accounts receivable, and
mortgages on their fee interests in certain property, and pledges of the capital
stock of the Company and a portion of the capital stock of the Foreign
Borrowers. In addition, the Company is required to maintain minimum levels of
earnings before interest expense, income taxes, depreciation expense and
amortization expense and certain financial ratios, including minimum interest
coverage ratios, and cannot exceed certain maximum leverage ratios. The ability
of the Company to comply with such provisions will be affected by certain events
beyond the Company's control. The breach of any of these covenants could result
in a default under the Merger Credit Agreement. In addition, such banks could
elect to declare all outstanding amounts borrowed under the Merger Credit
Agreement, together with accrued interest, to be due and payable prior to their
stated maturity. If the Company were unable to repay such borrowings, such banks
could proceed against their collateral. If the indebtedness represented by the
Merger Credit Agreement were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay such indebtedness, the
Notes and the Subordinated Discount Debentures in full. See "Description of
Merger Credit Agreement" and "Description of the Securities -- Certain Terms of
the Securities -- Subordination."
13
<PAGE> 17
FOREIGN OPERATIONS AND BORROWINGS
For the three months ended March 31, 1994 and year ended December 31, 1993,
approximately 48% and 63% of the Company's consolidated operating income was
derived from its international operations, and at March 31, 1994 approximately
41% of the Company's identifiable assets were located outside the United States.
International operations are subject to a number of special concerns, including
currency exchange rate fluctuations, trade barriers, governmental expropriation,
exchange controls and other risks associated with foreign operations. In
addition, earnings of foreign subsidiaries are subject to foreign taxes that
reduce cash flow available to meet required debt service and other obligations
of the Company. The Company's financial performance on a United States
dollar-denominated basis has been significantly affected by changes in currency
exchange rates in the past. Although the local currency borrowings by the
Foreign Borrowers are expected to mitigate the effect of fluctuating currency
exchange rates, adverse changes in certain exchange rates and foreign tax rates
could have an adverse effect on the Company's ability to meet its interest and
principal obligations with respect to its debt, particularly its United States
dollar-denominated debt. In addition, actual and deemed dividends by the Foreign
Borrowers constitute income to the Company for United States federal income tax
purposes and, to the extent of earnings actually distributed, will be subject to
foreign withholding taxes. Foreign income and withholding taxes may not be fully
creditable against future United States income taxes due to certain foreign tax
credit limitations under the United States Internal Revenue Code. Finally,
losses in the United States or in any of the Company's international
subsidiaries may not be used to offset for tax purposes earnings in any other
jurisdiction. Consequently, for the Company and each of the Foreign Borrowers to
utilize currently the full amount of their respective tax deductions resulting
from their respective increased indebtedness, each of the Company and the
Foreign Borrowers must generate sufficient income in each relevant jurisdiction.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Description of Merger Credit Agreement."
At the time of the Merger, the United Kingdom, French, Spanish and Canadian
subsidiaries of the Company borrowed in foreign currencies the equivalent of
approximately $126.8 million pursuant to the Foreign Credit Documents (the
"Foreign Borrowings"). Such Foreign Borrowers used the proceeds from the Foreign
Borrowings (i) to distribute dividends to their parent company, which, in turn,
distributed such funds (net of taxes) in the form of a dividend to the Company
for the purpose of providing it with funds to satisfy its obligations under the
Merger Agreement, (ii) to make loans to the Company and to make investments in a
newly organized foreign subsidiary of the Foreign Borrowers, which, in turn,
used such funds (net of taxes and expenses) to make a loan to the Company and to
purchase certain other subsidiaries of the Company, (iii) in the case of the
Foreign Borrower in the United Kingdom, to purchase a subsidiary of the Company,
in the case of (ii) and (iii) so as to provide the Company with funds to satisfy
its obligations under the Merger Agreement and to refinance borrowings under the
Tender Offer Facility, (iv) to repay certain existing indebtedness of such
Foreign Borrowers and (v) to pay certain fees, expenses and transaction costs.
The transactions undertaken by the Company and the Foreign Borrowers were
based on certain assumptions about the various tax (including withholding tax)
laws, foreign exchange and capital repatriation laws and other relevant laws of
a variety of jurisdictions, including, without limitation, those jurisdictions
in which the Foreign Borrowers are organized and the United States. While
management believes that such assumptions are correct, there can be no assurance
that taxing or other governmental authorities will reach the same conclusions.
If such assumptions were incorrect, or if any such jurisdiction were to change
or modify such laws, the Company may suffer adverse tax and other financial
consequences which could adversely affect the Company, including impairing its
ability to meet its payment obligations on its outstanding indebtedness,
including the Securities.
SUBORDINATION AND EFFECT OF ASSET ENCUMBRANCES
The Securities are subordinated to all Senior Debt of the Company, which
includes indebtedness under the Merger Credit Agreement and, with respect to the
Subordinated Discount Debentures, also includes the Notes. Therefore, in the
event of the bankruptcy, liquidation or reorganization of the Company, the
assets of the Company will be available to pay obligations on the Notes and the
Subordinated Discount Debentures only after all Senior Debt with respect thereto
has been paid in full, and sufficient assets may not exist to pay amounts due on
the Notes and/or the Subordinated Discount Debentures. As of March 31, 1994, the
amount
14
<PAGE> 18
of Senior Debt, including the amount of indebtedness of the Company's
subsidiaries not guaranteed by the Company, relating to the Notes and the
Subordinated Discount Debentures was approximately $86 million and $186 million,
respectively. The Note Indenture and the Debenture Indenture permit the Company
and its subsidiaries, subject to certain limitations, to incur additional
indebtedness, including Senior Debt. See "Description of the
Securities -- Certain Covenants -- Limitation of Debt."
The subordination provisions of each of the Notes Indenture and the
Debenture Indenture provide that no cash payment may be made with respect to the
principal of, or premium, if any, or interest on the Notes or the Subordinated
Discount Debentures during the continuance of a payment default under any Senior
Debt, with respect thereto. In addition, if certain non-payment defaults exist
with respect to certain designated Senior Debt (which does not include the Notes
with respect to the Subordinated Discount Debentures), the holders of such
Senior Debt will be able to block payment on the Securities for up to 150 days
during any 360-day period. The Company's obligations under the Merger Credit
Agreement (including its guarantee of the Foreign Borrowings) are secured
principally by a pledge of its capital stock and a portion of the capital stock
of the Foreign Borrowers as well as substantially all of its assets. In
addition, the obligations of the Foreign Borrowers under the Merger Credit
Agreement have been secured by a pledge of substantially all of their assets.
The Notes and the Subordinated Discount Debentures are not secured. If any of
the Notes or the Subordinated Discount Debentures are declared due and payable
prior to their stated maturity, holders of Senior Debt with respect thereto will
be entitled to payment in full prior to any payment to the holders of the
Securities, and secured lenders will have a prior claim on the Company's assets.
See "Description of Merger Credit Agreement" and "Description of the
Securities -- Certain Terms of the Securities -- Subordination."
A significant portion of the Company's operations are conducted through its
foreign subsidiaries. The Foreign Borrowings are secured as described in the
preceding paragraph. The Company's subsidiaries are also permitted to incur
additional indebtedness subject to restrictions in the Merger Credit Agreement,
the Debenture Indenture and the Note Indenture (the Debenture Indenture and the
Note Indenture are collectively referred to as the "Indentures"). Funds will be
provided to the Company by such subsidiaries through royalties, dividends and
payments on intercompany indebtedness, some of which payments are subject to
foreign laws and may have certain costs associated with such payments. Because a
majority of the assets of the Company will be held by its subsidiaries, the
claims of holders of the Securities, as creditors of the Company, will be
subject to the payment of all liabilities (whether or not for borrowed money) of
the subsidiaries. As of March 31, 1994, the amount of liabilities of the
Company's subsidiaries was approximately $102 million.
INTEREST OF DILLON READ AND AFFILIATES
As set forth under "The Acquisition," "Certain Transactions and
Relationships" and "Ownership of the Capital Stock of the Company and Holdings,"
the Saratoga Investors as well as other affiliates of Dillon Read provided
significant amounts of financing for the Acquisition and, as of the date hereof,
own approximately 57.0% of the outstanding shares of Holdings capital stock
entitled to vote in the election of directors of Holdings. In addition, certain
persons who are employed by Dillon Read are directors of the Company. It will be
an event of default under the Merger Credit Agreement if affiliates of Dillon
Read cease to control at least a majority of the outstanding Holdings capital
stock entitled to vote in the election of directors or otherwise cease to
control the Company. As a result of these relationships, circumstances could
arise in which the interests of Dillon Read, acting on behalf of its affiliates
which are equity holders of Holdings, could be in conflict with the interests of
holders of the Securities.
Dillon Read may render financial advisory and other investment banking
services to the Company and its subsidiaries in the future. In 1993, Dillon Read
received a fee of $100,000 from the Company for financial advisory services. In
addition, in September 1993, Dillon Read, acting as the initial purchaser in
connection with the private placement of $50 million of accrual debentures by
Holdings received a discount on its purchase of the accrual debentures in the
amount of $1.75 million.
LACK OF PUBLIC MARKET
There is currently no established market for the Securities and there can
be no assurance as to the liquidity of any markets that may develop for the
Securities, the ability of holders of the Securities to sell their Securities or
the price at which such holders of the Securities would be able to sell their
Securities. If such
15
<PAGE> 19
markets were to exist, the Securities could trade at prices that may be higher
or lower than the initial market values thereof depending on many factors,
including prevailing interest rates and the markets for similar securities.
Dillon Read has advised the Company that it currently intends to make a market
in the Securities. However, it is not obligated to do so, and any market making
with respect to the Securities may be discontinued at any time without notice.
The Company does not intend to apply for listing of the Securities. See "Selling
Debenture Holders" and "Plan of Distribution" for certain information pertaining
to the limited ownership of the Subordinated Discount Debentures, the market for
the Securities and Dillon Read's ability to make a market in the Securities.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
incurrence and assumption of indebtedness in connection with the Acquisition,
including the assumption of indebtedness of FM Acquisition pursuant to the
Merger and the issuance and sale of the Notes and the Subordinated Discount
Debentures to refinance a portion of such indebtedness. If a court were to find,
in a lawsuit by an unpaid creditor or representative of creditors of the
Company, that the Company did not receive fair consideration or reasonably
equivalent value for incurring or assuming such indebtedness and, at the time of
such incurrence or assumption, the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such incurrence
or assumption, (iii) was engaged in a business or transaction for which the
assets remaining in the Company constituted unreasonably small capital or (iv)
intended to incur or assume or believed it would incur
or assume debts beyond its ability to pay such debts as they mature, such court,
subject to applicable statutes of limitation, could determine to invalidate, in
whole or in part, such indebtedness, as fraudulent conveyances or subordinate
such indebtedness to existing or future creditors of the Company. Furthermore,
if a court were to find that, at the time the Company and its subsidiaries
granted security interests to or for the benefit of the senior lenders under the
Merger Credit Agreement, the Company or such subsidiaries did not receive fair
consideration or reasonably equivalent value for the grant of such security
interests and came within any of the foregoing clauses (i) through (iv), a
creditor or representative of creditors of the Company could seek to avoid the
grant of such security interests. This could result in an event of default with
respect to the Merger Credit Agreement which, under the terms thereof (subject
to applicable law), would allow the lenders thereunder to accelerate such debt.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, the
Company would be considered insolvent at a particular time if the sum of its
debts was then greater than all of its property at a fair valuation or if the
present fair saleable value of its assets was then less than the amount that
would be required to pay its probable liabilities on its existing debts as they
became absolute and matured.
The Company believes that the Securities were issued and that the other
indebtedness has been incurred and assumed, as the case may be, for proper
purposes and in good faith. On the basis of its historical financial
information, its recent operating history as discussed in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
other factors, the Company believes that, after giving effect to the Financing,
neither the Company nor any of its subsidiaries will be rendered insolvent, and
each will have sufficient capital for the businesses in which it will be engaged
and will be able to pay its debts as they mature. There can be no assurance,
however, as to what standard a court would apply in order to determine whether
the Company was "insolvent" upon the incurrence of the indebtedness in
connection therewith and the refinancing thereof (including the Securities) or
that, regardless of the method of evaluation, a court would determine that the
Company was solvent upon such incurrence, had sufficient capital or will be able
to pay its debts as they mature. Furthermore, although there may be arguments to
the contrary, the holders of the Securities would be able to take the position
that, with respect to the Securities, the Company received reasonably equivalent
value or fair consideration for incurring such indebtedness. There can be no
assurance, however, as to whether a court would concur with such beliefs and
positions.
In rendering their opinions with respect to the validity of the Securities,
counsel for the Company did not express any opinion as to the applicability of
federal and state statutes dealing with fraudulent conveyances.
16
<PAGE> 20
USE OF PROCEEDS
The Notes were issued in an underwritten public offering by the Company
which was completed in October 1989. The Subordinated Discount Debentures were
issued in October 1989 pursuant to a previously completed private placement to
the Bridge Participants in exchange for their participation interests in
approximately $45.0 million of Bridge Notes and are being registered under the
Securities Act on behalf of the Selling Debenture Holders to permit the public
sale or other distribution thereof.
The proceeds received by the Company from the sale of the Notes
(approximately $95.5 million) were used to repay at par $80.0 million in
aggregate principal amount of Bridge Notes, to pay a portion of the accrued and
unpaid interest on $125.0 million principal amount of Bridge Notes issued in
connection with the Acquisition, to repay approximately $12.0 million of
borrowings under the Merger Credit Agreement and to pay approximately $1.7
million of placement agency fees and expenses incurred in connection with the
private placement of the Subordinated Discount Debentures. The interest rate on
the Bridge Notes at the time the Securities were issued was approximately 14.56%
per annum. The borrowings under the Merger Credit Agreement that were repaid
bore interest at 12.0% per annum. For further information concerning the Bridge
Notes, the Bridge Participants and the Merger Credit Agreement, see "The
Acquisition Financing the Acquisition" and "Description of Merger Credit
Agreement." For information concerning certain fees paid or to be paid to Dillon
Read and its affiliates, see "Certain Transactions and Relationships."
The Company will not receive any further proceeds from the sale of the
Securities pursuant to this Prospectus, but has agreed to pay all expenses
associated with this Prospectus other than commissions and discounts payable to
dealers, agents and underwriters. The initial expense of registering the
Subordinated Discount Debentures was approximately $110,000.
THE ACQUISITION
GENERAL
FM Acquisition was organized on behalf of Holdings to effect the
acquisition of the Company. Pursuant to the Merger Agreement, FM Acquisition
commenced the Offer on February 10, 1989 for all outstanding Shares. On May 3,
1989, in connection with the consummation of the Offer, FM Acquisition acquired
14,046,912 Shares, representing approximately 87.3% of the outstanding Shares.
A Special Meeting of Stockholders of the Company was held on September 7,
1989, at which holders of Shares approved and adopted the Merger Agreement. FM
Acquisition was merged with and into the Company on September 11, 1989, with the
Company being the surviving corporation of the Merger.
At the Effective Time, each outstanding Share (other than Shares held in
the Company's treasury or by FM Acquisition) was converted into the right to
receive $19.00 per Share in cash, without interest. Each employee option to
purchase Shares outstanding immediately prior to the Effective Time was
cancelled in exchange for a cash payment from the Company (subject to any
applicable withholding taxes) equal to the product of (x) the total number of
Shares subject to such options and (y) the excess of $19.00 over the exercise
price per Share subject to such options.
OPERATIONS AFTER THE MERGER
The Company's current management, under the direction of Holdings, is
expected to continue to manage the Company in the same general manner as the
Company was conducted prior to the Merger and the Company's current senior
management personnel are expected to continue to perform their current job
functions. See "Management." No divestitures of the Company's operations are
currently planned.
FINANCING THE ACQUISITION
Approximately $390.6 million was required (i) to acquire all of the Shares
pursuant to the Offer and the Merger (including payments in respect of options
and restricted stock), (ii) to refinance certain indebtedness
17
<PAGE> 21
of the Company and its subsidiaries outstanding at the Effective Time, and (iii)
to pay the fees, expenses and other transaction costs (including cash interest
due on the Bridge Notes and under the Tender Offer Facility on consummation of
the Merger) incurred in connection with the Acquisition and related financings
(other than fees, expenses and other costs relating to the public offering of
Notes and the private placement of the Subordinated Discount Debentures).
The funds required for the Acquisition and related transactions were
obtained (i) pursuant to the terms of the Merger Credit Agreement and related
documentation, (ii) from the issuance of the Bridge Notes, and (iii) from the
proceeds of the sale of Holdings capital stock to the Saratoga Investors, Masco
and employees of the Company and its subsidiaries. In addition, the cash cost of
the Acquisition was reduced through the exchange by Company employees of Shares
for shares of Holdings capital stock and the surrender by Company employees of
options to purchase Shares in consideration of the grant by Holdings of options
to purchase shares of Holdings capital stock. Upon consummation of the Merger,
borrowings under the Tender Offer Facility of approximately $114.0 million, plus
accrued interest, were refinanced with the proceeds of the borrowings under the
Merger Credit Agreement.
The approximate sources and uses of the funds to consummate the Acquisition
(in millions of United States dollars based upon foreign exchange rates
determined pursuant to foreign currency swap arrangements entered into prior to
the Merger) were as follows:
SOURCES OF FUNDS
<TABLE>
<S> <C> <C>
Bank Financing:
U.S. Revolving Credit Facility(1)................................ $51.5
Working Capital Facility(1)...................................... 5.0
U.K. Revolving Credit Facility................................... 50.0
French Revolving Credit Facility................................. 20.5
Other Foreign Borrowings(2)...................................... 56.3 $183.3
-----
Bridge Financing(3)................................................... 125.0
Equity Financing:
Saratoga Investors............................................... 47.0
Masco............................................................ 35.0
Management Investors(4).......................................... 0.3 82.3
----- ------
Total....................................................... $390.6
======
</TABLE>
USES OF FUNDS
<TABLE>
<S> <C> <C>
Payment of cash for Shares and cancellation of employee stock
options............................................................. $307.3
Repayment of existing indebtedness(5)................................. 36.5
Payment of interest on Tender Offer Facility.......................... 5.0
Payment of accrued interest on outstanding Bridge Notes at
Merger(6)........................................................... 3.4
Transaction fees, expenses and other costs(7)......................... 38.4
------
Total....................................................... $390.6
======
</TABLE>
- ---------------
(1) The funds initially available under the U.S. Revolving Credit Facility (as
herein defined) totalled $51.5 million. An additional $30.0 million was
available pursuant to the Working Capital Facility (as herein defined), of
which up to $5.0 million was available to fund the Acquisition and related
transactions. Following the sale of the Notes and the application of the net
proceeds therefrom and from additional borrowings under the Working Capital
Facility of approximately $8.0 million, amounts available under the U.S.
Revolving Credit Facility were reduced to approximately $32.2 million. See
Note 4 to the Company's Consolidated Financial Statements for information
concerning available and unused principal borrowing commitments under the
Merger Credit Agreement.
(2) Represents Foreign Borrowings in foreign currencies (other than those under
the U.K. Revolving Credit Facility (as herein defined) and French Revolving
Credit Facility (as herein defined)) of approximately $38.8 million by the
Company's Spanish subsidiary (the "Spanish Foreign Borrower") and $17.5
million
18
<PAGE> 22
by the Company's Canadian subsidiary (the "Canadian Foreign Borrower")
which are supported by a Letter of Credit Facility (as herein defined).
These other Foreign Borrowings were made pursuant to credit agreements with
local banks (collectively, the "Foreign Credit Documents") which were
arranged for the purpose of providing financing for, among other matters,
the Acquisition.
(3) The net proceeds from the sale of the Notes were used to repay $80.0 million
aggregate principal amount of the Bridge Notes, to pay a portion of the
accrued and unpaid interest on the outstanding $125.0 million principal
amount of Bridge Notes, to repay approximately $12.0 million of borrowings
under the Merger Credit Agreement and to pay approximately $1.7 million of
placement agency fees and expenses incurred in connection with the private
placement of the Subordinated Discount Debentures. The remaining $45.0
million principal amount of Bridge Notes were retired by the issuance of
the Subordinated Discount Debentures to the Bridge Participants (as
hereinafter defined) in exchange for their participation interests in the
Bridge Notes.
(4) Additional Equity Financing was provided in the form of the reduction of the
cash cost of the Acquisition in the amount of approximately $4.8 million by
employees, officers and directors of the Company and its subsidiaries who
exchanged Shares for shares of Holdings capital stock and surrendered to
the Company options to purchase Shares in consideration of the grant by
Holdings of options to purchase shares of Holdings capital stock.
(5) In addition, in connection with the Acquisition, approximately $11.5 million
of cash available to the Company and its subsidiaries was used to repay
existing indebtedness.
(6) Calculated on the basis of $86.1 million principal amount of Bridge Notes
outstanding from consummation of the Offer to the Effective Time.
Represents cash interest on the Bridge Notes in an amount equal to interest
due through August 1, 1989 compounded through the Effective Time.
(7) Includes $4.2 million of transaction fees and expenses incurred by the
Company prior to the Merger in connection with the Offer. Does not include
fees and expenses relating to the offer and sale of the Notes and the
Subordinated Discount Debentures, including underwriting discounts and
commissions and placement fees.
Bank Financing. Unless otherwise indicated, the amounts of outstanding or
available Foreign Borrowings under the Merger Facilities are based upon foreign
currency exchange rates determined pursuant to the Merger Credit Agreement. The
financing for the Acquisition provided pursuant to the Merger Credit Agreement
(including the Foreign Credit Documents) was approximately $183.3 million
(including the Foreign Borrowings in foreign currencies equivalent to
approximately $126.8 million). A portion of the proceeds of borrowings under the
Merger Credit Agreement (including the Foreign Credit Documents) was used to
repay approximately $114.0 million, plus accrued interest, outstanding under the
Tender Offer Facility, which was extinguished at the Effective Time. The Merger
Credit Agreement originally provided for the equivalent of $194.0 million of
revolving credit facilities and letter of credit facilities (collectively, the
"Merger Facility") and a $30.0 million working capital facility (the "Working
Capital Facility"). The proceeds from the Merger Facility and approximately $5.0
million of proceeds from the Working Capital Facility were used in connection
with the Merger. Amounts available under the Merger Facility were reduced to the
equivalent of approximately $174.7 million following the sale of the Notes and
the application of the proceeds therefrom. However, as of March 31, 1994,
utilizing foreign currency exchange rates in effect at that time, the Company
had approximately $65.7 million of available and unused principal borrowing
commitments over and above the $78.7 million of outstanding borrowings under the
Merger Credit Agreement and other local bank borrowing arrangements.
As of March 31, 1994, utilizing foreign exchange rates in effect at that
time, the Merger Facility was comprised of a $26.6 million revolving credit
facility (the "U.S. Revolving Credit Facility") with the Company as the
borrower, a foreign currency equivalent of $35.8 million letter of credit
facility to support the Foreign Borrowings, and a portion of the interest
imputed thereon, under the Foreign Credit Documents (the "Letter of Credit
Facility"), British pound sterling equivalent of $38.7 million revolving credit
facility (the "U.K. Revolving Credit Facility") and French franc equivalent of
$26.5 million revolving credit facility (the
19
<PAGE> 23
"French Revolving Credit Facility" and collectively with the U.K. Revolving
Credit Facility and the U.S. Revolving Credit Facility, the "Revolving Credit
Facilities").
For a description of the terms of the Bank Financing and the Merger Credit
Agreement, see "Description of Merger Credit Agreement."
Bridge Financing. Travelers purchased $125.0 million principal amount of
Bridge Notes in connection with the consummation of the Acquisition. Travelers
sold participation interests in $93.8 million principal amount of Bridge Notes
to various institutional investors, including the Selling Debenture Holders (the
"Bridge Participants"), pursuant to participation agreements and in connection
therewith the Bridge Participants agreed to purchase the Subordinated Discount
Debentures on a private placement basis in exchange for their participation
interests in the Bridge Notes. The Subordinated Discount Debentures were issued
to the Bridge Participants on October 4, 1989. In connection with the private
placement of the Subordinated Discount Debentures, the Bridge Participants
purchased 10.0% of the fully diluted common equity of Holdings. In addition,
each of Travelers and DR Interfunding received 0.5% of the fully diluted common
equity of Holdings in connection with its purchase of the Bridge Notes. See
"Ownership of Capital Stock of the Company and Holdings."
Equity Financing. Of the $82.0 million of cash equity financing provided
at the time of closing of the Offer, $47.0 million was provided to Holdings by
the Saratoga Investors in exchange for Holdings preferred stock and common stock
and $35.0 million was provided by Masco in exchange for Holdings preferred stock
and an option to purchase Holdings common stock. The proceeds of such financing
were contributed by Holdings to the capital of FM Acquisition to enable it to
purchase Shares of the Company pursuant to the Offer. In addition, at the time
of closing of the Offer, Mr. Vincent P. Langone, Chairman of the Board,
President and Chief Executive Officer of the Company, a trust for the benefit of
John Boanas, Executive Vice President--International Operations of the Company,
and certain of his immediate family members (the "Boanas Family Trust"), and
David T. Schneider, Vice President and Chief Financial Officer of the Company
(collectively, the "Senior Management Investors"), exchanged Shares for Holdings
capital stock and surrendered employee options to purchase Shares to the Company
for immediate cancellation in consideration of the grant by Holdings of options
to purchase Holdings capital stock so as to reduce the cash cost of the
Acquisition by approximately $3.5 million. Prior to the Merger, additional
shares of Holdings capital stock and options therefor were acquired by other
members of the Company's management (together with the Senior Management
Investors, the "Management Investors") and a director of the Company in
consideration of the exchange of Shares or the surrender to the Company for
cancellation of options to purchase Shares so as to further reduce the cash cost
of the Acquisition by approximately $1.3 million or in consideration of the
payment of cash aggregating approximately $0.3 million.
The stockholders of Holdings are parties to certain stockholder agreements
establishing certain restrictions on each party's ability to transfer shares of
Holdings capital stock and granting, subject to certain conditions, certain
registration rights to holders of Holdings capital stock. See "Ownership of the
Capital Stock of the Company and Holdings -- Saratoga-Masco Stockholders
Agreement" and "-- Management Agreement."
20
<PAGE> 24
CAPITALIZATION
Set forth below is the consolidated capitalization of the Company as of
March 31, 1994:
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1994
(IN THOUSANDS)
<S> <C>
Short-term borrowings.................................................... $ 19,758
=================
Long-term debt:
Bank revolving credit facilities(a)(b).............................. 70,594
Other long-term debt(b)............................................. 6,855
Notes............................................................... 100,000
Subordinated Discount Debentures.................................... 88,921
-----------------
Total long-term debt........................................... 266,370
-----------------
Stockholder's equity:
Common Stock........................................................ --
Capital in excess of par value(c)................................... 116,879
Accumulated deficit................................................. (20,691)
Cumulative translation adjustment................................... (17,861)
-----------------
Total stockholder's equity..................................... 78,327
-----------------
Total capitalization..................................................... $ 344,697
=================
</TABLE>
- ------------
(a) See "The Acquisition--Financing the Acquisition."
(b) See Note 4 to the Company's Consolidated Financial Statements for additional
information with respect to bank revolving credit facilities and other
long-term debt.
(c) Capital in excess of par value:
<TABLE>
<S> <C>
Capital contributions by Holdings................................................................. $134,633
--------
Value of Shares held by stockholders of Holdings before consummation of the Offer, at $19 per
Share(1)........................................................................................ 31,031
Less--Adjusted historical cost of Shares held by such stockholders................................ 13,277
--------
Carryover basis adjustment................................................................ (17,754)
--------
Total capital in excess of par value...................................................... $116,879
========
</TABLE>
(1) Represents the value of Shares beneficially owned by Travelers and the
Senior Management Investors immediately prior to consummation of the Offer
(net of 210,447 Shares tendered by the Senior Management Investors in the
Offer). Set forth below is certain information available to the Company
concerning the beneficial holders of Shares of the Company immediately
prior to the consummation of the Offer and the beneficial holders of
voting stock of Holdings immediately following the consummation of the
Merger:
<TABLE>
<CAPTION>
PRIOR TO OFFER FOLLOWING MERGER
--------------------------- ---------------------------
FULLY FULLY
DILUTED DILUTED
SHARES PERCENTAGE SHARES PERCENTAGE
<S> <C> <C> <C> <C>
Travelers............................................... 1,457,261 9.1% 9,680 0.1%
Management Investors+ 549,681 3.4 874,395 8.2
Saratoga Investors...................................... -- -- 5,640,000 52.9
Masco................................................... -- -- 3,920,000 36.7
Certain Pre-Offer 5% Stockholders++..................... 5,592,335 35.1 -- --
Bridge Participants and DR Interfunding................. 1,226,340 7.7 203,291 1.9
Public Stockholders, Non-Management Investor Employees
and Non-Management Investor Director++................ 7,128,622 44.7 18,012 0.2
---------- ----- ---------- -----
Total................................................. 15,954,239 100.0% 10,665,378 100.0%
</TABLE>
+ Includes 386,411 Shares, representing 2.4% of the outstanding Shares on
a fully diluted basis immediately prior to the consummation of the
Offer, and 604,809 shares of Holdings capital stock, representing 5.7%
of the outstanding shares of Holdings capital stock on a fully diluted
basis immediately following the Merger, respectively, owned by the
Senior Management Investors.
++ "Certain Pre-Offer 5% Stockholders" are three investors that each
owned more than 5% of the Company's outstanding Shares prior to the
Offer; "Non-Management Investor Employees" and "Non-Management
Investor Director" are, respectively, employees of the Company who did
not acquire Holdings capital stock or options therefor prior to the
Merger and Ilan Kaufthal, a director of the Company who acquired
Holdings capital stock prior to the Merger.
21
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data of
the Company for the three month period ended March 31, 1994 and 1993 and the
five-year period ended December 31, 1993. These data should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the consolidated financial statements of the
Company and related notes included elsewhere in this Prospectus. The selected
historical consolidated financial data presented below were derived from the
consolidated financial statements of the Company, which were audited by Arthur
Andersen & Co., independent public accountants. The report of such accountants
with respect to the years ended December 31, 1993, 1992 and 1991 appears
elsewhere in this Prospectus. The information presented for the interim periods
is unaudited but, in the opinion of management, such information reflects all
adjustments necessary for a fair presentation of the financial data for the
interim periods. The results for the interim periods presented are not
necessarily indicative of the results for a full year.
Selected financial information (other than net sales) for the Company on a
post-Acquisition basis of accounting (i.e., for the Company after May 3, 1989)
is not comparable to the information for the Company on a pre-Acquisition basis
of accounting (i.e., for the Company through May 3, 1989) because of changes in
the organizational structure, recorded asset values, cost structure and
capitalization of the Company resulting from a leveraged buyout transaction in
May 1989.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
PRE-
POST-ACQUISITION BASIS OF ACCOUNTING ACQUISITION
--------------------------------------------------------------------------------- BASIS OF
ACCOUNTING
THREE MONTHS ----------
ENDED MAY 4, 1989 JANUARY 1,
MARCH 31, YEARS ENDED DECEMBER 31, TO 1989
-------------------- -------------------------------------------- DECEMBER 31, TO MAY 3,
1994 1993 1993 1992 1991 1990 1989 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $107,592 $103,183 $447,079 $446,217 $421,181 $436,546 $277,347 $131,010
Cost of sales.................. 76,284 73,751 319,873 314,457 293,224 299,233 188,255 90,773
-------- -------- -------- -------- -------- -------- ------------ ----------
Gross profit................... 31,308 29,432 127,206 131,760 127,957 137,313 89,092 40,237
Selling, general and
administrative expenses....... 24,637 24,053 98,773 94,236 88,336 97,412 59,624 30,049(1)
-------- -------- -------- -------- -------- -------- ------------ ----------
Operating income............... 6,671 5,379 28,433 37,524 39,621 39,901 29,468 10,188
Other income (expense), net.... 787 609 6,993(2) 14,712(2) 3,872 2,515 3,289 (4,699)(1)
-------- -------- -------- -------- -------- -------- ------------ ----------
Income before interest expense,
income taxes and accounting
change........................ 7,458 5,988 35,426 52,236 43,493(3) 42,416 32,757 5,489
Interest expense............... 9,625 11,914 47,352 52,805 53,114 51,429 31,710 3,564
-------- -------- -------- -------- -------- -------- ------------ ----------
Income (loss) before income
taxes and accounting change... (2,167) (5,926) (11,926) (569) (9,621) (9,013) 1,047 1,925
Provision (benefit) for income
taxes......................... (223) (3,193) (8,564) 1,066 (2,492) 716 789 5,072
Income (loss) before accounting
change........................ (1,944) (2,733) (3,362) (1,635) (7,129) (9,729) 258 (3,147)
Accounting change -- cumulative
effect to January 1,
1993, of accounting for income
taxes......................... -- (2,850) (2,850) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------ ----------
Net income (loss).............. $ (1,944) $ 117 $ (512) $ (1,635) $ (7,129) $ (9,729) $ 258 $ (3,147)
========= ========= ========= ========= ========= ========= ================ =============
BALANCE SHEET DATA (END OF
PERIOD):
Working capital................ $ 86,466 $ 94,065 $ 77,069 $ 90,299 $ 91,176 $ 82,837 $ 76,514 $ 89,740
Total assets................... 546,256 565,303 541,631 562,843 589,779 635,474 594,335 324,070
Total debt..................... 286,128 343,585 266,531 318,579 325,762 346,912 320,239 69,525
Stockholder's equity........... 78,327 39,419 80,362 39,333 44,448 50,971 63,323 163,326
OTHER DATA:
Capital expenditures........... $ 2,029 $ 1,166 $ 10,916 $ 10,811 $ 8,555 $ 12,778 $ 10,617 $ 2,634
Depreciation and
amortization.................. 5,934 6,197 24,152 25,253 24,568 23,689 14,311 4,879
Ratio of earnings to fixed
charges(4).................... -- -- -- -- -- -- 1.0x 1.4x
Deficiency of earnings
available to cover fixed
charges(4).................... (2,167) (5,926) (11,926) (569) (9,621) (9,013) -- --
Earnings before interest,
taxes, depreciation and
amortization ("EBITDA")(5).... $ 13,392 $ 12,185 $ 59,578 $ 77,489 $ 68,061 $ 66,105 $ 47,068 $ 10,368
Ratio of EBITDA to
interest(5)................... 1.3 1.5 1.3 1.3
Ratio of EBITDA to cash
interest(5)................... 1.8 1.9 1.6 1.6
Ratio of total debt to
EBITDA(5)..................... 4.5 4.1 4.8 5.2
</TABLE>
22
<PAGE> 26
- ---------------
(1) Selling, general and administrative expenses and other income (expense), net
include approximately $1,400 and $5,600, respectively, in fees and expenses
incurred in connection with the tender offer consummated on May 3, 1989 in
connection with the Acquisition for all of the then outstanding shares of
Formica (the "Tender Offer").
(2) Includes $1,900 for the year ended December 31, 1993 relating to the
reversal of other long-term liabilities associated with reserves
attributable to the realization of the Company's investment in a product
line which, based upon current and anticipated operating results, management
believed were no longer needed. Includes $9,100 for the year ended December
31, 1992 relating to a reduction of other long-term liabilities attributable
to changes in certain of the Company's postretirement medical benefit plans
(See Notes 2, 6 and 10 to the Company's Consolidated Financial Statements)
and $2,000 relating to the reversal of other long-term liabilities as a
result of the release of certain warranties and representations made by
Formica in connection with the prior sale of a subsidiary.
(3) Includes $3,400 representing the settlement of a claim by Formica against a
third party. This settlement primarily represented a reimbursement of costs
incurred by Formica and was recorded as a reduction of cost of sales of
$2,800 and selling, general and administrative expenses of $400, and as an
increase to other income, net of $200.
(4) For purposes of these computations, earnings consist of income (loss) before
accounting change and income taxes, plus fixed charges. Fixed charges
consist of interest on indebtedness (including amortization of debt issuance
costs) plus that portion of lease rental expense representative of interest
(deemed to be one-third of lease rental expense).
(5) EBITDA represents net income plus interest expense, income tax expense, and
depreciation and amortization expense. EBITDA and the related ratios are
presented not as a measure of operating results or as a measure of liquidity
to evaluate the Company's cash flows but rather as a measure of the
Company's ability to service its debt. Currently, under the Credit
Documents, Formica is prohibited from making loans, paying dividends and
otherwise making distributions to Holdings.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following table summarizes, for the periods presented, domestic and
international results of operations in United States dollars.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------
1994 1993 1993 1992 1991
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales--
United States.................. $ 60,565 $ 57,027 $239,045 $ 212,802 $ 190,107
International.................. 47,027 46,156 208,034 233,415 231,074
-------- -------- -------- --------- ---------
Total net sales.............. 107,592 103,183 447,079 446,217 421,181
Cost of sales--
United States.................. $ 42,821 $ 39,623 $172,548 $ 153,725 $ 133,607
International.................. 33,463 34,128 147,325 160,732 159,617
-------- -------- -------- --------- ---------
Total cost of sales.......... 76,284 73,751 319,873 314,457 293,224
Gross profit--
United States.................. $ 17,744 $ 17,404 $ 66,497 $ 59,077 $ 56,500
International.................. 13,564 12,028 60,709 72,683 71,457
-------- -------- -------- --------- ---------
Total gross profit........... 31,308 29,432 127,206 131,760 127,957
Selling, general and administrative
expenses--
United States.................. $ 14,269 $ 13,493 $ 55,972 $ 49,900 $ 48,281
International.................. 10,368 10,560 42,801 44,336 40,055
-------- -------- -------- --------- ---------
Total selling, general and
administrative expenses... 24,637 24,053 98,773 94,236 88,336
Operating income--
United States.................. $ 3,475 $ 3,911 $ 10,525 $ 9,177 $ 8,219
International.................. 3,196 1,468 17,908 28,347 31,402
-------- -------- -------- --------- ---------
Total operating income....... 6,671 5,379 28,433 37,524 39,621
Other income, net--
United States.................. $ 666 $ 322 $ 4,101 $ 12,978 $ 1,671
International.................. 121 287 2,892 1,734 2,201
-------- -------- -------- --------- ---------
787 609 6,993 14,712 3,872
Intercompany royalty income--
United States.................. $ 1,480 $ 1,509 $ 6,534 $ 7,353 $ 7,365
-------- -------- -------- --------- ---------
Intercompany royalty expense--
International.................. $ 1,480 $ 1,509 $ 6,534 $ 7,353 $ 7,365
-------- -------- -------- --------- ---------
Income before interest expense,
income taxes and accounting change
United States.................. $ 5,621 $ 5,742 $ 21,160 $ 29,508 $ 17,255
International.................. 1,837 246 14,266 22,728 26,238
-------- -------- -------- --------- ---------
Total income before interest
expense, income taxes and
accounting change......... $ 7,458 $ 5,988 $ 35,426 $ 52,236 $ 43,493
======== ======== ======== ======== ========
</TABLE>
24
<PAGE> 28
RESULTS OF OPERATIONS
First Quarter ended 3-31-94 versus First Quarter ended 3-31-93
Net sales for the first quarter of 1994 increased $4.4 million, or 4.3% as
compared with the same quarter in 1993. When adjusted for the effects of
foreign currency exchange rate fluctuations, net sales increased $7.8 million,
or 7.5% for the quarter. Domestic net sales rose $3.5 million, or 6.2% above
the comparable 1993 period primarily due to an increase in unit volumes.
Quarterly net sales in the international segment increased by $0.9 million, or
1.9%. Excluding the impact of foreign exchange, international net sales
increased $4.3 million, or 9.2%, primarily as a result of increased unit
volumes in the Company's European subsidiaries.
Cost of sales for the first quarter of 1994 increased $2.5 million, or 3.4%
over 1993. When adjusted for foreign exchange effects, cost of sales increased
$4.9 million, or 6.7%. Domestic cost of sales increased $3.2 million, or 8.1%
primarily as a result of increased unit volumes. International cost of sales
declined $0.7 million, or 1.9% for the first quarter. When adjusted for the
effects of foreign exchange, international cost of sales increased $1.7
million, or 5.1%, principally attributable to an increase in unit volumes.
Selling, general and administrative expenses for the first quarter of 1994
increased $0.6 million, or 2.4% when compared to the same period in 1993. When
adjusted for the effects of foreign exchange, selling, general and
administrative expenses increased $1.3 million, or 5.5%. Domestic selling,
general and administrative expenses increased $0.8 million, or 5.8%, primarily
as a result of higher distribution costs associated with the increase in unit
volumes. International selling, general and administrative expenses decreased
$0.2 million, or 1.8%, as compared to the first quarter of 1993. When adjusted
for foreign exchange effects, international selling, general and administrative
expenses increased $0.5 million, or 5.2%, primarily as a result of higher
selling and distribution costs associated with increased unit volumes.
Income Before Interest and Taxes ("EBIT") for the first quarter of 1994
increased $1.5 million, or 24.5%, when compared to the first quarter of 1993.
There was no material effect on EBIT for the quarter when adjusted for the
effects of foreign exchange. Domestic EBIT was approximately the same as the
first quarter of 1993. International EBIT increased $1.6 million with no
material impact due to foreign exchange. International EBIT increased
primarily as a result of the increase in net sales, primarily associated with
increased unit volumes in Europe.
The decrease of approximately $2.3 million in interest expense for the first
quarter of 1994 as compared to the same period in 1993 was primarily
attributable to the effects of lower bank debt outstanding in 1994. The income
tax benefit for the first quarter of 1994 decreased by approximately $3.0
million as compared to the first quarter of 1993, primarily as a result of a
lower pre-tax net loss.
Effective January 1, 1993, the Company adopted FAS 109 (see Note 2 to the
Condensed Consolidated Financial Statements). FAS 109 requires an asset and
liability approach in the measurement of deferred tax assets and liabilities.
25
<PAGE> 29
However, unlike FAS 96, FAS 109 requires an assessment, which includes
anticipating future income, in determining the likelihood of realizing deferred
tax assets. The cumulative effect of this change was a benefit to income of
$2.85 million recorded in the first quarter of 1993.
1993 compared to 1992
Net sales for the year ended December 31, 1993 increased $0.9 million,
or 0.2%, as compared with the same period in 1992. When adjusted to exclude
$24.4 million of foreign exchange effects, net sales increased $25.3 million,
or 5.7%. Domestic net sales rose $26.2 million, or 12.3%, above the comparable
1992 period primarily due to an increase in unit volumes. Net sales in the
international segment decreased by $25.3 million, or 10.9%. Excluding the
impact of foreign exchange, international net sales decreased $0.9 million, or
0.4%, primarily due to decreased unit volumes.
Cost of sales for 1993 increased $5.4 million, or 1.7%, above the
comparable 1992 period. When adjusted to exclude $17.7 million of foreign
exchange effects, cost of sales increased $23.1 million, or 7.4%. Domestic
cost of sales increased $18.8 million, or 12.2%, primarily as a result of
increased unit volumes. International cost of sales decreased $13.4 million,
or 8.3%, for the period. When adjusted for the impact of foreign exchange,
international cost of sales increased by $4.3 million or 2.7%, primarily due to
the mix of subsidiaries sales.
Selling, general and administrative expenses for 1993 increased $4.6
million, or 4.8%, compared to 1992. When adjusted to exclude $4.8 million of
foreign exchange effects, selling, general and administrative expenses
increased $9.4 million, or 10.0%. The increase in domestic selling, general
and administrative expenses of $6.1 million, or 12.2%, was primarily
attributable to increased advertising, selling, distribution and administrative
expenses associated with higher unit volumes and the introduction of new
products. International selling, general and administrative expenses decreased
$1.5 million, or 3.5%, compared to 1992. When adjusted for foreign exchange
effects, international selling, general and administrative expenses rose $3.3
million, or 7.5%, primarily due to general inflationary cost increases and
increased selling, distribution, advertising and administrative expenses
related to the introduction of new products.
Operating income for 1993 declined $9.1 million, or 24.3%, compared to
1992. When adjusted to exclude $1.9 million of foreign exchange effects,
operating income decreased $7.2 million, or 19.2%. Domestic operating income
increased $1.3 million, or 14.5%, primarily due to higher sales volume,
partially offset by the aforementioned higher selling, general and
administrative expenses. International operating income decreased $10.4
million, or 36.8%. When adjusted for the effects of foreign exchange,
international operating income declined $8.5 million, or 30.1%, primarily
attributable to increases in cost of sales and selling, general and
administrative expenses.
Earnings before interest expense and income taxes ("EBIT") for 1993
decreased $16.8 million, or 32.2%, below 1992. EBIT decreased $15.1 million,
or
26
<PAGE> 30
28.9%, when adjusted to exclude $1.7 million of foreign exchange effects.
Domestic EBIT decreased $8.4 million, or 28.3%, primarily as a result of other
income recorded in 1992 of $9.1 million attributable to a revision of certain
of the Company's postretirement medical benefit plans (see Notes 2, 6 and 10 to
the Consolidated Financial Statements), $2.0 million of other income relating
to the reversal of other long-term liabilities associated with the release of
certain warranties and representations (see Notes 2 and 10 to the Consolidated
Financial Statements) and $1.4 million of interest income associated with a
Federal income tax refund, partially offset in 1993 by higher sales and other
income of approximately $1.9 million relating to the reversal of other
long-term liabilities associated with reserves attributable to the realization
of the Company's investment in a product line which, based upon current and
anticipated operating results, management believed were no longer needed (see
Notes 2 and 10 to the Consolidated Financial Statements). International EBIT
for the period was $8.4 million, or 37.2%, below the comparable 1992 period.
When adjusted for the impact of foreign exchange, international EBIT decreased
$6.7 million, or 29.6%, primarily due to decreased sales levels and higher cost
of sales resulting from the European economic downturn and higher selling,
general and administrative expenses.
The decrease of approximately $5.5 million in interest expense for
1993 as compared to 1992 was principally attributable to lower interest rates
and foreign exchange effects, which more than compensated for the one-time
acceleration of deferred financing costs amortization of $2.0 million
associated with the paydown of revolving credit debt (see Note 4 to the
Consolidated Financial Statements) and increased accretion of the Company's
Discount Debentures. The income tax benefit for 1993 changed by approximately
$9.6 million as compared to the income tax provision for 1992, primarily due to
a change in the mix of subsidiary pre-tax earnings and the reduction of income
tax reserves due to the favorable settlement of certain tax examinations.
1992 compared to 1991
Net sales for the twelve months ended December 31, 1992 increased
$25.0 million, or 5.9%, from the comparable 1991 period. When adjusted to
exclude $4.5 million of foreign exchange effects, net sales increased $20.5
million, or 4.9%. The Company's domestic net sales increased by $22.7 million,
or 11.9%, primarily due to an increase in unit volume. International net sales
increased $2.3 million, or 1.0%. When adjusted to exclude foreign exchange
effects, international net sales decreased $2.2 million, or 0.9%. This
decrease in international net sales resulted primarily from general adverse
economic conditions in certain European markets and a shift in the geographic
mix of countries the Company serviced causing a decrease in average net selling
prices, partially offset by an increase in unit volume.
Cost of sales for 1992, compared to 1991, increased $21.2 million, or
7.2%, primarily due to increased unit volume. When adjusted to exclude $2.6
million of foreign exchange effects, cost of sales increased $18.6 million, or
6.3%. Domestic cost of sales increased $20.1 million, or 15.1%, primarily due
to the effects of increased unit volume and the one-time favorable impact of
$2.8 million on third quarter 1991 cost of sales (See Note 10 to the Company's
Consolidated Financial Statements) resulting from the settlement of a third
party
27
<PAGE> 31
claim. International cost of sales increased $1.1 million, or 0.7%, but when
adjusted to exclude foreign exchange effects, international cost of sales
decreased $1.5 million, or 1.0%. The decrease in international cost of sales
was attributable to the lower sales levels and reduced manufacturing costs.
Selling, general and administrative expenses for 1992 increased $5.9
million, or 6.7%, compared to 1991. When adjusted to exclude $0.9 million of
foreign exchange effects, selling, general and administrative expenses
increased $5.0 million, or 5.7%. Domestic selling, general and administrative
expenses increased $1.6 million, or 3.4%, primarily due to increased
distribution expenses as a result of higher unit volume, partially offset by
lower administrative expenses. International selling, general and
administrative expenses increased $4.3 million, or 10.7%, compared to 1991.
When adjusted for the impact of foreign exchange, international selling,
general and administrative expenses rose $3.4 million, or 8.5%, primarily due
to higher advertising and selling expenses.
Operating income for 1992 declined $2.1 million compared to 1991,
primarily due to the one-time favorable impact of $3.2 million on third quarter
1991 operating income resulting from the settlement of a third party claim (See
Note 10 to the Company's Consolidated Financial Statements). When adjusted to
reflect $1.0 million of foreign exchange effects, operating income decreased
$3.1 million, or 7.7%. Domestic operating income increased $0.9 million, or
11.6%, primarily due to higher sales volume and the aforementioned one-time
favorable impact of $3.2 million on third quarter 1991 operating income.
International operating income declined $3.0 million, or 9.7%. When adjusted
for the effects of foreign exchange, international operating income declined
$4.0 million, or 12.8%, attributable to decreased sales levels and increased
selling, general and administrative expenses, partially offset by reduced
manufacturing costs.
EBIT for 1992 increased $8.7 million, or 20.1%. When adjusted to
exclude $0.5 million of foreign exchange effects, EBIT increased $8.2 million,
or 18.8%. Domestic EBIT increased $12.2 million, or 71.0%, primarily due to
other income of $9.1 million attributable to a reduction of other long-term
liabilities resulting from changes in certain of the Company's postretirement
medical benefit plans (See Notes 2, 6 and 10 to the Company's Consolidated
Financial Statements), higher sales, $2.0 million of other income relating to
the reversal of other long-term liabilities as a result of the release of
certain warranties and representations made by the Company in connection with
the prior sale of a subsidiary and the receipt of approximately $1.4 million of
interest income associated with a federal income tax refund. These increases
were partially offset by the one-time favorable impact of $3.4 million on third
quarter 1991 EBIT resulting from the settlement of a third party claim as
discussed above. International EBIT decreased $3.5 million or 13.4%. When
adjusted for the effects of foreign exchange, international EBIT decreased $4.0
million, or 15.5%, primarily due to lower sales and higher selling, general and
administrative expenses.
Interest expense decreased in 1992 by $0.3 million, or 0.6%, compared
to 1991, primarily as a result of lower interest rates and lower debt levels
which more than offset the increase in accretion of Formica's Subordinated
Discount Debentures. The income tax provision for 1992 changed $3.6 million
compared to
28
<PAGE> 32
the income tax benefit for 1991 due to the effect of the previously mentioned
nonrecurring items and a change in the mix of subsidiary pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994 the Company's working capital was $86.5 million,
representing an increase of $9.4 million, or 12.2%, from the amount at December
31, 1993. Exclusive of the impact of foreign currency exchange effects, the
Company's working capital increased $9.6 million, or 12.5%, from the amount at
December 31, 1993. The increase in working capital was primarily due to higher
inventory balances and lower levels of accounts payable, partially offset by an
increase in short-term borrowings. The increase in inventory resulted from
management's efforts to increase quantities on hand in order to meet current
and anticipated future volume demands. The additional short-term borrowings
were used primarily to reduce accounts payable and to pay the Company's
semi-annual interest payment of $7.0 million on the 14% Senior Subordinated
Notes.
In September 1989, Formica and certain of its foreign subsidiaries
entered into revolving credit agreements with CIBC or its affiliates, as agent,
and other banks for borrowings in the United States, France and the United
Kingdom (the "CIBC Credit Agreement"). Additionally, Formica's subsidiaries in
Canada and Spain entered into the Foreign Credit Documents and its subsidiary
in Taiwan entered into the Taiwan Credit Agreement (as herein defined) to repay
existing debt and provide for working capital requirements. The Taiwan credit
facility was renewed for an additional one-year period commencing November 30,
1993. The Company expects to renew this facility on an annual basis as of
November 30 of each succeeding year.
With the funding on September 11, 1989 under the CIBC Credit Agreement
and the Foreign Credit Documents, which provided $224.0 million of bank
commitments to support principal, interest and international local borrowing
arrangements, Formica received $177.1 million to be applied towards the
permanent financing of the Acquisition. On October 4, 1989, the commitments
were reduced by $18.0 million with the proceeds received from the issuance of
Senior Subordinated Notes and Subordinated Discount Debentures. On September
11, 1993, 1992 and 1991, in accordance with the terms of the CIBC Credit
Agreement and the Foreign Credit Documents, the commitments were further
reduced by approximately $31.3 million, $12.5 million and $11.0 million,
respectively, (expressed in U.S. Dollars using March 31, 1994 exchange rates).
On September 27, 1993, FM Holdings Inc. ("Holdings"), the parent of
the Company, consummated a private placement of $50.0 million of 13 1/8%
Accrual Debentures due September 15, 2005. Interest on the Accrual Debentures
will accrue and compound on a semi-annual basis and will be payable in cash on
September 15, 1998 in an aggregate amount of approximately $44.0 million.
Thereafter, interest will be payable on March 15 and September 15 of each year.
Using funds received from the closing of the private placement, Holdings made a
capital contribution of $47.5 million to Formica in 1993. The $47.5 million
capital contribution was then used by Formica to pay down debt outstanding
under its bank credit agreements. After the private placement was completed,
Holdings filed a registration statement with the SEC, and upon the registration
statement
29
<PAGE> 33
being declared effective, Holdings exchanged the privately placed Accrual
Debentures for identical publicly registered Debentures.
As of March 31, 1994, utilizing foreign currency exchange rates in
effect at that time, the Company had approximately $65.7 million of available
and unused principal borrowing commitments for both revolving credit and
working capital purposes over and above the $78.7 million of outstanding
borrowings under the CIBC Credit Agreement and the Foreign Credit Documents.
Commitment fees of 1/2% are paid on the unused lines of credit under the CIBC
Credit Agreement and the Foreign Credit Documents. Considering Formica's right
to repay the loans under the Credit Documents without penalty and the floating
interest rate, the Company believes the carrying amounts approximate fair value
at March 31, 1994. Under the terms of the CIBC Credit Agreement and the
Foreign Credit Documents, the commitments will be further reduced on each
anniversary of September 11, 1989 (the merger date) in the following amounts
(expressed in U.S. Dollars using March 31, 1994 exchange rates): 1994 -- $18.3
million; 1995 -- $13.4 million; 1996 -- $19.4 million; and 1997 -- remainder.
Additionally, the Working Capital Facility of $15.0 million, which is part of
the CIBC Credit Agreement, matures in September 1994.
The CIBC Credit Agreement and the Foreign Credit Documents contain
covenants, the most restrictive of which significantly limit Formica's ability
to borrow additional funds, acquire or dispose of certain operating assets,
redeem its stock and repay its Senior Subordinated Notes and Subordinated
Discount Debentures prior to maturity. Formica is also prohibited from making
loans, paying dividends and otherwise making distributions to Holdings, except
under certain limited circumstances. Additionally, Formica must maintain
minimum levels of working capital and earnings before interest expense, income
taxes, depreciation expense and amortization expense. Also Formica must
maintain minimum interest coverage ratios and cannot exceed certain maximum
leverage ratios. Certain of the minimum levels and ratios become more
restrictive in each succeeding year of the agreements.
Payments of principal and interest under the various debt instruments
will be the Company's largest use of funds for the foreseeable future. Funds
generated from operations and borrowings are expected to be adequate to fund
the Company's debt service obligations, capital expenditures and working
capital requirements. Borrowings under the Credit Documents bear interest at
floating rates which averaged approximately 8.7% for the three-month period
ended March 31, 1994. Formica has interest rate swap agreements outstanding at
March 31, 1994 on approximately $18.4 million of these borrowings at an average
interest rate of approximately 11.9%. The average interest rate of borrowings
under the Credit Documents for the three-month period ended March 31, 1994,
after taking into consideration the adverse impact of the interest rate swap
agreements, approximated 10.2%.
The Company's percentage of long-term debt to total capital (long-term
debt and stockholders' equity) changed from 76.1% at December 31, 1993 to 77.3%
at March 31, 1994. The Company believes that it has adequate resources from
operations and unused credit facilities to fund its operations and expected
future capital expenditures through the expiration of the CIBC Credit Agreement
and the Foreign Credit Documents.
30
<PAGE> 34
Indebtedness of the Company under the CIBC Credit Agreement and the
Foreign Credit Documents is due in full in September 1997, the 14% Senior
Subordinated Notes are due in 1999 and require a sinking fund payment on
October 1, 1998 to redeem $40.0 million of the aggregate principal amount of
such notes and the 15 3/4% Subordinated Discount Debentures are due in 2001 and
require a sinking fund payment on October 1, 2000 to redeem $38.4 million of
the aggregate principal amount of such debentures. See Note 4 to the Company's
Consolidated Financial Statements for additional information with respect to
bank revolving credit facilities and other long-term debt.
For a discussion of the risks associated with the Company's
environmental matters, see "Business -- Environmental Matters."
31
<PAGE> 35
BUSINESS
GENERAL
Formica Corporation and its subsidiaries (the "Company" or "Formica")
designs, manufactures and distributes decorative laminates and other surfacing
products worldwide and is the world's largest producer of high pressure
decorative laminates. The Company's products compete against a wide range of
surfacing materials which include decorative laminates produced by other
manufacturers, as well as wood, veneers, marble, tile, plastics and foils. The
Company distributes its products under the FORMICA(R), COLORCORE(R) and
SURELL(R) brand names and the ANVIL F(R) Logo, among others.
The Company's ten manufacturing facilities are located in the United
States, the United Kingdom, Canada, France, Spain, Germany and Taiwan, and its
products are principally distributed throughout North America, Europe and the
Far East. For information by geographic area, including net sales, operating
income, capital expenditures and identifiable assets, see Note 9 to the
Company's Consolidated Financial Statements as well as "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
PRODUCTS
Decorative laminates are used in a wide range of surfacing
applications where durability, design, construction versatility and ease of
maintenance are factors. The Company's principal products are high pressure
decorative laminates. In a few geographic areas, the Company also offers a
complementary line of low pressure laminates in designs that match or
complement the Company's high pressure laminate products. In addition, the
Company acquired Wildon Industries, Inc. ("Wildon") in 1986 for the purpose of
developing a high quality solid surfacing material, which is marketed under the
SURELL brand name. The Company also manufactures and sells resins and licenses
its FORMICA brand name and proprietary technology and know-how to third
parties.
Commercial applications for the Company's decorative laminates include
countertops, furniture, flooring, doors, window sills, walls and other interior
surfacing uses. Residential applications for the Company's decorative
laminates include cabinetry and countertops for kitchens and bathrooms;
surfacing for living room, dining room, family room, kitchen and bathroom
furniture; and other interior architectural uses throughout the house. The
Company's products are used in homes, retail stores, offices, office lobbies,
hotels, hospitals, restaurants, airports, banks, computer centers, ships, buses
and railroad cars, as well as numerous other uses.
High Pressure Decorative Laminates. High pressure decorative
laminates include standard line decorative products and premium decorative
products which accounted for approximately 77% and 17%, respectively, of the
Company's total net sales for the year ended December 31, 1993.
The Company's standard decorative line consists of decorative
laminates such as solid colors, abstract patterns, woodgrain patterns and other
simulations of natural materials. These products are sold in sheet form in a
multitude of
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sizes and in over 1,000 colors, patterns and textures.
Premium decorative laminates have characteristics that make them
particularly suitable for various specialized applications and generate higher
profit margins than the standard line products. Premium decorative laminates
include the Company's DESIGN CONCEPTS(R) and FORMATIONS(R) collections and
COLORCORE(R) surfacing material, a solid "color-through" laminate, which are
marketed for special end-use applications such as office furniture, store
fixtures, restaurant interiors, airports and custom-built kitchens. Premium
decorative products also include laminates for uses requiring fire-rated
materials such as shipbuilding and office interiors; textured laminates, which
are designed to look and feel like leather or slate; metallic laminates which
are manufactured with a metallic surface for "high style" effects; and
laminates applied to static-free flooring used in computer centers.
Solid Surfacing Products. The Company's solid surfacing products are
manufactured by combining resin with filler and curing the mixture in molds
under heat. These products, distributed under the brand name SURELL, are
available in a selection of colors and granite-like patterns, which run
throughout the entire thickness of the product. The products can be shaped and
molded for use in a variety of residential and commercial applications such as
vanities with dripless edges and integral backsplashes, or produced in sheet
form for work surfaces, countertops and other surface applications.
The Company has devoted substantial resources to the development of
its solid surfacing products as a high quality surfacing material and to the
development of efficient manufacturing methods for the production of these
products in commercial quantities. The current United States market for solid
surfacing material is dominated by E.I. DuPont de Nemours & Co. which sells
its product through a distribution network which includes a limited number of
distributors of other FORMICA brand products. The Company believes that there
are significant opportunities for new entrants in the expanding market for
solid surfacing material and intends to use its brand name and established
channels of distribution to take advantage of these opportunities. The Company
is marketing its solid surfacing products as premium products on a broad scale
through its domestic and international distribution network.
New Product and Design Development. A major portion of the Company's
research efforts is devoted to the development of new applications for high
pressure decorative laminates and solid surfacing products, new products and
process improvements. Design is an important factor in the choice of the
product line manufactured by the Company and in the surfacing industry as a
whole. New laminate designs are introduced periodically by the Company and its
competitors. The Company considers itself the industry leader worldwide in
decorative laminate design and new product development and carries out design
development in North America and Europe. The Company has won numerous design
and product awards. The Company's efforts to refine the designs of its
products have resulted in such products as the DESIGN CONCEPTS and FORMATIONS
collections, COLORCORE, a solid "color-through" laminate, and the STRIPES and
GEOMETRICA(R) collections featuring silk screenprinted pinstripes and bands in
a variety of colors. During the last several years, the Company introduced
solid opaque laminates, granite-like solid surfacing materials, high wear
laminates and a number of other premium products.
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In addition, the Company has introduced a number of other product lines
including ALULAM(R), a metallic exterior surfacing laminate, and ALACORE(R), a
translucent laminate collection with three-dimensional design effects.
In addition to new products designed and developed internally, the
Company has acquired worldwide distribution rights to several new products.
The Company recently introduced to the market a new surfacing material called
NUVEL, which was developed by General Electric Company ("GE"). In late 1992,
Formica entered into a worldwide exclusive distribution agreement with GE,
which manufactures this product using its proprietary technology. The product
has the features of traditional solid surfacing materials but can be installed
at a lower cost. In addition to traditional solid surfacing applications such
as countertops, the product has numerous additional applications including
cabinetry, doors, furniture and store fixtures. The product is being marketed
with the GE logo as well as the NUVEL and FORMICA trademarks.
Another new product which the Company has begun marketing through its
worldwide distribution network is called GRANULON, which is a spray-on
surfacing material. The GRANULON product is a densified liquid composite
available in an array of granite and solid colors that can be used for a
variety of traditional and unique surfacing applications including furniture,
cabinetry and molded shapes.
Formica has also recently signed an agreement with a European
manufacturer of specialty wood veneer laminates and will be distributing these
products under the FORMICA LIGNA brand name.
In addition to the new products mentioned above, the Company has
entered into a cooperative enterprise agreement for the distribution of locally
produced laminate products throughout the People's Republic of China. The
products are manufactured using Formica technology.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company believes its global distribution and dealer network with
its extensive sales force and the FORMICA brand name and ANVIL F Logo are major
marketing strengths and key elements to the Company's success. The Company
believes that none of the Company's competitors has as extensive a worldwide
distribution and dealer network or the brand recognition of the FORMICA brand
name.
The Company's products are sold through distributors of wholesale
building materials and distributors of products for the cabinet industry and
directly to original equipment manufacturers for both residential and
commercial uses. For the year ended December 31, 1993, approximately 60% of
the Company's net sales were made through independent distributors, and the
remaining 40% were made directly to users of the Company's products.
The Company's distribution network includes approximately 700
independent distributor locations worldwide. Many distributors have
sub-distributorships and dealer networks. As a result, the Company's products
are represented in thousands of locations worldwide. The effort of the
Company's domestic and
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international sales and architectural specification representatives, when
combined with the sales force of its distributor network, provides the Company
with sales and marketing coverage in over 100 countries throughout the world.
The Company's sales representatives market the Company's products directly to
end-users and work with distributors by monitoring distributors' inventories,
calling on customers, architects and designers with the distributors' sales
representatives and assisting distributors in the development of advertising
and promotional campaigns and materials and the introduction of products.
Generally, the Company's distributorship sales are made by
distributors that exclusively carry the Company's brand of high pressure
decorative laminates. The typical distributor of the Company's products also
sells some or all of the following: other surfacing materials, adhesives,
cabinetry, flooring material, particle board, hardware and other related
architectural and building materials. The Company considers its distribution
network to be an important vehicle for the introduction of new products the
Company may develop or distribute in the future.
The Company estimates that of its net sales for the year ended
December 31, 1993, approximately one-half were derived from products used in
commercial applications and one-half from products used in residential
applications. In addition, the Company estimates that approximately two-thirds
of its net sales for such period were derived from products used in remodeling
or renovation projects, while approximately one-third of its net sales for such
periods were derived from product used in new construction.
Sales in the commercial market are heavily influenced by the
specifications of architects and designers. In addition to the Company's
regular sales force, a specialized sales force calls exclusively on architects
and designers in North America, Europe and the Far East.
The Company's backlog is not significant due to the ability of the
Company to respond adequately to customer requests for product shipments.
Generally, the Company's products are manufactured from raw materials in stock
and are delivered to the Company's customers within one to thirty days from
receipt of the order, depending on customer delivery specifications.
Substantially all orders are shipped by the Company by the customer's due date.
The Company has no significant long-term contracts for the
distribution of its products. For the year ended December 31, 1993, no
customer or affiliated group of customers accounted for as much as 5% of the
Company's consolidated net sales.
MANUFACTURING AND RAW MATERIALS
High pressure decorative laminates are produced from a few basic raw
materials which include kraft paper, fine decorative papers and melamine and
phenolic resins. The papers are impregnated with resins and placed between
stainless steel plates in a multi-opening press and cured under pressure and
elevated temperature. The number of paper laminations per sheet of laminate
varies with the specific type of product being produced, but all have melamine
resin on the surface to create a hard, durable surface. Surface textures can
range from very high gloss smooth surfaces to deeply textured surfaces and
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surfaces with other special design and performance features. In addition to
patents, the Company has proprietary technology and know-how in the design and
manufacture of its products.
Kraft papers are available globally from several major sources and
many smaller producers. Fine papers are supplied by many producers in North
America, Europe and Asia. Melamine, phenol and formaldehyde, the primary raw
materials for resins, are global commodity chemicals available from many
suppliers. The Company currently purchases these raw materials on a global
basis from various suppliers at market prices. The Company believes that it is
the largest purchaser of these raw materials on a worldwide basis in the high
pressure laminate industry. The Company may, from time to time, enter into
one-year or longer-term contracts with suppliers when advantageous to it. The
Company also acquires certain chemicals under exclusive arrangements from
producers in connection with licensing technology from those producers. The
Company has experienced no supply problems of any raw materials in the last 10
years.
The Company manufactures and distributes products on a global basis
with ten manufacturing facilities located in the United States, Canada, the
United Kingdom, France, Spain, Taiwan and a 50% interest in a joint venture
manufacturing plant in Germany which produces specialized metallic surfaced
laminate products. These multiple manufacturing locations around the world
enable the Company to reduce delivery times, freight costs and duties that it
would otherwise encounter. Generally, each facility is shut down from one to
four weeks annually for maintenance, refurbishment and traditional vacation
periods.
In general, each manufacturing facility produces a standard product
line for its geographic market and produces one or more specialty products
which may be sold in its market or exported to other markets. This allocation
of production responsibility is designed to insure prompt delivery to customers
of the Company's standard product lines and economies of scale in the
production of the Company's premium products. In addition, certain of the
Company's specialty products have been developed in response to regional design
preferences.
The Company's manufacturing facilities normally operate 24 hours a day
on a five or seven day week schedule. Periodically, the Company operates on an
overtime basis to satisfy customer requirements during periods of peak demand.
Management believes that its existing manufacturing facilities are satisfactory
for the Company's projected requirements.
The Company has devoted substantial resources to the development of
its plate manufacturing technology and produces its own plates in its
manufacturing facility in LaPlaine, France. As of December 31, 1989, the
Company had substantially completed the installation of such plate technology
in all of its laminate manufacturing facilities.
COMPETITION
The Company's products compete around the world with decorative
laminates manufactured by other producers, as well as with wood, veneers,
marble, tile, plastics, foils and other surfacing materials. Competition is
based principally
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on breadth of product line, product quality, marketing, technology, price and
service. The Company competes in a number of geographic markets and its
success in each of these markets is influenced by the factors mentioned above.
The Company believes it is the single largest producer of decorative laminates
on a worldwide basis. The Company also believes it is the largest or second
largest producer of decorative laminates in various national markets (including
the United States, Canada, the United Kingdom, France, Spain, and Taiwan) in
which it competes on a local basis with many other producers, some of which are
owned by larger enterprises which may have greater assets or resources than the
Company. In many of the other national markets in which the Company competes,
it enjoys a smaller but nonetheless significant market position. In the North
American laminate market, the Company's principal competitors include Ralph
Wilson Plastics Company, Nevamar Corporation and Arborite Corporation. In
Europe, principal competitors include Perstorp and Polyrey.
INTERNATIONAL OPERATIONS
The Company's net sales from international operations to third parties
accounted for approximately 44% and 47%, respectively, of total net sales of
the Company's products for the three-month period ended March 31, 1994 and for
the year ended December 31, 1993. The Company has manufacturing subsidiaries
located in the United Kingdom, France, Spain, Canada and Taiwan and has a 50%
interest in a German joint venture. The Company's principal international
markets are located in Europe, Canada, Mexico and the Far East. The Company's
international operations are subject to foreign currency fluctuations, local
laws concerning repatriation of profits and other factors normally associated
with multinational operations. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Note 9 to the Company's
Consolidated Financial Statements for information about the business of the
Company by geographic area.
PATENTS, TRADEMARKS AND LICENSES
The Company owns patents and possesses proprietary information which
relate to its products and processes. The Company believes that the loss of
any of its patents would not have a material adverse effect upon its business.
Trademarks are important to the Company's business and licensing
activities. The Company has a vigorous program of trademark enforcement to
prevent the unauthorized use of its trademarks, to strengthen the value of its
trademarks and to improve its image and customer goodwill. The Company
believes that the FORMICA trademark and the ANVIL F Logo are its most
significant trademarks. In addition to registration in the United States, the
FORMICA trademark and the ANVIL F Logo are registered in over 100 countries.
The COLORCORE trademark is registered in the United States and over 20 other
countries. The SURELL trademark is also registered in the United States and in
several other countries. Formica has used the FORMICA brand name continuously
since 1913. Additionally, the Company has numerous other registered
trademarks, trade names and logos, both in the United States and abroad.
The Company believes that numerous opportunities exist to license the
Company's internationally recognized FORMICA trademark and ANVIL F Logo and the
Company's proprietary technology and know-how. The Company has existing
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licensing arrangements for its trademarks and, in certain cases, its
proprietary technology with CSR Limited in Australia and New Zealand and with
manufacturers of adhesives and certain other complementary products. In
addition to the above, the Company has non-royalty licenses with a company in
India and with American Cyanamid Company which permits the exclusive use of the
FORMICA trademark primarily in South America.
RESEARCH AND DEVELOPMENT
Technical support to the Company's business is organized on a
worldwide basis. The major part of the Company's research program, which
involves the development of new applications for existing products, new
products and process improvements, is carried out by the Research and
Development departments located in the United States and the United Kingdom.
Technical groups located at each plant also participate in the overall program
and work on smaller projects under the direction of the Company's research
director. Research and development costs charged to operations during the
three months ended March 31, 1994 and the years ended December 31, 1993, 1992
and 1991 amounted to $0.8 million, $3.3 million, $3.5 million, and $3.6
million, respectively. See Note 2 to the Company's Consolidated Financial
Statements for information concerning research and development costs.
ENVIRONMENTAL MATTERS
The Company (and the industry in which it competes) is subject to
extensive regulation under federal, state, local and foreign environmental laws
and regulations regarding emissions to air, discharges to water and the
generation, handling, storage, transportation, treatment and disposal of waste
and other materials as well as laws and regulations relating to occupational
health and safety. The Company believes that its manufacturing facilities are
being operated in compliance in all material respects with the applicable
environmental, health and safety laws and regulations but cannot predict
whether more burdensome requirements will be imposed by governmental
authorities in the future. Pursuant to the requirements of applicable federal,
state and local statutes and regulations, the Company has received or applied
for all of the environmental permits and approvals material to the operation of
its manufacturing facilities.
In November 1987, the United States Environmental Protection Agency
(the "EPA") identified the Company as a Potentially Responsible Party ("PRP")
pursuant to its authority under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), in connection with the
Pristine, Inc. Superfund Site in Reading, Ohio. The Company's share of waste
contribution to this site is approximately 11.5%. The EPA has completed a
Remedial Investigation/Feasibility Study and has issued a Record of Decision
calling for remedial action at the site which is estimated to cost
approximately $21.7 million. The Company and other generators at the site
signed a Consent Decree with the U.S. Government (EPA) in which a remedial
clean-up plan has been agreed upon. The Consent Decree was approved by the
United States District Court for the Southern District of Ohio and became
effective on November 23, 1990. On October 16, 1989, the State of Ohio, in
connection with its involvement at the site, instituted a lawsuit, entitled
State of Ohio v. Pristine, Inc., et al.,
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in the United States District Court for the Southern District of Ohio which
demanded payment of approximately $104,000 in past costs and sought a
declaratory judgment holding the Company and 29 other named defendants jointly
and severally liable for the reimbursement of the State's future oversight
costs. The Company and other named defendants jointly responded to this action
and entered into settlement discussions that culminated in the negotiation of a
Consent Decree in which the State substantially reduced its damage demands.
The Consent Decree was approved by the Court and became effective on August 16,
1991, resulting in a dismissal of the State's law suit. In October, 1991, the
City of Reading asserted a claim alleging that its municipal water well field
has been contaminated by groundwater emanating from the Pristine, Inc.
Superfund Site as well as a claim seeking natural resource damages. The City
of Reading's claim was asserted against the owner/operator of the site as well
as approximately 115 alleged generators of hazardous waste at the site,
including the Company. The City of Reading and approximately 87 generators of
waste at the site, including the Company, entered into a settlement agreement,
dated as of September 1, 1993, whereby the City of Reading's claim was settled
for $1.3 million, which claim has been paid on a pro rata basis by such
generators of waste. The Company believes that it has adequate reserves for
its anticipated share of the current estimate of the costs associated with the
clean-up of this site.
In August 1987, the Company received an Information Request Notice
from the EPA advising that, pursuant to its authority under CERCLA, it was
investigating the Bridgeport Rental and Oil Services waste disposal site in
Logan Township, New Jersey. Although the EPA indicated that the Company may
have contributed a small quantity of waste to the site in 1974, the Company has
no records available to verify the EPA's claim and has so responded in its
answers to the Information Request Notice. In late August 1989 the Company
received a letter from the EPA naming it as a PRP at the site and demanding
payment of at least $17.8 million for past cleanup costs. The notice, which
was addressed to 57 other PRPs, also indicated that the EPA was prepared to use
public funds to conduct further remedial action at the site. The Company and
other PRPs are vigorously contesting the amount and nature of the EPA's claim
and are actively pursuing other generators who may have contributed waste to
the site. In connection with the waste storage site in Logan Township, New
Jersey, the Company, on April 3, 1989, received from the New Jersey Department
of Environmental Protection ("DEP") a Directive issued pursuant to the DEP's
alleged authority under the New Jersey Spill Compensation and Control Act. The
Directive demanded that the Company and 112 other alleged dischargers of
hazardous substances pay the State of New Jersey approximately $9.2 million.
That amount represents monies which New Jersey has paid to the EPA as a portion
of its share of the remedial costs to be incurred in connection with the
cleanup of the site. In response to the Directive, the Company, without
admitting liability, contributed a nominal sum toward a good faith settlement
offer which was forwarded to the DEP by a group of approximately 40 Directive
recipients. That group and other recipients have also submitted statements to
the DEP raising numerous defenses to the Directive. To date, communications
with the EPA and DEP have continued, and no proceedings have been instituted in
connection with the Directive. However, in a continuing effort to pursue all
potentially responsible site generators, the Company and the other PRPs
discovered evidence which linked numerous governmental departments to a
significant amount of waste which had been deposited at the site. Thus, a
group of PRPs, which did not include the Company, instituted a contribution
action
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entitled Rollins Environmental Services (NJ), Inc., et al.vs. The United
States of America, et al., Civil Action No. 92-1253 in the United States
District Court for the District of New Jersey. Thereafter, the EPA instituted
a cost recovery action, naming only certain site PRPs, in the same Court. That
case, which is entitled United States of America vs. Allied Signal Inc., et
al., Civil Action No. 92-2726, was then consolidated with the Rollins
contribution suit. Although the Company is not a party to either case, it has
agreed to take part in an informal discovery/settlement process pursuant to a
Case Management Order. The Company believes it has adequate reserves to cover
its anticipated liability in this site.
In March 1990, the Company received an Information Request Notice from
the EPA advising that, pursuant to its authority under CERCLA, it was
continuing its investigation of the New Lyme Landfill Superfund Site in
Ashtabula County, Ohio. Although the EPA indicated that the Company may have
contributed waste to this residential/industrial site prior to the site
shutdown in 1978, the Company, after investigation, was unable to locate
records to determine if it had contributed waste to this site and so advised
the EPA in its response to the Information Request Notice. To date the Company
has received no further communications from the EPA or any other entity
concerning this site.
On or about October 5, 1990, a third party complaint entitled United
States of America v. Norrell F. Dearing et al. v. Formica Corporation et
al., United States District Court for the Northern District of Ohio, Eastern
Division was served upon the Company. The third party complaint seeks
contribution, in an unspecified amount, from the Company and other third party
defendants for response costs incurred and to be incurred by the government of
the United States in connection with the Old Mill Superfund Site in Rock Creek,
Ohio. The original complaint, as amended, entitled United States of America v.
Dearing et al., alleges that the EPA had incurred to date more than $7.7
million in response costs at the Old Mill Superfund Site which included the
essentially complete implementation of the selected remedial action at the
site. The Company has investigated whether or not it or a predecessor company
contributed hazardous waste to this site during the 1977-1979 time period
alleged in the complaint and has been unable to locate records to verify the
allegations. The Company has filed an answer to the third party complaint,
denying liability and raising numerous affirmative defenses and continues to
vigorously defend this action. On February 9, 1993, the Company was served
with a second third party complaint entitled State of Ohio v. Norrell E.
Dearing et al. v. Formica Corporation et al. This third party complaint seeks
contribution, in an unspecified amount, from the Company and other third party
defendants for response costs incurred and to be incurred by the State of Ohio
in connection with this site. The Company has filed an answer to this
complaint denying liability and raising numerous affirmative defenses, and
intends to vigorously defend this action. The Company, as of December 17,
1993, entered into an Indemnification Agreement with American Cyanamid Company
("ACCO") and Cytec Industries Inc. ("Cytec") wherein ACCO and Cytec agreed to
indemnify and hold harmless the Company from and against any liability,
including the two above-referenced third party complaints, resulting from the
disposal by the Company of hazardous waste, originating from a Painesville,
Ohio manufacturing facility operated by a predecessor company, at the Old Mill
Superfund Site.
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In May 1991, the Company received an Information Request Notice from
the EPA advising that, pursuant to its authority under CERCLA, the EPA was
investigating the Skinner Landfill Superfund Site in West Chester, Ohio.
Although the EPA indicated that the Company might have contributed waste to
this site, the Company has no records available which verify the claim.
However, in August 1991, the EPA issued a General Notice of Liability naming
the Company and various other parties as PRPs at the site. At that time, the
Company also received information which indicated that another site PRP had
allegedly deposited relatively small quantities of the Company's waste at the
site on three occasions in the 1960's and 1970's. In early 1992, a group of
nine companies, including the Company, joined together to vigorously contest
the matter when the EPA announced that it preferred a site incineration remedy
estimated to cost approximately $29 million. Following concerted PRP efforts
and local community negative reaction to the proposed incineration remedy, the
EPA withdrew its preferred remedy and issued a unilateral abatement remedy
Order calling for the expenditure of approximately $200,000 to secure the site
and to provide public water hookups for some site neighbors. That Order was
issued in December 1992 and was directed at 20 recipients, including the
Company. Without admitting liability, the Company and nine other recipients
have worked together to comply with the Order, while the remaining recipients
are contesting the matter. In the meantime, the EPA has issued a Record of
Decision calling for a site remedy estimated to cost $15.5 million. The
Company and the other PRPs are pursuing the matter with the EPA as it prepares
to issue a unilateral order calling for the formulation of a Remedial Design
for the site. Concurrently, the Company and other PRPs are pursuing all other
potentially responsible site generators.
On or about October 20, 1993 the Company was served with a Summons and
Complaint entitled California Sport Fishing Protection Alliance v. Formica
Corp., in the United States District Court, Eastern District of California.
This Complaint, brought as a citizens' suit under the Clean Water Act, alleges
that the Company's Rocklin, California manufacturing plant has violated its
National Pollutant Discharge Elimination System permits ("NPDES") and is
polluting the Sacramento River. The Complaint alleges that the Company is
discharging into a creek waste water which contains a pH level outside of the
range imposed in its NPDES permits. The Complaint seeks: (a) to enjoin the
Company from violating its NPDES permits and the Clean Water Act; (b) an order
directing the Company to adequately test receiving waters for violations of
applicable water quality standards; (c) an order directing the Company to
comply with all reporting requirements contained in its NPDES permits; (d) an
order directing the Company, for a period of one year, to provide the Plaintiff
with copies of all reports and documents submitted to government agencies
relating to its NPDES permits; (e) an order requiring the Company to pay civil
penalties of up to $25,000 per day for each violation of its NPDES permits; (f)
an order directing the Company to make payments to an environmental remediation
project approved by the Court; and (g) an award of Plaintiff's costs of
litigation, including reasonable attorney and expert witness fees. The Company
has filed an Answer to the Complaint denying liability and raising several
affirmative defenses and intends to vigorously defend this action.
EMPLOYEES AND EMPLOYEE RELATIONS
As of March 31, 1994, the Company had approximately 3,300 employees, of
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whom 1,100 were salaried and 2,200 were hourly workers. In the United States,
approximately 800 of the Company's employees are covered by two collective
bargaining agreements that expire in September 1994 and April 1995. Of the
approximately 1,800 employees of the Company's international operations, 1,200
are represented by a variety of local unions. The Company considers its
employee relations to be generally satisfactory.
PROPERTIES
The location and general description of the principal properties owned
or leased by the Company (or by the Company's German joint venture) are set
forth in the table below:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL FUNCTION SQUARE FEET
-------- ------------------ -----------
<S> <C> <C>
Wayne, New Jersey . . . . . . . . . . Corporate Headquarters . . . . . . . . . . . 10,000 Leased
Rocklin, California . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 350,000 Owned
Indianapolis, Indiana . . . . . . . . Distribution Center . . . . . . . . . . . 194,000 Leased
Indianapolis, Indiana . . . . . . . . Samples Facility . . . . . . . . . . . . . . 54,000 Leased
Piscataway, New Jersey . . . . . . . Distribution Center . . . . . . . . . . . . 75,000 Leased
Evendale, Ohio . . . . . . . . . . . Manufacturing Plant and United States
Operations Headquarters . . . . . . . . 1,000,000 Owned
Orlando, Florida . . . . . . . . . . Distribution Center . . . . . . . . . . . . 50,000 Leased
Mt. Bethel, Pennsylvania . . . . . . Manufacturing Plant . . . . . . . . . . . . 40,000 Owned
Mt. Bethel, Pennsylvania . . . . . . Distribution Center . . . . . . . . . . . . 30,000 Leased
Dallas, Texas . . . . . . . . . . . . Distribution Center . . . . . . . . . . . . 45,000 Leased
St. Jean, Quebec, Canada . . . . . . Manufacturing Plant . . . . . . . . . . . . 360,000 Owned
North Shields, England . . . . . . . Manufacturing Plant and Subsidiary
Headquarters . . . . . . . . . . . . . . . 560,000 Owned
LaPlaine, France . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 25,000 Owned
Quillan, France . . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 240,000 Owned
Torcy, France . . . . . . . . . . . . Distribution Center and Subsidiary
Headquarters . . . . . . . . . . . . . . . 50,000 Leased
Bilbao, Spain . . . . . . . . . . . . Manufacturing Plant and Subsidiary
Headquarters . . . . . . . . . . . . . . . 360,000 Owned
Herzberg Am Harz, Germany . . . . . . Manufacturing Plant and Joint Venture
Headquarters . . . . . . . . . . . . . . 110,000 Leased
Hsinfeng, Taiwan . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 50,000 Owned
</TABLE>
The Company believes that all of its properties are suitable and
adequate for its present needs. The Company also believes that it has
sufficient manufacturing and distribution capacity for its present and
foreseeable needs. Pursuant to the CIBC Credit Documents, all of the principal
properties owned by the Company are subject to liens in favor of the lenders
thereunder as security for the obligations of the Company thereunder, except
that the Mt. Bethel, Pennsylvania facility is subject to a lien related to an
installment sale arrangement for the facility with a local development
authority and the Company's Hsinfeng, Taiwan facility is subject to a lien
pursuant to the Taiwan Credit Agreement.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings, in addition to
those described under "Environmental Matters", arising in the ordinary course
of business, none of which is expected to have a material adverse effect on the
Company's business or financial condition.
42
<PAGE> 46
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information about each of the
current directors and executive officers of Formica. All directors hold office
until the next annual meeting of stockholders of Formica, and until their
successors are duly elected and qualified. All executive officers are elected
by and serve at the discretion of the Boards of Directors of Formica. None of
the executive officers of Formica is related by blood, marriage or adoption to
any other executive officer or director of Formica.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT, FIVE YEAR
EMPLOYMENT HISTORY AND
NAME AGE OTHER DIRECTORSHIPS
<S> <C> <C>
Vincent P. Langone . . . . . 51 Chairman of the Board, President and Chief Executive Officer of Formica since September
1989. From February 1988 to September 1989, President and Chief Executive Officer of
Formica. From May 1985 to February 1988, President and Chief Operating Officer of Formica.
Director of United Jersey Bank and United Retail Group, Inc.
Charles P. Durkin, Jr. . . . 55 Director of Formica since May 1989. Managing Director of Dillon, Read & Co. Inc. ("Dillon
Read") since December 1974. Director of HiLo Automotive, Inc. and Viking Office Products,
Inc.
Ilan Kaufthal . . . . . . . . 46 Director of Formica since September 1985. Managing Director of Wertheim Schroder & Co.
Incorporated since February 1987. Director of Cambrex Corporation, Image Business Systems,
Inc., United Retail Group, Inc. and Rexene Corporation.
Wayne B. Lyon . . . . . . . 61 Director of Formica since May 1989. President and Chief Operating Officer since June 1985
and Director since May 1988 of Masco Corporation. Director of Payless Cashways, Inc. and
Comerica Inc.
Peter J. Pirsch . . . . . . 58 Director of Formica since May 1989. Group President of Masco Corporation since July 1985.
Bret E. Russell . . . . . . 40 Director of Formica since May 1989. Senior Vice President of Dillon Read since January
1990. Prior thereto, Vice President of Dillon Read.
David Schneider . . . . . . . 45 Vice President and Chief Financial Officer of Formica since May 1989. Controller of
Formica from March 1987 to May 1989.
Charles A. Brooks . . . . . 46 General Counsel and Secretary of Formica since October 1985.
Robert G. Kraus . . . . . . 51 Treasurer of Formica since December 1986.
Peter Marshall . . . . . . . 59 Vice President of Operations Europe of Formica since December 1992. From November 1990 to
December 1992, Vice President North America Operations of Formica. Prior thereto from
February 1988, Vice President U.S. Operations of Formica.
Dennis Mahony . . . . . . . . 54 Vice President of Operations North America of Formica since December 1992. Prior thereto,
Mr. Mahony held a number of positions with Formica, including Vice President U.S.
Operations, Director of Operations, General Manager and Materials Director.
</TABLE>
43
<PAGE> 47
EXECUTIVE COMPENSATION
The following table discloses compensation received by the Chief
Executive Officer and the four remaining most highly paid executive officers of
Formica for the three fiscal years ended December 31, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- OTHER -------------------
ANNUAL RESTRICTED ALL OTHER
NAME AND BONUS COMPEN- STOCK PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) SATION($)(2) AWARD(S)($) OPTIONS ($) ($)(3)(4)
- ------------------ ---- --------- ------ ------------ ------------ ------- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent P. Langone . . 1993 342,000 230,000 10,921 -- -- -- 14,866
Chairman of the Board, 1992 328,000 260,000 13,730 -- -- -- 15,009
President and Chief 1991 316,000 220,000 * -- -- -- *
Executive Officer of
Formica
David Schneider . . . . 1993 175,000 100,000 -- -- -- -- 5,834
Vice President and 1992 160,000 115,000 -- -- -- -- 5,572
Chief Financial 1991 153,333 95,000 * -- -- -- *
Officer of Formica
Peter Marshall . . . . 1993 175,000 55,000 17,217 -- -- -- 1,573
Vice President of 1992 166,500 60,000 2,200 -- -- -- 327,692
Operations Europe 1991 164,528 40,000 * -- -- -- *
of Formica
Dennis Mahony(5) . . . 1993 140,000 40,000 -- -- -- 6,361
Vice President 1992 -- -- -- -- -- -- --
of Operations 1991 -- -- -- -- -- -- --
North America
of Formica
Charles A. Brooks . 1993 131,600 35,000 -- -- -- -- 4,793
General Counsel and 1992 126,500 40,000 -- -- -- -- 4,612
Secretary of Formica 1991 122,167 36,000 * -- -- -- *
________________
</TABLE>
(1) Bonus amounts were accrued for the year indicated and paid in
the subsequent year.
(2) The amounts shown in this column reflect payments of $6,771
and $8,045 covering the personal use of a Company vehicle for
fiscal years 1993 and 1992, respectively, and $4,150 and
$5,685 for certain legal and tax preparation fees for fiscal
years 1993 and 1992, respectively, for Mr. Langone. The
amounts shown in this column reflect payment of $15,017
covering the personal use of a Company vehicle for the fiscal
year 1993, and $2,200 for fiscal years 1993 and 1992 for tax
preparation fees for Mr. Marshall.
(3) The amounts shown in this column include the following:
(a) Payment by the Company of a premium of $1,576 for
fiscal year 1993 and $1,368 for fiscal year 1992 for
term life insurance; Company paid split dollar life
insurance consisting of $1,378 for fiscal year 1993
and $1,325 for fiscal year 1992 for term life and an
estimated benefit to the executive of $5,160 for
fiscal year 1993 and $5,339 for fiscal year 1992;
$3,214 for fiscal year 1993 and $3,544 for fiscal
year 1992 as the Company's matching contribution to
the Employee Savings Plan; and $3,538 for fiscal year
1993 and $3,433 for fiscal year 1992 as the Company's
contribution to the Profit Sharing account for
Mr. Langone.
44
<PAGE> 48
(b) Company paid split dollar life insurance consisting
of $135 for fiscal year 1993 and $176 for fiscal year
1992 for term life and an estimated benefit to the
executive of $509 for fiscal year 1993 and $596 for
fiscal year 1992; $2,565 for fiscal year 1993 and
$2,400 for fiscal year 1992 as the Company's matching
contribution to the Employee Savings Plan; and $2,625
for fiscal year 1993 and $2,400 for fiscal year 1992
as the Company's contribution to the Profit Sharing
account for Mr. Schneider.
(c) Company paid split dollar life insurance consisting
of $431 for fiscal year 1993 and $445 for fiscal year
1992 for term life and an estimated benefit to the
executive of $1,142 for fiscal year 1993 and $1,173
for fiscal year 1992; and $326,074 of compensation
for fiscal year 1992 realized by the exercise of
stock options in Holdings for Mr. Marshall. Mr.
Marshall realized compensation as disclosed for 1992
by the exercise of his stock options when Holdings
elected to repurchase his stock under the terms of
the Holdings Subscription and Stockholders Agreement.
(d) Company paid split dollar life insurance consisting
of $280 for fiscal year 1993 for term life and an
estimated benefit to the executive of $1,881 for
fiscal year 1993; $2,100 for fiscal year 1993 as the
Company's matching contribution to the Employee
Savings Plan; and $2,100 for fiscal year 1993 as the
Company's contribution to the Profit Sharing account
for Mr. Mahony.
(e) Company paid split dollar life insurance consisting
of $99 for fiscal year 1993 and $141 for fiscal year
1992 for term life and an estimated benefit to the
executive of $746 for fiscal year 1993 and $677 for
fiscal year 1992; $1,974 for fiscal year 1993 and
$1,897 for fiscal year 1992 as the Company's matching
contribution to the Employee Savings Plan; and $1,974
for fiscal year 1993 and $1,897 for fiscal year 1992
as the Company's contribution to the Profit Sharing
account for Mr. Brooks.
(4) Amounts shown in this column include payments made under the
Formica Employee Savings Plan and Profit Sharing Plan in which
all U.S. salaried employees participate.
(5) Mr. Mahony was not part of the highly compensated executive
officer group for years 1992 and 1991, and accordingly, no
disclosure is required for these years.
* Under the Securities and Exchange Commission's transition rules, no
disclosure is required.
The following table provides information concerning options granted to
the named executive officers pursuant to the 1990 Holdings Stock Option Plan.
OPTION GRANTS IN FISCAL YEAR 1993(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL OPTIONS GRANT
NUMBER OF GRANTED EXERCISE OR DATE
NAMES OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
----- GRANTED FISCAL YEAR PER SHARE DATE VALUE$(2)
------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Vincent P. Langone 31,352 54.0 $0.10 3/10/03 --
David Schneider 2,940 5.1 $0.10 3/10/03 --
Peter Marshall 418 0.1 $0.10 3/10/03 --
Dennis Mahony 4,000 6.9 $0.10 3/10/03 --
Charles A. Brooks 1,304 2.2 $0.10 3/10/03 --
</TABLE>
45
<PAGE> 49
(1) The options reflected in this table represent shares of Series
A Common Stock of Holdings. All of the outstanding shares of
the capital stock of Formica are owned by Holdings
(2) The capital stock of Holdings is not publicly traded,
and accordingly, the fair market value of Holdings' Series A
Common Stock cannot be readily determined. Under the terms of
the 1990 Holdings Stock Option Plan and the Subscription and
Stockholders Agreement entered into by each of the named
executives, if the named executive's employment with the
Company is terminated for any reason, Holdings, at its sole
option, may purchase the stock issuable upon the exercise of
the option at an agreed upon formula. Assuming each of the
named executive's employment with the Company was terminated at
1993 year end and further assuming Holdings elected to purchase
the Series A Common Stock issuable upon the exercise of such
executive's stock options in accordance with the provisions of
the Subscription and Stockholders Agreement, the present value
of each executive's stock options would have been equal to his
exercise price as follows: Mr. Langone, $3,135; Mr. Schneider,
$294; Mr. Marshall, $42; Mr. Mahony, $400; and Mr. Brooks $130.
The following table provides information on option exercises in fiscal
year 1993 by the named executive officers and the value of such officers'
unexercised options at December 31, 1993.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN 1993 FISCAL YEAR VALUE OF
AND 1993 FISCAL YEAR END OPTION VALUES (1) UNEXERCISED
------------------------------------------- IN-THE -MONEY
NUMBER OF NUMBER OF UNEXERCISED OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT FY-END FY-END($)
NAME ON EXERCISE REALIZED($) EXERCISABLE EXERCISABLE(2)
---- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Vincent P. Langone . . -- -- 31,352 Series A Common --
David Schneider(3) . . 15,610 Series A Common -- 20,140 Series A Preferred --
4,028 Series B Common
Peter Marshall . . . . -- -- 5,000 Series A Preferred --
1,000 Series B Common
2,578 Series A Common
Dennis Mahony . . . . . -- -- 9,360 Series A Preferred --
1,872 Series B Common
8,042 Series A Common
Charles A. Brooks . . -- -- 15,595 Series A Preferred --
3,119 Series B Common
8,040 Series A Common
</TABLE>
_______________
46
<PAGE> 50
(1) The options reflected in this table represent shares in
Holdings. All of the outstanding shares of the capital stock
of Formica are owned by Holdings.
(2) The capital stock of Holdings is not publicly traded, and
accordingly, the fair market value of Holdings' stock cannot be
readily determined. Each of the named executives who held
options to purchase Holdings stock at year end have entered into a
Subscription and Stockholders Agreement, which among other things,
contains a formula for the purchase by Holdings of the stock, at
the sole option of Holdings, in the event the executive's
employment with the Company is terminated for any reason.
Assuming each of the named executive's employment with the
Company was terminated at 1993 year end and further assuming
Holdings elected to purchase the stock issuable upon the exercise
of such executive's stock options in accordance with the
provisions of the Subscription and Stockholders Agreement, the
value of each executive's stock options would have been as
follows: Mr. Langone, $3,135; Mr. Schneider, $305,318;
Mr. Marshall, $73,842; Mr. Mahony, $138,554; and Mr. Brooks,
$230,314.
(3) The capital stock of Holdings is not publicly traded, and
accordingly, the present value of Holdings' Series A Common
Stock cannot be readily determined. Under the terms of the
1990 Holdings Stock Option Plan and the Subscription and
Stockholders Agreement entered into by each of the named
executives, if Mr. Schneider's employment with the Company is
terminated for any reason, Holdings, at its sole option, may
purchase the stock issuable upon the exercise of the options
at an agreed upon formula. Assuming Mr. Schneider's
employment with the Company was terminated at 1993 year end
and further assuming Holdings elected to purchase the Series A
Common Stock issued upon the exercise of such executive's
stock options in accordance with the provisions of the
Subscription and Stockholders Agreement, the present value of
the 15,610 shares of Series A Common Stock acquired by Mr.
Schneider would have been $1,561.
PENSION PLAN
The Company maintains the Formica Corporation Employee Retirement Plan
(the "Retirement Plan"), a non-contributory defined benefit plan for United
States employees. The Retirement Plan was amended and restated as of January
1, 1990, to bring it into compliance with legislation which took effect on
January 1, 1989 and amended again in May 1990 and June 1992. Pension benefits
are determined based upon a career average pay formula. The annual pension
benefit to which a salaried employee is entitled, under the Retirement Plan, at
the normal retirement date (age 65 and five years of service) is an amount
equal to the sum of:
(A) (i) 1.5 percent of earnings for each year of service, plus
(ii) 1.5 percent of earnings to date of termination (if termination is
effective other than at year end); plus
(B) the accrued benefit as of June 30, 1992 determined as
being the greater of (i) the benefit accrued under the Retirement Plan
then in effect or (ii) 1.5 percent of the five year average annual
earnings multiplied by years of service as of June 30, 1992.
The Retirement Plan formula calculates annual pension amounts on a
single life annuity basis.
47
<PAGE> 51
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
annual amount payable to an individual under a tax qualified pension plan to
$90,000 (as adjusted for cost of living increases) and places limitations upon
amounts payable to certain individuals. The $90,000 limit on the annual amount
payable to an individual imposed by the Code was adjusted in 1993 to $115,641
and in 1994 to $118,800 to account for cost of living increases. The Code also
limits the amount of annual compensation that may be taken into account by a
plan to $200,000 (as adjusted for cost of living increases). The $200,000
compensation limit was adjusted in 1993 to $235,840 and adjusted downward,
effective January 1, 1994, to $150,000.
Estimated annual benefits payable upon retirement under the Company's
Retirement Plan to Messrs. Langone, Schneider, Marshall, Mahony and Brooks are
$118,800, $72,018, $0, $76,937 and $64,869, respectively, assuming current Code
limitations, no change in present salary and continued service to normal
retirement at age 65. Mr. Langone and Mr. Mahony were previously employed by
American Cyanamid (Formica's former parent) and, therefore, their benefits
would be reduced by any amounts payable under the American Cyanamid retirement
plan. Mr. Marshall was previously employed by the Company's United Kingdom
subsidiary and is entitled to retirement benefits under that company's
retirement plan.
EMPLOYMENT MATTERS
Messrs. Langone, Schneider, Marshall and Brooks entered into
employment agreements with Formica (the "Employment Agreements") in May 1989
and in September 1989 which took effect on September 11, 1989. The Employment
Agreements contain customary employment terms, have a duration of five years
from their effectiveness, subject to annual automatic renewal unless earlier
terminated, and provide for initial annual base salaries, subject to
adjustments, of $290,000, $130,000, $150,000 and $115,000, respectively, for
Messrs. Langone, Schneider, Marshall and Brooks plus additional compensation
or incentive plans adopted by Formica to the extent such participation is
determined by the Board of Directors of Formica.
The Employment Agreements provide that certain benefits are to be
continued for a stated period following termination of employment. The amount
of payments to be made to each individual would vary depending upon such
individual's level of compensation and benefits at the time of termination and
whether such employment was terminated prior to the end of their term by
Formica for "Cause" or by the employee for "Good Reason" (except in the latter
case for Mr. Marshall) (as such terms are defined in the Employment Agreements)
or otherwise during the term of the agreements. In addition, the Employment
Agreements include noncompetition and confidentiality provisions.
48
<PAGE> 52
On February 5, 1989, the Board of Directors of Formica approved
termination agreements with Messrs. Langone, Schneider, Marshall and Brooks
that, in general, would provide that immediately upon the occurrence of a
"change of control event", as defined, involving Formica, an executive whose
employment terminates for any reason other than death, permanent disability,
retirement, for cause, or without good reason, all terms as defined, at any
time after a change of control event (except in the case of Mr. Langone) will
be entitled to (a) 299 percent of his latest salary and bonus earned and (b)
continued coverage under certain employee welfare and pension benefit plans for
certain specified periods after termination and certain other benefits.
Mr. John Boanas resigned as a member of the Board of Directors and as
an executive officer of Holdings and Formica effective January 31, 1993. Mr.
Boanas will be entitled to an annual pension payment from Formica of $37,072
upon attaining the age of 65. In connection with his resignation, Mr. Boanas
entered into noncompetition agreements with the Company which restrict Mr.
Boanas for a period of four years from becoming associated with any company
which competes with the Company in consideration of the Company paying $125,000
per year to Mr. Boanas during the four-year term of the agreements. In
addition, the Company agreed to repurchase from a trust established by Mr.
Boanas the stock he owned in Holdings at a purchase price of $620,750 payable
in installments with interest at 6 percent per annum between January 31, 1993
and January 31, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Non-employee Directors Ilan Kaufthal, Charles P. Durkin, Jr. and
Wayne B. Lyon serve on the Compensation Committee of Formica's Board of
Directors. Mr. Durkin is a Managing Director of Dillon Read who manages the
investments of the Saratoga Investors (as herein defined), an owner of more
than 5 percent of the stock of Holdings (see "Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers"). The Company may from
time to time enter into advisory or other investment banking relationships with
Dillon Read or one of its affiliates pursuant to which Dillon Read will receive
customary fees. For general financial advisory services rendered in 1993,
Dillon Read received a fee of $100,000 from the Company. In addition, Dillon
Read, acting as the initial purchaser in connection with the private placement
of $50 million of accrual debentures by Holdings, received a discount on its
purchase of the accrual debentures in the amount of $1.75 million. Mr. Lyon is
President and Chief Operating Officer of Masco Corporation, an owner of more
than 5 percent of the stock of Holdings. The Company and Masco may from time
to time purchase products from each other in regular commercial transactions.
DIRECTORS' COMPENSATION
Each member of the Board of Directors of Formica who is not an
executive officer of Formica, except Messrs. Durkin and Russell who have
elected not to receive fees, receives a fee of $12,000 per year for serving as
a Director and a fee of $1,000 and $500 for attending each Board of Directors
meeting or committee meeting, respectively.
49
<PAGE> 53
OWNERSHIP OF THE CAPITAL STOCK
OF THE COMPANY AND HOLDINGS
All of the outstanding shares of capital stock of the Company are
owned by Holdings. The authorized capital stock of Holdings is divided into
10,020,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of which 9,000,000 shares are Series A Preferred Stock (the "Series A
Preferred Stock") and 1,020,000 shares are Convertible Preferred Stock (the
"Convertible Preferred Stock"), and 2,680,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"), of which 1,200,000 shares are Series A
Common Stock (the "Series A Common Stock") and 1,480,000 shares are Series B
Common Stock (the "Series B Common Stock"). As of March 31, 1994, there were
issued and outstanding 8,512,745 shares of Series A Preferred Stock, 438,194
shares of Series A Common Stock, 1,002,549 shares of Series B Common Stock and
no shares of Convertible Preferred Stock. An additional 124,770 shares of
Series A Preferred Stock, 80,060 shares of Series A Common Stock and 444,954
shares of Series B Common Stock are subject to options granted by Holdings.
The holders of Series A Preferred Stock, Series A Common Stock and Series B
Common Stock are entitled to one vote per share on all matters to be voted on
by stockholders of Holdings and will vote together as a single class. The
Convertible Preferred Stock does not possess the right to vote on any matters
to be voted upon by stockholders of Holdings, except as required by law. In
February 1990, the Board of Directors of Holdings adopted the 1990 Holdings
Stock Option Plan (the "Holdings Plan"). The Holdings Plan authorizes the
grant of stock options to acquire Series A Common Stock to employees of
Holdings' subsidiaries. A total of 34,116 shares (subsequently adjusted in
1994 to 97,272) of Series A Common Stock were reserved for grants of options
under the Holdings Plan. In addition, as of May 3, 1994, options to acquire
55,668 shares have been granted under the Holdings Plan and remain outstanding.
Additionally, options to acquire 38,896 shares were granted and have been
exercised under the Holdings Plan and remain outstanding.
The table below sets forth the beneficial ownership of the outstanding
shares of Holdings' capital stock, as of March 31, 1994, by (i) each person who
owns beneficially more than 5% of any class of capital stock of Holdings, (ii)
each director of Formica, (iii) the Chief Executive Officer and certain other
of the highly compensated executive officers of the Company and (iv) all
directors and executive officers of Formica as a group.
50
<PAGE> 54
<TABLE>
<CAPTION>
NUMBER OF SHARES AND PERCENTAGES OF CLASS
AND TOTAL VOTING INTEREST(1)
----------------------------
SERIES A SERIES A SERIES B PERCENTAGE OF
NAME AND ADDRESS PREFERRED PERCENTAGE COMMON PERCENTAGE COMMON PERCENTAGE TOTAL VOTING
OF BENEFICIAL OWNER STOCK OF CLASS STOCK OF CLASS STOCK OF CLASS INTEREST(1)
- ------------------- ----- -------- ----- -------- ----- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Saratoga Investors(2) . . 4,700,000 55.2% -- -- 940,000 93.8% 56.7%
535 Madison Avenue
New York, New York 10022
Masco Corporation(3) . . 3,500,000 41.1% -- -- 420,000 29.5% 37.8%
21001 Van Born Road
Taylor, Michigan 48180
Vincent P. Langone . . . 260,300 3.1% 172,903 39.5% 52,060 5.2% 4.9%
1680 Route 23 North
Wayne, New Jersey 07474
David Schneider(4) . . . 31,065 0.4% 16,088 3.7% 6,213 0.6% 0.5%
1680 Route 23 North
Wayne, New Jersey 07474
Ilan Kaufthal . . . . . . 15,010 0.2% -- -- 3,002 0.3% 0.2%
Equitable Center
787 Seventh Avenue
New York, New York 10019
Bret E. Russell(5) . . . -- -- -- -- -- -- --
535 Madison Avenue
New York, New York 10022
Charles P. Durkin, Jr.(6) -- -- -- -- -- -- --
535 Madison Avenue
New York, New York 10022
Wayne B. Lyon(7) . . . . -- -- -- -- -- -- --
21001 Van Born Road
Taylor, Michigan 48180
Peter J. Pirsch(8) . . . -- -- -- -- -- -- --
21001 Van Born Road
Taylor, Michigan 48180
Charles A. Brooks(9) . . 15,595 0.2% 8,290 1.9% 3,119 0.3% 0.3%
1680 Route 23 North
Wayne, New Jersey 07474
Peter Marshall(9) . . . . 5,000 0.1% 2,578 0.6% 1,000 0.1% 0.1%
Royal Albert House
Sheet Street
Windsor
Berks SL4 IB4
England
Dennis Mahony(9) . . . . 9,360 0.1% 8,042 1.8% 1,872 0.2% 0.2%
10155 Reading Road
Cincinnati, OH 45202
Directors and . . . . . . 345,690 4.0% 212,993 47.5% 69,138 6.8% 6.3%
executive officers
as a group
(10 persons)(10)
</TABLE>
_______________
(1) The amount of any series of stock is calculated in accordance
with Rule 13d-3(d)(1) of the Exchange Act which provides that
a person shall be deemed to be a beneficial owner of a
51
<PAGE> 55
security if that person has the right to acquire beneficial
ownership of such security within sixty days. In addition,
Rule 13d-3(d)(1) provides that any securities not outstanding
which are subject to such right shall be deemed to be
outstanding for the purpose of computing beneficial ownership
of the outstanding securities of the class owned by such
person and percentage of voting interest but shall not be
deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.
(2) The "Saratoga Investors" are Saratoga, Saratoga Partners II,
C.V., Lexington Partners II, L.P., Concord Partners II, L.P.,
Concord Partners, Concord Partners Japan, Limited, Cord
Capital, N.V., and Dillon, Read Inc. ("DRI") and Dillon Read,
as nominees. All of the Saratoga Investors, other than DRI
and Dillon Read, are corporations or limited partnerships
formed to invest in transactions originated by Dillon Read and
are managed by Dillon Read. DRI and Dillon Read, as nominees
for certain managing directors and officers of Dillon Read,
together have sole voting and investment power pursuant to
powers of attorney with respect to the shares of Holdings
capital stock beneficially owned by them. Accordingly, Dillon
Read, alone or with DRI, has the sole power to vote or dispose
of the shares of Holdings capital stock owned by the Saratoga
Investors. DRI is Dillon Read's parent company and may also
be deemed to beneficially own the 9,680 shares of Series A
Common Stock (or 0.1% of the voting interest) owned by DR
Interfunding, which shares are excluded from the table. With
the exception of Saratoga, none of the Saratoga Investors owns
more than 5% of the outstanding shares of Holdings capital
stock. Dillon Read is the Initial Purchaser of the Debentures
and was the underwriter for the public offering of the Senior
Subordinated Notes and acted as placement agent in connection
with the private placement of the Subordinated Discount
Debentures. See Notes 6 and 7 above.
(3) Includes 420,000 shares of Series B Common Stock beneficially
owned by Masco, which are subject to a presently exercisable
option granted by Holdings.
(4) Includes 20,140 shares of Series A Preferred Stock and 4,028
shares of Series B Common Stock, all of which are subject to
presently exercisable options.
(5) Bret E. Russell is an employee of Dillon Read and he has
invested funds through DRI and Dillon Read, as nominees, and
Lexington Partners II, L.P., which in aggregate constitute
less than 1% of the funds invested by the Saratoga Investors.
(6) Charles P. Durkin, Jr., is an employee of Dillon Read and he
has invested funds through DRI and Dillon Read, as nominees,
and Lexington Partners II, L.P., which in aggregate constitute
less than 1% of the funds invested by the Saratoga Investors.
(7) Wayne B. Lyon is an employee of Masco.
(8) Peter J. Pirsch is an employee of Masco.
(9) All shares are subject to presently exercisable options.
(10) Includes 59,455 shares of Series A Preferred Stock, 10,620
shares of Series A Common Stock and 11,891 shares of Series B
Common Stock, all of which are subject to presently
exercisable options.
52
<PAGE> 56
SARATOGA-MASCO STOCKHOLDERS AGREEMENT
On May 1, 1989, Holdings, the Saratoga Investors and Masco entered into a
Subscription and Stockholders Agreement (the "Saratoga-Masco Agreement") which
contains certain provisions with respect to, among other matters, the transfer
of Holdings capital stock by the parties thereto, registration rights with
respect to such shares, rights in respect of any future sale of the Company and
future issuances of Holdings capital stock.
Pursuant to the terms of the Saratoga-Masco Agreement, no holder of shares
of Holdings capital stock who is a party or becomes a party to the
Saratoga-Masco Agreement in accordance with its terms (an "Investor") may,
directly or indirectly, offer, sell, pledge, encumber or otherwise transfer
shares of Holdings capital stock beneficially owned by such Investor, or any
interest therein, unless such transfer is (i) to another Investor and has been
approved in advance by the Board of Directors of Holdings, (ii) by Masco to a
wholly owned subsidiary or, if approved in advance by the Board of Directors of
Holdings, an affiliate of Masco (provided, however, that only Masco may exercise
rights under the Saratoga-Masco Agreement and the Management Agreement (as
hereinafter defined) specific to Masco for the benefit of any such transferee),
or (iii) by way of a pledge to a bank or financial institution if such shares of
Holdings capital stock remain subject to the Saratoga-Masco Agreement.
If an Investor receives a bona fide offer from a third party to purchase
shares of Holdings capital stock beneficially owned by such Investor (other than
shares being registered under the Securities Act, pursuant to demand
registration rights) which such Investor desires to accept, then, if such
Investor is a Saratoga Investor, it must offer to sell such shares to Masco on
the same terms or, if such Investor is an Investor other than a Saratoga
Investor, it must offer to sell such shares to the Saratoga Investors on the
same terms. The Saratoga-Masco Agreement contains various provisions for the
allocation of such shares among Investors desiring to accept the selling
Investor's offer in accordance with the purchasing Investors' Holdings capital
stock ownership.
With respect to any proposed transfer, in any one transaction or series of
related transactions, of shares of Holdings capital stock by an Investor to any
person or persons (other than a Saratoga Investor or Masco or an affiliate of a
Saratoga Investor or Masco), each other Investor has the right to require the
proposed purchaser to purchase on the same terms the same percentage of such
other Investor's shares of the same class or series as the percentage of the
selling Investor's shares of such class or series being sold to the proposed
purchaser. This "take-along" right is inapplicable to transfers pursuant to
effective registration statements; transfers upon merger, consolidation or
liquidation of an Investor not being effectuated for the sole purpose of
transferring such shares; transfers upon the death of an employee of a Saratoga
Investor on whose behalf Holdings capital stock has been acquired; transfers to
other Investors approved by the Board of Directors of Holdings; and transfers by
Masco to a wholly owned subsidiary or, if approved in advance by the Board of
Directors of Holdings, an affiliate of Masco.
Pursuant to the Saratoga-Masco Agreement, the Saratoga Investors have
agreed that, prior to voting shares of Holdings capital stock in favor of a
merger, consolidation, reorganization or any other such transaction involving
Holdings or the Company or any sale of all or substantially all of the equity or
all or substantially all of the assets and liabilities of the Company, they will
negotiate in good faith with Masco for the sale of Holdings or the Company, as
the case may be. In addition, if at any time or from time to time Holdings
offers or proposes to offer its capital stock or any security which is
convertible into or exchangeable for or carries the right to purchase shares of
Holdings capital stock (other than certain issuances contemplated by the
Saratoga-Masco Agreement and the Management Agreement), each Investor must be
afforded the opportunity to acquire from Holdings, on no less favorable terms as
such securities are to be offered to others, the same percentage of such
securities as the percentage of outstanding Holdings capital stock which such
Investor owns.
Pursuant to the terms of the Saratoga-Masco Agreement, Dillon Read, on
behalf of the Saratoga Investors, and Masco, on behalf of its affiliates, may
jointly make two written requests to Holdings for registration of all or a part
of the Holdings capital stock then owned by them for registration of such
securities under the Securities Act. Holdings is required to use its best
efforts to file a registration statement therefor
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<PAGE> 57
and have such registration statement declared effective. In addition the
Investors will be entitled to certain "piggyback" registration rights in respect
of registration statements prepared by Holdings for Holdings capital stock. The
Saratoga-Masco Agreement contains customary terms and provisions with respect
to, among other matters, registration procedures and certain rights to
indemnification granted by parties thereunder in connection with the
registration of shares subject to such agreement.
The Saratoga-Masco Agreement also contains agreements among the Saratoga
Investors and Masco providing for the allocation and distribution to Masco of
value received by the Saratoga Investors from certain sales of Holdings capital
stock and certain extraordinary transactions providing internal rates of return
in excess of certain prescribed returns.
MANAGEMENT AGREEMENT
On May 1, 1989, Holdings and the Senior Management Investors entered into a
Subscription and Stockholders Agreement (the "Management Agreement") which
contains certain provisions with respect to, among other matters, the transfer
of Holdings capital stock by the Senior Management Investors, purchases of the
Senior Management Investors' Holdings capital stock upon termination of
employment of the Senior Management Investor and registration rights with
respect to such shares. Other members of the Company's management who acquired
Holdings capital stock or options therefor prior to the Merger became a party to
the Management Agreement. In addition, Ilan Kaufthal, a director of the Company,
joined in the Management Agreement and is generally treated as a Management
Investor. Except for certain registration rights provisions, the Management
Agreement terminates 180 days following the effective date of a registration
statement for an underwritten public offering, for Holdings' account, of a
number of shares of Holdings common stock that is at least 40% of the previously
outstanding shares of Holdings common stock, on a fully diluted basis.
Pursuant to the terms of the Management Agreement, no Management Investor
may, directly or indirectly, offer, sell, pledge, encumber or otherwise transfer
shares of Holdings capital stock beneficially owned by such Management Investor,
or any interest therein, unless such transfer is (i) to an immediate family
member of such Management Investor or a trust, custodial account or partnership
established for the sole benefit of such Management Investor and his immediate
family members if such person has agreed to be bound by the provisions of the
Management Agreement, (ii) to an immediate family member in accordance with
applicable laws of descent and distribution, or (iii) to any other Management
Investor if approved in advance by the Board of Directors of Holdings.
Except as described in the preceding paragraph and in connection with the
exercise of their "takealong" rights described below, no Management Investor may
transfer Holdings capital stock until the earlier of (i) May 1, 1994, (ii) the
sale of shares constituting more than 25% of Holdings common stock, on a fully
diluted basis, to the public pursuant to an effective registration statement
(other than any registration statement on Form S-4 or S-8, or any substitute
form therefor, or any registration statement filed in connection with an
exchange offer or an offering of securities solely to holders of Holdings), or
(iii) the termination of a Management Investor's employment by Holdings other
than for Cause (as defined in the Management Agreement). After the expiration of
the period described in the preceding sentence, if a Management Investor
receives a bona fide offer from a third party to purchase shares of Holdings
capital stock beneficially owned by such Management Investor (other than shares
registered under the Securities Act) which such Management Investor desires to
accept, then such Management Investor must offer to sell such shares to the
Saratoga Investors and Masco (collectively, the "Designated Investors") and to
Holdings on the same terms. The Management Agreement contains various provisions
giving Holdings a prior right to purchase such Management Investors' shares and
for the allocation of the Management Investor's shares among Designated
Investors in accordance with such Designated Investors' Holdings Series A
Preferred Stock ownership.
With respect to any proposed transfer, in any one transaction or series of
related transactions, of shares of Holdings common stock by a Designated
Investor representing more than 10% of the Holdings common stock then held by
such Designated Investor and its affiliates to any person, each Management
Investor has the right to require the proposed purchaser to purchase on the same
terms the same percentage of shares of Holdings
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<PAGE> 58
common stock owned by such Management Investor as the selling Designated
Investor is selling of the shares of Holdings common stock then owned by such
selling Designated Investor and its affiliates. This "take-along" right is
inapplicable to (i) a transfer by a Designated Investor to one of its affiliates
or any transfer by Masco to a Saratoga Investor, (ii) a transfer pursuant to an
effective registration statement under the Act or a public sale under Rule 144
under the Securities Act, (iii) a transfer upon merger, consolidation or
liquidation of a Designated Investor not being effected for the sole purpose of
transferring such shares, and (iv) transfers by way of a pledge to a bank or
another financial institution that remains subject to the terms of the
Management Agreement.
In the event that a Management Investor's employment with the Company is
terminated for any reason whatsoever (or, in the case of Mr. Kaufthal, his
service as a director is terminated for any reason whatsoever), Holdings and the
Designated Investors have the right to purchase all Holdings capital stock
beneficially owned by such Management Investor at a formula price that is based
upon either the cost of such Holdings capital stock or a deemed fair value of
such Holdings capital stock depending upon whether or not the termination of
employment was for Cause. The Management Agreement contains provisions giving
Holdings a prior right to purchase such shares and for the allocation of such
shares among the Designated Investors in accordance with such Designated
Investors' respective Holdings Series A Preferred Stock ownership. In addition,
from and after the termination by Holdings of Vincent P. Langone's employment
with the Company other than for Cause, Mr. Langone may require Holdings to
purchase shares of Holdings capital stock owned by him that does not have an
aggregate purchase price (which is calculated based upon a deemed fair value of
such Holdings capital stock) in excess of $2,616,566. Holdings will, subject to
all of the provisions of the Merger Credit Agreement, the Notes and the
Subordinated Debentures be obligated to purchase such shares to the extent the
Designated Investors do not desire to purchase such shares. Such put right may
only be exercised once by Mr. Langone.
In addition, the Management Agreement provides that officers and employees
of the Company and its subsidiaries will be afforded the opportunity to acquire,
from time to time, an amount of Holdings capital stock constituting 20% of the
common equity of Holdings, on a fully diluted basis, calculated as of the
closing of the Offer (subject to adjustment for dilution from issuances out of
the equity reserve to the Bridge Participants in excess of 6% of the fully
diluted Holdings common stock) at its fair value (as determined annually by the
Board of Directors of Holdings). In February 1990, the Board of Directors of
Holdings adopted the Holdings Plan. The Holdings Plan authorizes the grant of
stock options to acquire Series A Common Stock to employees of the Company and
its subsidiaries in an amount which represents the difference between the
current ownership of the common equity of Holdings by Company employees and 20%.
Series A Common Stock issued pursuant to the exercise of such options will be
subject to generally the same restrictions as provided in the Management
Agreement. In the event the employment of a Management Investor (other than Mr.
Langone) is terminated for any reason whatsoever, Holdings capital stock
formerly held by such Management Investor shall not be deemed to be owned by an
officer or employee of the Company and its subsidiaries for purposes of
determining whether the full 20% of the common equity has been made available to
officers and employees. In no event will Holdings capital stock be issued to
officers and employees if it would result in the Saratoga Investors owning less
than a majority of Holdings capital stock entitled to vote in the election of
directors.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company and its subsidiaries may from time to time enter into financial
advisory or other investment banking relationships with Dillon Read or one of
its affiliates pursuant to which Dillon Read or its affiliate will receive
customary fees and will be entitled to reimbursement for all reasonable
disbursements and out-of-pocket expenses incurred in connection therewith. The
Company expects that any such arrangement will include provisions for the
indemnification of Dillon Read against certain liabilities, including
liabilities under the federal securities laws. During 1993, the Company paid
Dillon Read a fee of $100,000 for general financial advisory services. In
addition, in September 1993, Dillon Read, acting as the initial purchaser in
connection with the private placement of $50 million of accrual debentures by
Holdings received a discount on its purchase of the accrual debentures in the
amount of $1.75 million. The Company and its subsidiaries and
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<PAGE> 59
Masco and its subsidiaries may from time to time purchase products from each
other in regular commercial transactions.
See "Ownership of the Capital Stock of the Company and Holdings" for a
description of certain arrangements among management of the Company, Holdings,
Masco and the Saratoga Investors in respect of managements' ownership of equity
securities of Holdings.
DESCRIPTION OF MERGER CREDIT AGREEMENT
In connection with the financing of the Merger, Holdings, FM Acquisition,
the Company and certain of its subsidiaries have entered into the Merger Credit
Agreement with CIBC, as Agent, and certain other banks named in the Merger
Credit Agreement, a copy of which has been filed as an exhibit to the Note
Registration Statement and has been incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus is a part. The following
description of the provisions of the Merger Credit Agreement do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, the Merger Credit Agreement, including the definitions therein of terms not
defined in this Prospectus. The U.S. Revolving Credit Facility, the Letter of
Credit Facility and the Working Capital Facility (which includes a swing line
facility) are evidenced by a credit agreement under which the Company is the
primary obligor (the "U.S. Credit Agreement"). The revolving credit loans made
to the Company's subsidiary in the United Kingdom (the "U.K. Foreign Borrower")
denominated in U.K. Pounds Sterling ("Sterling") and to the Company's subsidiary
in France (the "French Foreign Borrower") denominated in French Francs
("Francs") pursuant to the Foreign Borrowings described below were separately
documented by credit agreements, each of which have equivalent events of default
and a cross-default provision to the U.S. Credit Agreement. All references in
this Prospectus to the Merger Credit Agreement includes the U.S. Credit
Agreement and the documentation relating to the U.K. Revolving Credit Facility
and the French Revolving Credit Facility. In addition, each of the Spanish
Foreign Borrower and the Canadian Foreign Borrower (collectively, the "LC
Account Parties") have made Foreign Borrowings in local currencies from banks
outside of the syndicate of banks party to the Merger Credit Agreement pursuant
to the Foreign Credit Documents which are supported by the letters of credit
issued under the Letter of Credit Facility. In general, the Foreign Credit
Documents contain very limited covenants none of which relate to the operations
of the LC Account Parties or the Company on a consolidated basis, and events of
default for failure to make payments, certain events of bankruptcy and
insolvency and the failure to renew or maintain the respective supporting
letters of credit. In November 1989, the Company's Taiwan Subsidiary (the
"Taiwan Subsidiary") entered into a loan agreement (the "Taiwan Credit
Agreement") in New Taiwan Dollars with a bank (the "Taiwan Bank") who is a
member of the syndicate of banks party to the Merger Credit Agreement. This loan
agreement was renewed as of November 30, 1993 for an additional one year period
and now includes a separate short-term line of credit facility. The Company
expects to renew this facility on an annual basis as of November 30, of each
succeeding year. The Taiwan Credit Agreement is collateralized by a first
priority mortgage on all of the Taiwan Subsidiary's real property. Copies of
translations of certain of the documentation for the Foreign Borrowings by the
LC Account Parties have been filed as exhibits to the Note Registration
Statement and have been incorporated by reference as an exhibit to the
Subordinated Discount Debenture Registration Statement and are hereby
incorporated herein by reference in their entirety. See Note 4 to the Company's
Consolidated Financial Statements for information concerning available and
unused principal borrowing commitments under the Merger Credit Agreement.
The U.S. Credit Agreement is comprised of the U.S. Revolving Credit
Facility denominated in U.S. dollars ("$"), the Letter of Credit Facility
consisting of letters of credit denominated in Canadian dollars ("C$") and
Spanish pesetas ("Pesetas"), which are issued to support the Foreign Borrowings
by the LC Account Parties, and the Working Capital Facility. Unless otherwise
indicated, the amounts of outstanding or available Foreign Borrowings under the
Merger Facilities are based upon foreign currency exchange rates determined
pursuant to the Merger Credit Agreement. Loans available under the U.S. Credit
Agreement, the U.K. Revolving Credit Facility, the French Revolving Credit
Facility and the Foreign Credit Documents as of
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<PAGE> 60
March 31, 1994 are the direct obligations of the following entities in the
currencies and up to the dollar equivalent amounts (expressed in U.S. dollars
using March 31, 1994 exchange rates) shown below:
<TABLE>
<CAPTION>
MAXIMUM DOLLAR
CURRENCY EQUIVALENT
BORROWER OF LOAN (IN MILLIONS)
<S> <C> <C>
Formica Corporation..................................... $ $ 41.6*
Formica Ltd............................................. Sterling 38.7+
Formica Espanola, S.A................................... Peseta 19.4+
Formica S.A............................................. Franc 26.5+
Formica Canada, Inc..................................... C$ 12.7+
</TABLE>
- ---------------
* The direct obligations of the Company may be increased by a total of $35.8
million (expressed in U.S. dollars using March 31,1994 exchange rates),
including amounts which reflect interest on such amounts described below,
if all of the letters of credit issued pursuant to the Letter of Credit
Facility are called upon.
+ These dollar equivalent amounts were determined using March 31, 1994
exchange rates. The amounts in foreign currency, if exchanged pursuant to
spot rates at any given time, may equal or exceed such Maximum Dollar
Equivalent. The amounts set forth for the Spanish Foreign Borrower and the
Canadian Foreign Borrower include interest at the LIBOR reserve adjusted
rate for the respective local currency for 160 days in the case of the
Canadian Foreign Borrower and 165 days in the case of the Spanish Foreign
Borrower.
The Foreign Borrowers used the proceeds from the Foreign Borrowings (i) to
distribute dividends to their parent company which, in turn, distributed such
funds (net of taxes) in the form of a dividend to the Company (collectively the
"Dividends") for the purpose of providing it with funds to satisfy its
obligations under the Merger Agreement, (ii) to make loans to the Company and to
make investments in a newly organized foreign subsidiary of the Foreign
Borrowers which, in turn, used such funds (net of taxes and expenses) to make a
loan to the Company (collectively, the "Foreign Loans") and to purchase certain
other subsidiaries of the Company, (iii) in the case of the U.K. Foreign
Borrower, to purchase a subsidiary of the Company, in the case of (ii) and (iii)
so as to provide the Company with funds to satisfy its obligations under the
Merger Agreement and to refinance borrowings under the Tender Offer Facility,
(iv) to repay certain existing indebtedness of the Foreign Borrowers and (v) to
pay certain fees, expenses and transaction costs.
The transactions undertaken by the Company and the Foreign Borrowers are
based on certain assumptions about the various tax (including withholding tax)
laws, foreign exchange and capital repatriation laws and other relevant laws of
a variety of jurisdictions, including, without limitation, the jurisdictions in
which the Foreign Borrowers are organized and the United States. While
management believes that such assumptions are correct, there can be no assurance
that taxing or other governmental authorities would reach the same conclusion.
If such assumptions were incorrect, or if any such jurisdiction were to change
or modify such laws, the Company may suffer adverse tax and other financial
consequences which could adversely affect the Company, including impairing its
ability to meet its payment obligations on its outstanding indebtedness,
including the Notes.
The proceeds of the loans made to the Company under the Merger Facility as
well as the amounts received by the Company from the Dividends and from the
Foreign Loans, were used by the Company (i) to repay outstanding borrowings
under the Tender Offer Facility, including interest and fees or any other
amounts payable thereunder in connection therewith, (ii) to pay a portion of the
cost of effecting the Merger, including related fees and expenses, and (iii) to
repay certain outstanding indebtedness of the Company. Borrowings under the
Working Capital Facility may be used for working capital purposes and up to $5.0
million was permitted to be used in connection with Acquisition-related matters.
U.S. Credit Agreement. As of March 31, 1994, the U.S. Credit Agreement
provides for borrowings as follows: $26.6 million under the U.S. Revolving
Credit Facility, the U.S. dollar equivalent of $35.8 million (expressed in U.S.
dollars using March 31, 1994 exchange rates), including amounts which reflect
interest on such amounts described below under the Letter of Credit Facility and
$15.0 million under the Working Capital Facility, which includes up to $5.0
million aggregate outstanding amount in a swing line facility. The U.S. Credit
Agreement is the direct obligation of the Company.
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<PAGE> 61
The final maturity of the U.S. Revolving Credit Facility is eight years
from the Effective Time with commitment reductions and mandatory annual
prepayments of varying amounts as necessary such that the maximum amount
outstanding at any one time may not exceed:
<TABLE>
<CAPTION>
PERIOD PRIOR TO (INDICATED AS ANNIVERSARIES OF THE
EFFECTIVE TIME) MAXIMUM AMOUNT
<S> <C>
1994..................................................... 26,600,000
1995..................................................... 20,000,000
1996..................................................... 20,000,000
1997..................................................... 17,500,000
</TABLE>
Each primary letter of credit will have a stated expiration date of no more
than one year, renewable so long as no default exists for additional one year
periods with a final expiration eight years after the Merger. The stated amount
of each letter of credit under the Letter of Credit Facility will reduce by the
amount set forth below, in the case of the Spanish Foreign Borrower's letter of
credit support, 15 days after the date set forth below, and in the case of the
Canadian Foreign Borrower's letter of credit support, 25 days after the date set
forth below:
<TABLE>
<CAPTION>
SPANISH
LETTER CANADIAN
DATE OF CREDIT LETTER
(INDICATED AS ANNIVERSARIES (IN OF CREDIT
OF THE EFFECTIVE TIME) PESETAS) (IN CS)
<S> <C> <C>
1994................................................ 200,000,000 1,250,000
1995................................................ 200,000,000 1,500,000
1996................................................ 250,000,000 2,000,000
1997................................................ remainder remainder
</TABLE>
; provided that no primary letter of credit will exceed the outstanding
principal amount of the applicable LC Account Party's Foreign Borrowing under
the Foreign Credits Documents plus 160 days of interest in the case of the
Canadian Foreign Borrower and 165 days of interest in the case of the Spanish
Foreign Borrower.
The final maturity of the Working Capital Facility (which includes a
$5,000,000 swing line facility) is five years from the date of the Merger,
subject to reduction by the Company such that the amount of outstanding
revolving loans (including the stated amount, plus a 5% cushion for foreign
currency fluctuations, of all then outstanding working capital letters of
credit) does not exceed the Translated Stated Amount (as defined) plus $7.5
million for at least 30 consecutive days in each fiscal year.
The Company and the lenders party to the U.S. Credit Agreement have entered
into an amendment dated as of August 20, 1993 (the "Amendment") pursuant to
which (i) such lenders consented to the issuance of accrual debentures by
Holdings and (ii) the commitments under the Working Capital Facility were
reduced by $15.0 million and the face amount of letters of credit available
under the Working Capital Facility were reduced by $5.0 million. The Amendment
also contemplated that the maximum permitted face amount of the Spanish Letter
of Credit would be reduced to $15.0 million below the maximum permitted face
amount as of September 30, 1993, which reduction occurred on October 5, 1993.
Concurrently with such reduction, the commitments under the U.S. Revolving
Credit Facility were increased by $15.0 million less any intervening commitment
reductions with respect to such facility as described above.
In addition, the Merger Credit Agreement requires mandatory prepayments in
an amount equal to 75% of the Company's Excess Cash (as defined) and an amount
equal to the net proceeds of certain sales of assets, certain insurance proceeds
(above specified amounts in certain cases) and the issuances of certain equity
or debt securities. The Merger Credit Agreement provides that loans under the
U.S. Revolving Credit Facility, the Working Capital Facility and the Foreign
Credit Documents may be prepaid in whole or in part at any time without premium
or penalty, subject to certain requirements prescribing minimum prepayment
amounts and certain "breakage" costs.
The obligations of the Company under the U.S. Credit Agreement are
guaranteed by Holdings and certain of the subsidiaries of the Company. The
Foreign Borrowers are not guarantors of such obligations. The obligations of the
Company under the U.S. Credit Agreement are secured by first priority mortgages
and
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<PAGE> 62
liens on the significant assets (including inventory, receivables, contract
rights and intangibles) and pledges of the capital stock of the Company and a
portion of the capital stock of the Foreign Borrowers.
The loans outstanding under the U.S. Credit Agreement, including the
reimbursement obligations under any letters of credit which have been drawn,
will bear interest at one of the following rates, at the option of the Company:
(i) the higher of (A) CIBC's base rate in effect from time to time, (B) a
published CD rate plus 1/2% or (C) the federal funds rate plus 1%, in each case
plus 1 1/2% or (ii) with respect to any interest period, the average reserve
adjusted rate for deposits of U.S. dollars in the London interbank market of
three named reference banks plus 2 1/2%. The loans under the Canadian Foreign
Borrowings will bear interest (1) for the revolving term credit facility at the
Company's option (A) base rate plus 1/8% or (B) a reserve and interest swap
adjusted rate for Canadian Dollars plus 3/8%, (2) for bankers acceptances at the
bank's acceptance rate plus 1/8% and (3) for the operating credit at the base
rate in effect from time to time. The Spanish Foreign Borrowings will bear
interest at a reserve adjusted rate for Spanish pesetas in the Madrid interbank
market plus 1/2%. Interest will be payable (A) in respect of base rate loans,
quarterly (or in the case of Canadian base rate loans, monthly) in arrears, (B)
in respect of Eurodollar loans, in arrears on the earlier of the last day of the
applicable interest period or the three month anniversary of the making of the
loan and (C) in respect of all loans, upon prepayment, and will be computed on
the basis (i) in the case of base rate loans, actual days elapsed in a 365 or
366-day year and (ii) in the case of interbank rate loans, actual days elapsed
in a 360-day year on the earlier of the last day of the applicable interest
period or the three month anniversary of the making of the loan and upon
prepayment, and will be computed on the basis of actual days elapsed in a 360-
day year. Overdue principal and, to the extent permitted, overdue interest will
bear interest at a rate per annum equal to 2% in excess of the rate then
otherwise borne by such borrowings.
The U.S. Credit Agreement contains protective provisions regarding capital
adequacy, increased costs, funding losses, illegality and withholding taxes.
The Company has interest rate swap agreements outstanding at March 31, 1994
on approximately $18.4 million (expressed in U.S. dollars using March 31, 1994
exchange rates) of borrowings under the Merger Credit Agreement at a weighted
average interest rate of approximately 11.9%.
The U.S. Credit Agreement contains covenants that, among other things,
restrict (i) mergers and changes of business or the conduct of business of the
Company, (ii) the incurrence of liens, mortgages or other encumbrances, (iii)
certain transactions with affiliates and (iv) modification of the terms of
certain material agreements, including the Notes.
In addition, the U.S. Credit Agreement provides that neither the Company
nor any of its subsidiaries may contract, create, incur, assume or suffer to
exist any indebtedness, including intercompany indebtedness, except, among other
things: (a) indebtedness outstanding under the U.S. Credit Agreement; (b)
indebtedness outstanding under the Facilities; (c) indebtedness existing on the
date of the Merger; (d) certain indebtedness which would constitute a permitted
investment; (e) the BV Pledged Note (as defined), the Bridge Notes, the Notes
and the Subordinated Discount Debentures; (f) certain purchase money
obligations, trade letters of credit and standby letters of credit; (g)
indebtedness incurred under rate swap agreements; (h) indebtedness under certain
contingent liabilities; (i) indebtedness outstanding under certain foreign
working capital lines of credit and (j) other indebtedness of the Company or any
Subsidiary not exceeding in the aggregate $7.0 million. The U.S. Credit
Agreement provides an aggregate limitation on all indebtedness set forth in
clauses (d), (f) and (h) through (j) above of $15 million.
Neither the Company nor any of its Subsidiaries will make, incur, assume or
suffer to exist any Investments except for: (a) Investments constituting
intercompany indebtedness which (i) is consistent with past practice, (ii) is
not a loan from an obligor under the U.S. Credit Agreement to any nonobligor
thereunder and (iii) is pledged to the collateral agent; (b) Investments in
joint ventures up to an aggregate of $5 million increasing $250,000 each year;
(c) certain intercompany indebtedness not complying with clause (a) (ii); (d)
certain Investments existing on the date of the Merger; (e) Investments in cash
and cash equivalents; (f) certain Investments in accounts receivable in the
ordinary course of business and (g) investments to the extent they would be
permitted if made as capital expenditures.
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<PAGE> 63
Neither the Company nor any of its Subsidiaries may, directly or
indirectly, declare any dividend or make a distribution on its capital stock or
make any payments on subordinated indebtedness other than (i) payments on
capital stock made in additional shares of capital stock, (ii) payments in
respect of the Notes and Subordinated Discount Debentures in accordance with the
terms of, and only to the extent required to and subject to, the subordination
provisions of the Notes and the Subordinated Discount Debentures, respectively,
(iii) to the extent no default has occurred and is continuing, the Company may
pay certain cash dividends to Holdings to finance the repurchase of certain
management stock from terminated employees, (iv) certain subsidiaries may redeem
their own capital stock, (v) the Foreign Borrowers may make certain cash
dividends and (vi) subsidiaries may make cash dividends to their parents.
The Company and its consolidated subsidiaries may make Capital Expenditures
that do no exceed, from and after the Effective Time to the end of 1989, $6
million, $12.5 million in 1990, $13.5 million in 1991, $14.5 million in 1992,
$15.5 million in 1993, $16.5 million in 1994, $17.5 million in 1995 and $18.5
million in 1996; provided that to the extent not utilized in any year 100% of
the amount of the excess may be carried forward to the next succeeding fiscal
year.
The U.S. Credit Agreement also requires that the Company satisfy certain
financial tests as described below:
(a) The Company is required to maintain at all times a ratio of (i)
Consolidated Current Assets to (ii) Consolidated Current Liabilities equal
to or greater than 1.6 to 1 on the last day of any fiscal quarter.
(b) The Company is required to maintain a ratio of (ii) all
indebtedness (other than intercompany indebtedness) to (ii) Consolidated
Net Worth that is not greater than the ratio indicated below:
<TABLE>
<CAPTION>
MAXIMUM
LEVERAGE
PERIOD RATIO
<S> <C>
Effective Time through December 31, 1989................ 4.40 to 1
January 1, 1990 through March 31, 1990.................. 4.35 to 1
April 1, 1990 through June 30, 1990..................... 4.30 to 1
July 1, 1990 through September 30, 1990................. 4.25 to 1
October 1, 1990 through December 31, 1990............... 4.25 to 1
January 1, 1991 through June 30, 1991................... 4.20 to 1
July 1, 1991 through September 30, 1991................. 4.40 to 1
October 1, 1991 through December 31, 1991............... 4.35 to 1
January 1, 1992 through June 30, 1992................... 4.65 to 1
July 1, 1992 through September 30, 1992................. 4.70 to 1
October 1, 1992 through December 31, 1992............... 4.60 to 1
January 1, 1993 through March 31, 1993.................. 4.65 to 1
April 1, 1993 through June 30, 1993..................... 3.65 to 1
July 1, 1993 through September 30, 1993................. 3.55 to 1
October 1, 1993 through December 31, 1993............... 3.40 to 1
January 1, 1994 through March 31, 1994.................. 3.60 to 1
April 1, 1994 through June 30, 1994..................... 3.00 to 1
July 1, 1994 through December 31, 1994.................. 2.70 to 1
January 1, 1995 through June 30, 1995................... 2.40 to 1
July 1, 1995 through December 31, 1995.................. 2.15 to 1
January 1, 1996 through June 30, 1996................... 2.00 to 1
July 1, 1996 and thereafter............................. 1.70 to 1
</TABLE>
60
<PAGE> 64
In calculating the rates for the period from and after July 1, 1993,
indebtedness denominated in any currency other than United States dollars
shall be determinated by converting such currency to United States dollars
at the exchange rates set forth below:
<TABLE>
<S> <C>
U.S. $1.00/GBP...................................... .6662225
U.S. $1.00/FRF...................................... 5.8906692
U.S. $1.00/P........................................ 138.4849744
U.S. $1.00/CAD...................................... 1.28057370
U.S. $1.00/NTD...................................... 26.9541779
U.S. $1.00/ITL...................................... 1,601.5374760
</TABLE>
(c) The Company is required to maintain a Consolidated Fixed Charge
Ratio of not less than the ratios indicated below:
<TABLE>
<CAPTION>
MINIMUM
FIXED
CHARGE
PERIOD RATIO
<S> <C>
October 1, 1989 through September 30, 1990............ 1.20 to 1
October 1, 1990 through September 30, 1991............ 1.20 to 1
October 1, 1991 through September 30, 1992............ 1.30 to 1
October 1, 1992 through September 30, 1993............ 1.45 to 1
October 1, 1993 through September 30, 1994............ 1.70 to 1
October 1, 1994 through September 30, 1995............ 1.45 to 1
October 1, 1995 and thereafter........................ 1.55 to 1
</TABLE>
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<PAGE> 65
(d) The Company is required to maintain a Consolidated Interest
Coverage Ratio of not less than the ratio indicated below:
<TABLE>
<CAPTION>
MINIMUM
CONSOLIDATED
INTEREST
COVERAGE
PERIOD RATIO
<S> <C>
Effective Time through March 31, 1990................. 1.00 to 1
April 1, 1990 through September 30, 1990.............. 1.10 to 1
October 1, 1990 through March 31, 1991................ 1.20 to 1
April 1, 1991 through June 30, 1991................... 1.30 to 1
July 1, 1991 through September 30, 1991............... 1.25 to 1
October 1, 1991 through March 31, 1992................ 1.20 to 1
April 1, 1992 through June 30, 1992................... 1.23 to 1
July 1, 1992 through September 30, 1992............... 1.28 to 1
October 1, 1992 through December 31, 1992............. 1.30 to 1
January 1, 1993 through March 31, 1993................ 1.30 to 1
April 1, 1993 through June 30, 1993................... 1.25 to 1
July 1, 1993 through September 30, 1993............... 1.30 to 1
October 1, 1993 through December 31, 1993............. 1.35 to 1
January 1, 1994 through March 31, 1994................ 1.30 to 1
April 1, 1994 through June 30, 1994................... 1.40 to 1
July 1, 1994 through September 30, 1994............... 1.50 to 1
October 1, 1994 through December 31, 1994............. 1.65 to 1
January 1, 1995 through March 31, 1995................ 1.70 to 1
April 1, 1995 through June 30, 1995................... 1.75 to 1
July 1, 1995 through September 30, 1995............... 1.80 to 1
October 1, 1995 through December 31, 1995............. 1.85 to 1
January 1, 1996 through March 31, 1996................ 1.95 to 1
April 1, 1996 through June 30, 1996................... 2.00 to 1
July 1, 1996 through September 30, 1996............... 2.10 to 1
October 1, 1996 through December 31, 1996............. 2.25 to 1
January 1, 1997 through March 31, 1997................ 2.30 to 1
April 1, 1997 through June 30, 1997................... 2.40 to 1
July 1, 1997 and thereafter........................... 2.55 to 1
</TABLE>
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<PAGE> 66
(e) The Company is required to maintain a minimum Cumulative
Consolidated EBITDA on the last day of each Fiscal Quarter as set forth
below:
<TABLE>
<CAPTION>
CUMULATIVE
CONSOLIDATED
FISCAL QUARTER EBITDA
<S> <C>
September 30, 1991................... $13,000,000
December 31, 1991.................... $31,100,000
March 31, 1992....................... $12,500,000
June 30, 1992........................ $30,800,000
September 30, 1992................... $45,100,000
December 31, 1992.................... $67,000,000
March 31, 1993....................... $9,400,000
June 30, 1993........................ $27,000,000
September 30, 1993................... $43,000,000
December 31, 1993.................... $59,300,000
March 31, 1994....................... $8,800,000
June 30, 1994........................ $26,500,000
September 30, 1994................... $42,900,000
December 31, 1994.................... $65,000,000
March 31, 1995....................... $10,300,000
June 30, 1995........................ $30,100,000
September 30, 1995................... $48,400,000
December 31, 1995.................... $72,900,000
March 31, 1996....................... $12,400,000
June 30, 1996........................ $35,000,000
September 30, 1996................... $56,000,000
December 31, 1996.................... $83,700,000
March 31, 1997....................... $14,500,000
June 30, 1997 and thereafter......... $40,000,000
</TABLE>
The following definitions apply to the U.S. Credit Agreement provisions
described above:
"Capital Expenditures" means, for any period and with respect to any
Person, the aggregate gross amount of all additions (excluding repair and
maintenance costs) during such period to property, plant, equipment and other
fixed assets of such Person, including such additions made in the ordinary
course of business, all as determined in accordance with GAAP; provided,
however, for the purposes of this definition, such amounts shall in any event
exclude (a) all additions to Capitalized Lease Liabilities (as defined) during
such period and (b) the gross amount of all additions made to any asset during
such period as a result of the application by the Company or any of its
Subsidiaries of insurance proceeds pursuant to any Collateral Document (as
defined) and in connection with the restoration, replacement or upgrading of
such asset.
"Change in Control" means any of: (a) the failure of Holdings to own and
exercise voting control over 100% of the issued and outstanding shares of
capital stock of the Company, free and clear of any Liens (other than the Lien
of the Holdings Pledge Agreement); (b) the failure of Saratoga and Dillon Read
and their respective Affiliates (i) collectively to own, free and clear of any
Liens, shares having at least a majority of the ordinary voting power for the
election of directors of Holdings or (ii) along with their respective designees
to represent a majority of the Board of Directors of Holdings; (c) either the
failure of Saratoga, Dillon Read and their respective Affiliates collectively to
control, directly or through irrevocable proxies, in the aggregate a sufficient
number of the issued and outstanding shares of capital stock of Holdings, free
and clear of any Liens, to enable Saratoga and Dillon Read collectively to
exercise at least a majority of the voting power for the election of directors
of Holdings or the failure of Saratoga and Dillon Read and their respective
Affiliates collectively, through such share control, to control Holdings; (d)
the failure of Dillon Read or one of its
63
<PAGE> 67
Subsidiaries to remain the sole general partner or partners of, or to control,
or to remain the sole manager of, Saratoga; and (e) any "Change in Control," as
defined or used in the Indenture.
"Consolidated Current Assets" means, with respect to any Person at any
time, all amounts which, in accordance with GAAP, consistently applied, would be
included as current assets on a consolidated balance sheet of such Person and
its Subsidiaries at such time; provided, however, that for purposes of this
definition, such amounts shall not include cash, Cash Equivalent Investments or
Foreign Cash Equivalents.
"Consolidated Current Liabilities" means, with respect to any Person at any
time, all amounts which, in accordance with GAAP, consistently applied, would be
included as current liabilities on a consolidated balance sheet of such Person
and its Subsidiaries at such time, but in any event shall (a) include all
Indebtedness payable on demand or maturing within one year after such time
without any option on the part of the obligor to extend or renew beyond such
year; (b) exclude the current portion of all deferred tax liabilities arising
from or related to the valuation of inventory on the basis of the last-in,
first-out method.
"Consolidated Fixed Charge Coverage Ratio" means, as of the close of any
period for which such amount is being determined and with respect to any Person,
the ratio computed for the four consecutive Fiscal Quarters ending on the
computation date (or, in the case of any Fiscal Quarter ending prior to the
first anniversary of the Effective Time, the ratio computed for all of the
Fiscal Quarters occurring since the Effective Time), of: (a) the sum for such
Fiscal Quarters of: (i) Consolidated Net Income (before any extraordinary
items), plus (ii) amounts deducted, in determining such Consolidated Net Income,
by such Person and its Subsidiaries representing (A) all foreign, federal, state
and local income taxes of such Person and its Subsidiaries, (B) Consolidated
Interest Expenses, (C) with respect to the Company and its Subsidiaries,
amortization of Intangible Assets of such Person (including, without limitation,
goodwill arising from the Merger) and (D) depreciation; to (b) the sum for such
Fiscal Quarters of: (i) consolidated cash interest expense for such Person and
its Subsidiaries for such Fiscal Quarter or Fiscal Quarters; plus (ii) all
regularly scheduled principal payments of Loans hereunder and all payments of
principal of other Indebtedness permitted hereby; plus (iii) regularly scheduled
payments with respect to Capitalized Lease Liabilities allocable to principal.
"Consolidated Interest Coverage Ratio" means, as of the close of any Fiscal
Quarter or Fiscal Quarters and with respect to any Person, the ratio computed
for the four consecutive Fiscal Quarters ending on the computation date (or, in
the case of any Fiscal Quarter ending prior to the first anniversary of the
Effective Time, the ratio computed for all of the Fiscal Quarter(s) occurring
since the Effective Time), of: (a) the sum for such Fiscal Quarter or Fiscal
Quarters of: (i) Consolidated Net Income (before any extraordinary items), plus
(ii) amounts deducted, in determining such Consolidated Net Income, by such
Person and its Subsidiaries representing (A) all foreign, federal, state and
local income taxes of such Person and its Subsidiaries, (B) Consolidated
Interest Expenses, (C) with respect to the Company and its Subsidiaries,
amortization of Intangible Assets (including, without limitation, goodwill
arising from the Merger) and (D) depreciation; to (b) Consolidated Interest
Expense.
"Consolidated Interest Expense" means, for any Fiscal Quarter or Fiscal
Quarters and with respect to any Person and its Subsidiaries, the aggregate
interest expense of such Person and its Subsidiaries for such Fiscal Quarter or
Fiscal Quarters, as determined in accordance with GAAP, consistently applied,
and in any event including all commissions, discounts and other fees and charges
owed with respect to letters of credit and banker's acceptances and net costs
under interest rate swap or exchange agreements and the portion of any
obligation under capital leases allocable to interest expense and excluding,
without duplication, the amortization of all capitalized financing and
transactional costs relating to the Merger.
"Consolidated Net Income" means, for any Fiscal Quarter or Fiscal Quarters
and with respect to any Person and its Subsidiaries, all amounts which, in
conformity with GAAP, consistently applied, would be included as net income on a
consolidated income statement of such Person and its Subsidiaries for such
period; provided, however, that there shall be excluded from Consolidated Net
Income (a) the income (or loss) of any Person accrued prior to the date it
becomes a consolidated Subsidiary of such Person or is merged into or
consolidated with such Person or any of its consolidated Subsidiaries or the
Person's assets are acquired by such Person or any of its consolidated
Subsidiaries, except to the extent of the amount of dividends or other
64
<PAGE> 68
distributions actually paid to such Person or any of its consolidated
Subsidiaries by such other Person during such period; (b) the income of any
consolidated Subsidiary (other than the Company or a Foreign Borrower) of such
Person to the extent the declaration or payment of dividends or similar
distributions by that Subsidiary of the income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary; and (c) any after-tax gains or losses attributable to sales of
assets out of the ordinary course of business and any after-tax gains on pension
reversions received by such Person and its consolidated Subsidiaries.
"Consolidated Net Worth" means, at any time and with respect to any Person
and its Subsidiaries, all amounts which, in accordance with GAAP, consistently
applied, would be included under consolidated shareholders' equity on a
consolidated balance sheet of such Person and its Subsidiaries at such time;
provided, however, that (a) such amounts are to be net of amounts carried on the
books of such Person and its Subsidiaries for (i) any write-up in the book value
of any assets of such Person and its Subsidiaries resulting from a revaluation
thereof subsequent to the Effective Time and (ii) treasury stock; (b) foreign
translation adjustments required under Statement of Financial Accounting
Standards No. 52 shall not be applied to any calculation of "Consolidated Net
Worth"; (c) for purposes of this definition, Consolidated Net Worth shall be
exclusive of the effects of amounts representing the amortization of goodwill,
patents and trademarks arising from the Merger; and (d) such amounts shall, to
the extent permitted by and made in accordance with Regulation S-X, be net of
the effects of any adjustments to the calculation of "Consolidated Net Worth" as
a result of (i) the reduction of retained earnings arising from the refinancing
of the Bridge Notes, (ii) any carryover basis adjustment to consolidated
shareholders' equity arising in connection with the Merger, (iii) incremental
depreciation charges arising from the write-up in the book value of any assets
of such Person and its Subsidiaries resulting from the revaluation thereof in
connection with the Merger and (iv) the reduction of retained earnings
associated with the pledge of the capital stock of the Foreign Subsidiaries
pursuant to the International Pledge Agreement.
"Consolidated Total Assets" means, with respect to any Person and its
Subsidiaries at any time, all amounts which, in accordance with GAAP,
consistently applied, would be included as total assets on the consolidated
balance sheets of such Person and its Subsidiaries at such time.
"Cumulative Consolidated EBITDA" means, as of the close of each Fiscal
Quarter, with respect to any Person and its Subsidiaries, the cumulative amount
computed from the beginning of the Fiscal Year during which such Fiscal Quarter
occurs to (and including) the end of such Fiscal Quarter of:
(i) Consolidated Net Income (before any extraordinary items), plus
(ii) amounts deducted, in determining such Consolidated Net Income, by
such Person and its Subsidiaries representing (A) all foreign, federal,
state and local income taxes of such Person and its Subsidiaries, (B)
Consolidated Interest Expenses, (C) amortization of Intangible Assets
(including, without limitation, goodwill arising from the Merger) and (D)
depreciation.
"Excess Cash" means, without duplication, for any Person for any Fiscal
Year (a) the Consolidated Net Income of such Person for such Fiscal Year (or
part thereof); plus (b) the amount of depreciation, depletion, amortization of
intangibles, deferred taxes, accreted and zero coupon bond interest and other
non-cash expenses (revenues) which, in accordance with GAAP, were deducted
(added) in determining such Consolidated Net Income; minus (c) additions
(reductions, other than reductions attributable solely to sales of assets out of
the ordinary course of business) to working capital for such Fiscal Year (i.e.,
the increase or decrease in Consolidated Current Assets of such Person minus
Consolidated Current Liabilities (excluding changes in current liabilities for
borrowed money) of such Person from the beginning to the end of such Fiscal Year
(or part thereof); minus (d) the amount of Capital Expenditures paid in cash
from funds other than the proceeds of borrowings for such Fiscal Year (or part
thereof); minus (e) principal payments resulting from scheduled Commitment
reductions and voluntary prepayments of Loans not subject to reborrowing made
during such Fiscal Year (or part thereof); minus (f) scheduled principal
payments of other Indebtedness permitted by the U.S. Credit Agreement and made
during such Fiscal Year (or part thereof); provided, however, that for purposes
of this definition and without duplication, Consolidated Net Income shall
exclude (x) all gains and losses on the sale of capital assets or out of the
ordinary course of business, (y) all write-ups
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<PAGE> 69
and write-downs of capital assets and (z) all insurance proceeds received by the
Company after June 30, 1989 pursuant to its directors and officers insurance
policies as reimbursement for expenses incurred by the Company prior to July 1,
1989 in connection with any action or proceeding relating to the Offer;
provided, further, that in no event shall "Excess Cash" include any effect of
any Net Securities/Debt Proceeds, Net Disposition Proceeds or Insurance
Proceeds.
"Investment" means, relative to any Person: (a) any loan or advance or
extension of credit made by such Person to any other Person (excluding
commission, travel, salary, relocation expenses and similar advances to officers
and employees made in the ordinary course of business); (b) any Contingent
Liability of such Person; and (c) any capital contribution by such Person to, or
purchase of stock or other securities or partnership interests by such Person
in, any other Person, or any other investment in any other Person.
The amount of any Investment shall be the original principal or capital
amount thereof less all cash returns of principal or equity thereon and, in the
case of any Contingent Liability, any reduction in the aggregate amount of
liability under such Contingent Liability to the extent such reduction is made
strictly in accordance with the terms thereof (and, in each case, without
adjustment by reason of the financial condition of such other Person).
Under the U.S. Credit Agreement the following constitute Events of Default:
(i) the default by any obligor thereunder in payment when due of any principal
amounts (or any reimbursement with respect to any letter of credit) provided
under the U.S. Credit Agreement, the U.K. Revolving Credit Facility or the
French Revolving Credit Facility; (ii) the default by any of the obligors under
the U.S. Credit Agreement, the U.K. Revolving Credit Facility or the French
Revolving Credit Facility (where such default continues unremedied for five days
or more under the U.S. Credit Agreement, the U.K. Revolving Credit Facility or
the French Revolving Credit Facility) in the payment when due of any interest in
respect of amounts provided under the U.S. Credit Agreement, the U.K. Revolving
Credit Facility or the French Revolving Credit Facility or of any fees or other
amounts owing thereunder; (iii) the default by the Company or any other obligor
under the U.S. Credit Agreement in the due performance or observance by it of
certain other covenants (and the continuance of such default in certain cases
for a specified period after written notice); (iv) the failure of any
representation, warranty or statement made by the Company or any other obligors
in the Merger Credit Agreement or any related document to be true in any
material respect on the date as of which made or deemed made; (v) the principal
amount of any subordinated indebtedness (including the Notes and the
Subordinated Discount Debentures) becomes due and payable or the holder thereof
demands payment or the default by the Company or any other obligor under the
U.S. Credit Agreement in the payment under any other indebtedness or contingent
obligation in the aggregate principal amount of $5.0 million of any obligor or
exceeding in the aggregate $10.0 million of all obligors beyond the relevant
period of grace or a default under such indebtedness if the effect of such
default is to permit acceleration; (vi) certain events of bankruptcy,
insolvency, receivership, or reorganization; (vii) invalidity or
unenforceability of any of the security documents or guarantees relating to the
U.S. Credit Agreement; (viii) the termination or withdrawal from certain pension
plans or the occurrence of certain other events relating thereto; (ix) a final
judgment or final judgments for the payment of money or entered into by a court
or courts of competent jurisdiction against the Company or any other obligor
under the U.S. Credit Agreement (other than certain insured judgments) and such
judgment or judgments remain unstayed or undischarged for a period of thirty
days (ten days prior to the repayment of the Bridge Notes) and involving at
least an aggregate of $5.0 million for any obligor or exceeding in the aggregate
$10.0 million for all obligors; (x) any Change in Control; (xi) any guaranty
shall cease to be in full force or is, or is declared to be void; (xii) Holdings
shall default in the due performance and observance of any of its obligations
under the Holdings Guaranty or the Holdings Pledge Agreement; (xiii) any obligor
shall repudiate the U.S. Credit Agreement or any other loan document or (xiv)
the failure of any necessary approval to remain in full force and effect where
such failure would have a material adverse effect.
U. K. Revolving Credit Facility and French Revolving Credit Facility. The
U.K. Revolving Credit Facility and the French Revolving Credit Facility provide
for aggregate borrowings of $38.8 million and $26.2 million, respectively
(expressed in U.S. dollars using December 31, 1993 exchange rates).
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<PAGE> 70
The final maturity of the U.K. Revolving Credit Facility and French
Revolving Credit Facility is eight years from the Effective Time with mandatory
annual prepayments of the amounts and on the dates set forth below:
<TABLE>
<CAPTION>
AMOUNT OF REPAYMENT
--------------------------
FRANCE
DATE (INDICATED AS ANNIVERSARIES OF THE EFFECTIVE U.K. (IN
TIME) (IN STERLING) FRANCS)
<S> <C> <C>
1994.............................................. 4,700,000 13,500,000
1995.............................................. 5,600,000 15,000,000
1996.............................................. 7,000,000 19,000,000
1997.............................................. remainder remainder
</TABLE>
In addition, the mandatory prepayments required under the U.S. Credit
Agreement as described above may be used, in certain circumstances to prepay
loans outstanding under the U.K. Revolving Credit Facility and French Revolving
Credit Facility. The U.K. Revolving Credit Facility and French Revolving Credit
Facility provide that loans thereunder may be prepaid in whole or in part at any
time without premium or penalty, subject to certain requirements prescribing
minimum prepayment amounts and certain "breakage" costs.
The obligations of the U.K. Foreign Borrower and the French Foreign
Borrower under the U.K. Revolving Credit Facility and French Revolving Credit
Facility, respectively, will be guaranteed, to the extent permitted by
applicable law, by certain other subsidiaries of the Company. In addition, their
obligations under the U.K. Revolving Credit Facility and French Revolving Credit
Facility will be secured by certain security arrangements covering significant
assets (including real estate, inventory, receivables and intangibles) and with
respect to the U.K. Foreign Borrower pledges of capital stock of its
subsidiaries.
Loans outstanding under the U.K. Revolving Credit Facility will bear
interest at the rate per annum equal to, for any interest period, the reported
reserve adjusted rate for deposits of Sterling in the London inter-bank market
plus 2 1/2%. The loans outstanding under the French Revolving Credit Facility
will bear interest at the rate per annum equal to, for any interest period, the
reported reserve adjusted rate for deposits of French Francs in the London
inter-bank market plus 2 1/2%. Overdue principal and, to the extent permitted,
overdue interest will bear interest at a rate per annum equal to the greater of
(i) the rate then borne by the loan or (ii) (A) the reported reserve adjusted
rates for a one month period plus 2 1/2% or (B) the overnight deposit rate plus
2 1/2%, plus, in all cases, 2%.
Interest will be payable in arrears on the last day of the applicable
interest period and, if shorter, on the three-month anniversary of the making of
the loan, and upon pre-payment. All interest will be computed on the basis of
actual days elapsed in a 360-day year. Overdue principal and, to the extent
permitted, overdue interest will bear interest at a rate per annum equal to 2%
over the rate then otherwise borne by such borrowings. The U.K. Revolving Credit
Facility and French Revolving Credit Facility contain protective provisions
regarding capital adequacy, increased costs, funding losses, illegality and
withholding taxes.
The U.K. Revolving Credit Facility and French Revolving Credit Facility
contain covenants requiring the delivery of certain financial information and
the giving of notice of the occurrence of any default or any material change in
litigation or the business operations, capitalization, financial condition,
assets, or prospects of the respective borrower and its subsidiaries and
incorporate by reference all other covenants contained in the U.S. Credit
Agreement.
Each of the U.K. Revolving Credit Facility and French Revolving Credit
Facility provides for Events of Default, consistent with the Events of Default
described above under "-- U.S. Credit Agreement" except, where applicable, for
defaults and failures for loans and documents executed in connection with the
U.K. and French Revolving Credit Facilities, respectively. Each of the U.K.
Revolving Credit Facility and French Revolving Credit Facility also provides for
an Event of Default in the case of an Event of Default in the U.S. Credit
Agreement.
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<PAGE> 71
FEES
The Company has agreed to pay commitment fees to CIBC equal to (i) .5% per
annum on the unused portion of the Merger Credit Agreement, net of outstandings
under the Tender Offer Facility, commencing on the consummation of the Offer,
and (ii) .5% per annum on the unused portion of the Working Capital Facility. FM
Acquisition agreed to pay a letter of credit fee equal to .25% per annum to the
issuer of the letters of credit for its own account and 2.25% per annum payable
in advance to CIBC for distribution to the lenders party to the Merger Credit
Agreement payable, in the case of Spain, 1.0% by the Spanish Foreign Borrower
and 1 1/2% by the Company. FM Acquisition has paid, or the Company will pay, all
of the following fees to CIBC: (i) a structuring fee equal to $2,800,000, (ii) a
facility fee equal to $2,800,000, (iii) an agency fee equal to $400,000 for the
first year and thereafter reduced by $50,000 annually to a minimum of $150,000
annually and (iv) a commitment fee equal to .5% per annum of $224,000,000 for
the period from February 6, 1989 to the consummation of the Offer.
The Company has also agreed to pay certain of the banks' expenses incurred
in connection with the credit agreements and to provide the banks and their
respective directors, officers, employees and affiliates with customary
indemnification.
DESCRIPTION OF THE SECURITIES
The Notes and the Subordinated Discount Debentures were issued under
separate indentures, each dated as of September 15, 1989, between the Company
and United Jersey Bank, as trustee under the Note Indenture, and The Bank of New
York, as trustee under the Debenture Indenture (each of which is referred to
herein, as appropriate, as the "Trustee"). A copy of each of the Note Indenture
and the Debenture Indenture has been filed as an exhibit to each Registration
Statement of which this Prospectus is a part. The following summaries, which
describe the material provisions of the Indentures, the Subordinated Discount
Debentures and the Notes, do not purport to be complete and are subject to, and
are qualified in their entirety by reference to the provisions of each
Indenture, the Subordinated Discount Debentures and the Notes, including the
definitions therein of terms not defined in this Prospectus. Whenever particular
defined terms of either Indenture are referred to herein, defined terms shall be
incorporated herein by reference. Unless the context otherwise requires,
reference to defined terms refer to defined terms of the appropriate Indenture.
TERMS OF THE NOTES
The Notes mature on October 1, 1999. The Notes bear interest at the rate of
14% per annum, payable semi-annually in arrears on April 1 and October 1 of each
year to the registered holders at the close of business on the March 15 and
September 15 preceding such interest payment date.
The Notes are unsecured senior subordinated obligations of the Company,
limited to $100,000,000 aggregate principal amount and subordinated to the prior
payment in full of all Senior Debt as described below in "Subordination."
Optional Redemption
The Notes are not redeemable prior to October 1, 1994, except as set forth
below. On or after October 1, 1994, the Notes may be redeemed, at the option of
the Company at any time, as a whole or from time to time in part, on not less
than 30 nor more than 60 days' notice; provided that the Notes may be redeemed
at the option of the Company prior to October 1, 1994 in whole if the Company
has entered into certain mergers, consolidations or sales of substantially all
of the assets of the Company and is unable to satisfy the merger and
consolidation covenant in the Note Indenture, in each case at the following
redemption prices (expressed in
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<PAGE> 72
percentages of principal amount), plus accrued interest if any, to the date of
redemption. See "Mergers and Consolidations" below.
<TABLE>
<CAPTION>
REDEMPTION
12-MONTH PERIOD ENDING: PERCENTAGE
<S> <C>
October 1, 1990.................................................. 114.0%
October 1, 1991.................................................. 112.0%
October 1, 1992.................................................. 110.0%
October 1, 1993.................................................. 108.0%
October 1, 1994.................................................. 106.0%
October 1, 1995.................................................. 104.0%
October 1, 1996.................................................. 102.0%
Thereafter....................................................... 100.0%
</TABLE>
The Merger Credit Agreement contains provisions that prohibit the
redemption of the Notes.
Sinking Fund
The Note Indenture requires the Company to provide for the retirement, by
redemption, of $40,000,000 principal amount of Notes on October 1, 1998, at a
redemption price equal to 100% of the principal amount thereof, plus accrued
interest to the redemption date. Such redemption is calculated to retire 40% of
the principal amount of the Notes prior to maturity. The Company shall receive a
credit against such sinking fund payments for the principal amount of Notes
purchased or otherwise acquired (other than through the sinking fund provision)
by the Company and delivered to the Note Trustee for cancellation.
TERMS OF THE SUBORDINATED DISCOUNT DEBENTURES
The Subordinated Discount Debentures were sold at 46.918% of their face
amount and consequently bear "original issue discount" within the meaning of
Section 1273(a)(1) of the Code. See "Certain Federal Income Tax Consequences."
The Subordinated Discount Debentures mature on October 1, 2001. The Subordinated
Discount Debentures bear no interest until October 1, 1994. From and after
October 1, 1994, interest will accrue at a rate of 15 3/4% per annum. Such
interest will be payable semi-annually on each April 1 and October 1, commencing
on April 1, 1995.
The Subordinated Discount Debentures are unsecured subordinated obligations
of the Company, limited to $95,910,000 in aggregate principal amount and are
subordinated to the prior payment in full of all Senior Debt as described below
in "Subordination," which includes the Notes.
Optional Redemption
The Subordinated Discount Debentures may be redeemed at the option of the
Company, at any time as a whole, or from time to time in part, on not less than
30 nor more than 60 days' notice, at the following redemption prices (expressed
in percentages of face amount), plus accrued interest, if any, to the date of
redemption.
<TABLE>
<CAPTION>
REDEMPTION
12-MONTH PERIOD ENDING: PERCENTAGE
<S> <C>
October 1, 1990.................................................. 100%
October 1, 1991.................................................. 100%
October 1, 1992.................................................. 100%
October 1, 1993.................................................. 100%
October 1, 1994.................................................. 104%
October 1, 1995.................................................. 103%
October 1, 1996.................................................. 102%
October 1, 1997.................................................. 101%
Thereafter....................................................... 100%
</TABLE>
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<PAGE> 73
The Subordinated Discount Debentures are redeemable at any time at the
option of the Company, as a whole, prior to October l, 1994, at the following
redemption prices (expressed in percentages of the Accreted Value) in the event
that the Company is unable to satisfy the merger and consolidation covenant of
the Debenture Indenture; provided, however, that pursuant to the terms of the
Debenture Indenture, the Subordinated Discount Debentures may not be redeemed
until the Notes are redeemed in full.
<TABLE>
<CAPTION>
REDEMPTION
12-MONTH PERIOD ENDING: PERCENTAGE
<S> <C>
October 1, 1990.................................................. 115.750%
October 1, 1991.................................................. 112.813%
October 1, 1992.................................................. 109.875%
October 1, 1993.................................................. 106.938%
October 1, 1994.................................................. 104.000%
</TABLE>
The Merger Credit Agreement contains provisions that prohibit the
redemption of the Subordinated Discount Debentures.
Sinking Fund
The Debenture Indenture requires the Company to provide for the retirement,
by redemption, of $38,364,000 principal amount of Subordinated Discount
Debentures on October 1, 2000, at a redemption price equal to 100% of the
principal amount thereof, plus accrued interest to the redemption date. Such
redemption is calculated to retire 40% of the principal amount of the
Subordinated Discount Debentures prior to maturity. The Company shall receive a
credit against such sinking fund payments for the principal amount of
Subordinated Discount Debentures purchased or otherwise acquired (other than
through the sinking fund provision) by the Company and delivered to the
Debenture Trustee for cancellation.
GENERAL PROVISIONS
Interest on the Securities will be computed on the basis of a 360-day year
of twelve 30-day months. Principal and interest will be payable, and the
Securities are transferable and exchangeable, at the office of the appropriate
Trustee in New York, New York, but, at the option of the Company, interest may
be paid by check mailed to the registered holders at their registered addresses.
The Securities were issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof.
CERTAIN TERMS OF THE SECURITIES
Set forth below are summaries of certain terms of the Securities which,
except as specifically indicated, are contained in both Indentures.
Change of Control
Upon a "Change of Control," each holder of Notes or Subordinated Discount
Debentures, as the case may be, will have the right to require the Company to
repurchase such holder's Securities at a repurchase price in cash equal to, in
the case of the Notes, 101% of the principal amount thereof or, in the case of
the Subordinated Discount Debentures, 101% of the Accreted Value thereof, in
either case, plus accrued and unpaid interest, if any, to the date of
repurchase. There can be no assurance that in the event of a Change of Control,
the Company would have sufficient cash and other liquid assets to satisfy such
obligation on a timely basis. The Company will not be permitted to purchase
Subordinated Discount Debentures upon a Change of Control unless all Notes
required to be repurchased pursuant to the "Change of Control" provisions of the
Notes have been purchased first.
Change of Control means, the occurrence of one or more of the following
events: (i) there shall be consummated (x) any consolidation or merger of the
Company or Holdings in which the Company or Holdings is not the continuing or
surviving corporation or pursuant to which shares of the Company's Common Stock
or Holdings' Common Stock or Holdings' Preferred Stock would be converted into
cash, securities or other property, (y) any consolidation or merger of the
Company or Holdings with or into another
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<PAGE> 74
corporation with the effect that the stockholders of the Company or Holdings as
of the date hereof hold less than a majority of the combined voting power of the
outstanding voting securities of the Company or Holdings ordinarily having the
right to vote in the election of directors or (z) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, the assets of the Company or Holdings, as the case may be,
except any such sale, lease, exchange or other transfer made pursuant to the
Credit Documents; (ii) the shareholders of the Company or Holdings shall approve
any plan or proposal for the liquidation or dissolution of the Company or
Holdings; (iii) a person or entity or group of persons or entities acting in
concert as a partnership, limited partnership, syndicate or other group (other
than Saratoga, management of the Company or any of their Affiliates (the
"Purchaser Group")) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company or Holdings representing a majority or more of the
combined voting power of the outstanding voting securities of the Company or
Holdings ordinarily having the right to vote in the election of directors; or
(iv) the Purchaser Group and its designees no longer represents a majority of
the Board of Directors of the Company or Holdings.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating (i) that a Change of Control has occurred and that
such holder has the right to require the Company to repurchase such holder's
Securities at a repurchase price in cash equal to, in the case of the Notes,
101% of the principal amount thereof or, in the case of the Subordinated
Discount Debentures, 101% of the Accreted Value thereof, in either case, plus
accrued and unpaid interest, if any, to the date of repurchase; (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which will be no earlier than 30 days nor later than 60 days
from the date such notice is mailed in the event of a Change of Control); and
(iv) the instructions determined by the Company, consistent with the appropriate
Indenture, that a holder must follow in order to have its Notes or Subordinated
Discount Debentures, as the case may be, repurchased.
Subordination
The payment of the principal of, premium, if any, and interest on, the
Notes and the Subordinated Discount Debentures is subordinated in right of
payment, as set forth in the Indentures, to the payment when due of all Senior
Debt of the Company. As of March 31, 1994, the amount of Senior Debt, including
the amount of indebtedness of the Company's subsidiaries which is not guaranteed
by the Company, was approximately $86 million with respect to the Notes and $186
million with respect to the Subordinated Discount Debentures. Although the
Indentures contain limitations on the amount of additional Debt which the
Company may incur, under certain circumstances the amount of such Debt could be
substantial and, in any case, such Debt may be Senior Debt. See "Certain
Covenants -- Limitation on Debt" below.
"Senior Debt," with respect to the Notes, is defined in the Note Indenture
as (i) all Debt and other monetary obligations (whether now existing or
hereafter incurred) of the Company on, under or in respect of, the Credit
Documents (including the Additional Bank Credit Amount) and including all fees,
expenses (including reasonable fees and expenses of counsel), claims, charges,
indemnity obligations and interest that would accrue but for the filing of a
petition initiating any reorganization, bankruptcy, insolvency, receivership or
other similar proceeding with respect to the Company; (ii) all other Debt of the
Company (other than the Notes), whether presently outstanding or hereafter
created, incurred or assumed, unless such Debt, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with the Notes and (iii) obligations of the Company under any
Interest Rate Agreement or Currency Agreement; provided that the term Senior
Debt shall not include (a) any Debt of the Company which when incurred and
without respect to any election under Section 1111(b) of the Bankruptcy Code,
was without recourse to the Company, (b) any Debt of the Company to any of its
Subsidiaries, (c) any Debt of the Company not otherwise permitted by the
covenants described below under "Certain Covenants -- Limitation of Debt,"
" -- Limitations on Liens" and " -- Limitation on Issuance of Other Subordinated
Debt Senior to the Notes," (d) Debt to any employee of the Company, (e) any
liability for taxes and (f) Trade Payables.
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<PAGE> 75
"Senior Debt," with respect to the Subordinated Discount Debentures, is
defined in the Debenture Indenture to be the same as Senior Debt in the Note
Indenture set forth above, except that the Notes are also considered Senior Debt
with respect to the Subordinated Discount Debentures, the references to the
Notes are replaced by references to the Subordinated Discount Debentures and the
Debenture Indenture does not contain a covenant similar to the "Limitation on
Issuance of Other Subordinated Debt Senior to the Notes" covenant.
"Designated Senior Debt" means (i) Debt under or in respect of the Credit
Documents and (ii) if there is no Debt outstanding or active commitments to
issue Debt under any of the Credit Documents, any other Debt constituting Senior
Debt which, at the time of determination has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company. The Notes have not
been designated as "Designated Senior Debt" with respect to the Subordinated
Discount Debentures.
Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding-up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Debt with respect to the applicable Securities shall first be paid in
full in cash or Cash Equivalents before any payment of any kind or character may
be made on account of the principal of or interest on such Securities, or to
acquire or redeem any of such Securities for cash or property. Upon any such
dissolution, winding-up, liquidation or reorganization, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holders of any Securities or the Trustee
under either Indenture would be entitled, except for the subordination
provisions of the Indentures, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the holders of such Securities or by the Trustees
under the Indentures if received by them, directly to the holders of Senior Debt
(or in the case of holders of Securities, to the applicable Trustee for payment
to the holders of Senior Debt) (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Debt.
No payment of any kind or character shall be made by or on behalf of the
Company on Securities, and no redemption, repurchase or other acquisition of any
Securities shall be made if there exists a default in the payment of any amount
which constitutes Senior Debt with respect to such Securities, and such default
is continuing. In addition, during the continuance of any other event of default
(other than a payment default) with respect to Designated Senior Debt pursuant
to which the maturity thereof may be accelerated, from and after the date of
receipt by the appropriate Trustee and the Company of written notice from the
holders of such Designated Senior Debt, no payment of any kind or character
shall be made by or on behalf of the Company upon or in respect of the Notes or
Subordinated Discount Debentures, as the case may be, for a period ("Payment
Blockage Period") commencing on the date of delivery of such notice and ending
150 days thereafter (unless such Payment Blockage Period shall be terminated by
written notice to the Trustee from the holders of such Designated Senior Debt,
or such event of default has been cured or waived or has ceased to exist). Not
more than one Payment Blockage Period may be commenced with respect to the Notes
or with respect to the Subordinated Discount Debentures during any period of 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Debt initiating such Payment Blockage Period shall be or be
made the basis for the commencement of any subsequent Payment Blockage Period by
the holders of such Designated Senior Debt, unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
By reason of the subordination provisions described above, in the event of
insolvency, funds which would otherwise be payable to holders of the Notes or
the Subordinated Discount Debentures, as the case may be,
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<PAGE> 76
will be paid to the holders of Senior Debt with respect to the Notes or with
respect to the Subordinated Discount Debentures, as the case may be, to the
extent necessary to pay such Senior Debt in full, and the Company may be unable
to fully meet its obligations with respect to the Notes or the Subordinated
Discount Debentures, as the case may be.
CERTAIN COVENANTS
Limitation of Debt. The Company shall not, and shall not permit any of its
Subsidiaries to, Incur any Debt, including Acquisition Debt, unless the
Consolidated Fixed Charge Ratio of the Company would be greater than 1.25 to 1
through December 31, 1990; 1.375 to 1 from January 1, 1991 through December 31,
1991; 1.50 to 1 from January 1, 1992 through December 31, 1992; 1.625 to 1 from
January 1, 1993 through December 31, 1993; 1.75 to 1 from January 1, 1994
through December 31, 1994; and 2.0 to 1 thereafter.
Notwithstanding the foregoing, the Company and its Subsidiaries may Incur
each and all of the following: (i) Debt under or in respect of the Credit
Documents in an aggregate principal amount at any one time not to exceed the sum
of (A) $224,000,000 less (x) any scheduled principal payments (as set forth in
the Credit Documents) actually made by the Company and (y) any amounts by which
the revolving credit facilities commitments are permanently reduced and (B) an
amount (the "Additional Bank Credit Amount") equal to $25,000,000; (ii) Debt
evidenced by the Notes and the Subordinated Discount Debentures, as the case may
be, and the obligations under the Indentures with respect thereto; (iii) Debt of
the Company to any of its Wholly owned Subsidiaries, or of a Subsidiary to the
Company or to a Wholly owned Subsidiary (but only so long as held or owned by
the Company or a Wholly owned Subsidiary); (iv) Debt the proceeds of which are
used to refinance outstanding Debt of the Company or any of its Subsidiaries in
an amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so refinanced (plus,
accrued interest and fees and expenses), provided that Debt the proceeds of
which are used to refinance the Notes, the Subordinated Discount Debentures or
other Debt of the Company which is subordinated to the Notes or the Subordinated
Discount Debentures, as the case may be, shall only be permitted (1) if, in case
the Notes or Subordinated Discount Debentures are refinanced in part, such Debt
is expressly made pari passu or subordinate in right of payment to the remaining
Notes or Subordinated Discount Debentures, as the case may be, (2) if the Debt
to be refinanced is subordinate to the Notes or Subordinated Discount
Debentures, as the case may be, such Debt is subordinated to the Notes or
Subordinated Discount Debentures, as the case may be, at least to the extent and
in the manner that the Debt to be refinanced is subordinated to the Notes or the
Subordinated Discount Debentures, as the case may be, and (3) if, in case the
Notes or the Subordinated Discount Debentures are refinanced in part or the Debt
to be refinanced is subordinated to the Notes or the Subordinated Discount
Debentures, as the case may be, such Debt determined as of the date of
Incurrence of such new Debt does not mature prior to the final scheduled
maturity date of the Notes or Subordinated Discount Debentures, as the case may
be, and the Average Life of such Debt is equal to or greater than the remaining
Average Life of the Notes or Subordinated Discount Debentures, as the case may
be; and, provided, further, that in no event may Debt of the Company (other than
Senior Debt with respect thereto) be refinanced by means of Debt of any
Subsidiary of the Company pursuant to this clause (iv); (v) Debt under Currency
Agreements and Interest Rate Agreements, provided that in the case of Currency
Agreements which relate to Debt (other than Debt incurred under the Credit
Documents), such Currency Agreements do not increase the Debt of the Company or
any of its Subsidiaries outstanding other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; (vi) Debt which by its terms, or by the terms
of any agreement or instrument pursuant to which such Debt is issued, (1) is
subordinate to the Notes or the Subordinated Discount Debentures, as the case
may be, at least to the extent and in the manner the Notes or the Subordinated
Discount Debentures, as the case may be, are subordinate to Senior Debt with
respect thereto and (2) provides that no payments of principal of such Debt by
way of sinking fund, mandatory redemption or otherwise (including defeasance)
may be made by the Company (including, without limitation, at the option of the
holder thereof) at any time prior to the maturity of the Notes or the
Subordinated Discount Debentures, as applicable, provided, however, that after
giving effect to the Incurrence of such Debt, the Consolidated Fixed Charge
Ratio of the Company would be at least 1.25 to 1; (vii) Debt under Guarantees in
respect of obligations of Foreign Subsidiaries and
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<PAGE> 77
Joint Ventures in an aggregate principal amount not to exceed $7,500,000 at any
one time or the Dollar Equivalent thereof; (viii) Debt incurred to finance
Consolidated Capital Expenditures (excluding Capitalized Lease Obligations) of
the Company so long as such Debt does not exceed $5,000,000 through December 31,
1989, and an additional $1,000,000 for each calendar year thereafter (such
amounts referred to as the "Initial Maximum Amounts"); provided that the Initial
Maximum Amounts for each year shall be increased by the excess, if any, of (a)
the Initial Maximum Amounts for the immediately preceding two years over (b)
Consolidated Capital Expenditures for the immediately preceding two years; (ix)
Debt under Guarantees of liabilities of employees (not including Debt relating
to the relocation of employees in the ordinary course of business), not to
exceed $3,000,000 at any one time; (x) obligations under trade letters of credit
incurred in the ordinary course of business, which are to be repaid in full not
more than one year after the date on which such Debt is originally incurred to
finance the purchase of goods by the Company or a Subsidiary of the Company
exceeding an aggregate amount of $7,500,000 at any one time outstanding through
December 31, 1989, and an additional $1.0 million for each calendar year
thereafter; (xi) obligations under standby letters of credit issued for the
purpose of supporting (a) workers' compensation liabilities of the Company or
any of its Subsidiaries as required by law, (b) obligations with respect to
leases of the Company or any of its Subsidiaries or (c) performance, payment,
deposit or surety obligations of the Company or any of its Subsidiaries, not
exceeding an aggregate amount of $5,000,000 at any one time outstanding in
addition to any amounts required by law; provided that in each case such standby
letters of credit are obtained in the ordinary course of business; (xii) Debt
under working capital loans not to exceed at any one time (A) working capital
loans permitted by, or borrowed pursuant to, the Credit Documents in excess of
the $30,000,000 of borrowings permitted under the Credit Documents or (B) after
all Debt under the Credit Documents shall have been repaid and there shall
remain no further commitments, working capital loans not to exceed in the
aggregate the Dollar Equivalent of $30,000,000; provided that the Debt permitted
under this clause (xii) at the time it is Incurred shall at no time exceed the
sum of 70% of the Company's net accounts receivable and 60% of the Company's
inventory as it would appear on the Company's consolidated balance sheet for the
most recent fiscal quarter; and provided further that in determining whether any
amounts may be borrowed pursuant to clause (A), the test set forth in the
preceding proviso must be satisfied after applying such test to the excess
amount to be borrowed plus $30,000,000; (xiii) Debt of the Company and its
Subsidiaries which is outstanding on and after consummation of the Merger; (xiv)
Debt in an aggregate amount not to exceed $5,000,000 at any one time under
Guarantees of Debt incurred in the ordinary course of business of suppliers,
licensees, franchisees, or customers; (xv) Capitalized Lease Obligations not to
exceed $17,500,000 at any one time; and (xvi) Debt (other than Debt permitted
under clauses (i) through (xv) above), provided that the aggregate principal
amount of such Debt shall not exceed $25,000,000 at any time outstanding,
including any extension, renewal or replacement thereof; provided further that
the aggregate amount of Debt Incurred pursuant to clauses (i)(B), (vii), (viii),
(ix), (x), (xi), (xiv), (xv) and (xvi) shall not exceed $50,000,000 at any one
time.
For purposes of determining any particular amount of Debt under this
covenant, Guarantees of (or obligations with respect to letters of credit
supporting) Debt otherwise included in the determination of such amount shall
also not be included. For the purpose of determining compliance with the next
preceding paragraph, (A) in the event that an item of Debt meets the criteria of
more than one of the types of Debt described in the above clauses, the Company,
in its sole discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses, (B) the amount
of Debt issued at a price which is less than the principal amount thereof shall
be equal to the amount of the liability in respect thereof determined in
accordance with generally accepted accounting principles, (C) the amount of any
Debt denominated in a currency other than U.S. dollars will be the Dollar
Equivalent of such currency at the date of its issuance, provided that the
Company or any of its subsidiaries may always incur Debt denominated in a
foreign currency for the purpose of extending, renewing or replacing any Debt
Incurred pursuant to the next preceding paragraph and denominated in such
foreign currency, in a principal amount equal to the then outstanding foreign
currency amount and (D) in calculating the amount of Debt which is subject to
the $50,000,000 limit set forth in the proviso to clause (xvi), there shall be
excluded any amount of credit extended pursuant to clause (i)(B) up to the
amount by which the Company or its Subsidiaries have
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<PAGE> 78
permanently reduced (which shall include reduction of commitments) the
$224,000,000 of credit extended or available for extension under the Credit
Documents on the date of the Indentures.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, make any Restricted Payment, if, after giving
effect thereto: (a) an Event of Default, or an event that through the passage of
time or the giving of notice, or both, would become an Event of Default, shall
have occurred and be continuing; or (b) the aggregate amount of all Restricted
Payments (together with any amounts paid pursuant to clauses (iii) and (v) of
the definition of Permitted Payments or pursuant to the proviso below) made by
the Company and its Subsidiaries (the amount expended or distributed for such
purposes, if other than in cash, to be valued at its fair market value as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a resolution of the Board of Directors filed with
the Trustee) from and after the date of the Indentures shall exceed the sum
(without duplication) of: (i) the aggregate of (A) 25% of Consolidated Net
Income of the Company through October 1, 1994 and (B) 50% of Consolidated Net
Income of the Company thereafter, accrued for the period (taken as one
accounting period) commencing with the first full fiscal quarter after the date
of original issuance of the Securities to and including the fiscal quarter ended
immediately prior to the date of such calculation; provided that if Consolidated
Net Income for such period is less than zero, then minus 100% of the amount of
such loss; and (ii) the aggregate net proceeds, including the fair market value
of property other than cash (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a resolution
of the Board of Directors filed with the Trustee), received by the Company from
the issuance or sale (other than to a Subsidiary) of its Capital Stock after the
date of the Indentures (including Capital Stock issued upon conversion of, or
exchange for, securities other than its Capital Stock), and warrants and rights
to purchase its Capital Stock, but excluding the net proceeds from the issuance,
sale, exchange, conversion or other disposition of (x) its Capital Stock
convertible (whether at the option of the Company or the holder thereof or upon
the happening of any event) into any security other than its Capital Stock and
(y) its Capital Stock which may be mandatorily redeemed (whether at the option
of the Company or the holder thereof or upon the happening of any event) earlier
than payment in full of the Notes or the Subordinated Discount Debentures, as
the case may be, provided that the foregoing clause (b) shall not prevent the
payment of any dividend within 60 days after the date of its declaration if such
dividend could have been made on the date of its declaration without violation
of the provisions of this covenant. For purposes of clause (b)(ii) above, the
aggregate net proceeds received by the Company (x) from the issuance of its
Capital Stock upon the conversion of, or exchange for, securities evidencing
Debt of the Company, shall be calculated on the assumption that the gross
proceeds from such issuance are equal to the aggregate principal amount of the
Debt evidenced by such securities converted or exchanged and (y) upon the
conversion or exchange of other securities of the Company shall be equal to the
aggregate net proceeds of the original sale of the securities so converted or
exchanged if such proceeds of such original sale were not previously included in
any calculation for the purposes of clause (b)(ii) above plus any additional
sums payable upon conversion or exchange. In connection with distributions other
than in cash with a fair market value in excess of $25,000,000 as determined by
the Board of Directors in accordance with clause (b) above, the Company shall
obtain a written opinion of an Independent Financial Advisor to be retained on
customary terms and conditions, using one or more valuation methods that the
Independent Financial Advisor, in its professional judgment, determines to be
most appropriate. The Company shall cause the Independent Financial Advisor to
deliver to the Company with a copy to each Trustee, a value report (the "Value
Report") stating the methods of valuation considered or used and the value of
such property distributed and containing a statement as to the financial and
other information upon which the determination of value was made. The Trustees
shall have no other duty with respect to the Value Report except to keep it on
file and available for inspection by the Holders. The valuation included in such
opinion shall be the value utilized for the purpose of clause (b) above. In
connection with the receipt of property other than cash by the Company from the
issuance or sale of its Capital Stock having a fair market value in excess of
$10,000,000 as determined by the Board of Directors in accordance with clause
(b)(ii) above, the Company shall obtain a written opinion of an Independent
Financial Advisor to be retained on customary terms and conditions stating that
the transaction is fair to the Company from a financial point of view.
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Restrictions on Disposition of Assets of the Company. Subject to the
provisions of "Mergers and Consolidations" below, the Company will not, and will
not permit any of its Subsidiaries to make any Asset Dispositions unless the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Disposition at least equal to the fair market value (as
determined in good faith by the Board of Directors) of the shares or assets sold
or otherwise disposed of and the aggregate Net Cash Proceeds in any consecutive
12-month period, if any, from such Asset Disposition in excess of $10.0 million
are applied (i) first, to the payment of the principal of and interest on any
Senior Debt of the Company (which includes the Notes with respect to the
Subordinated Discount Debentures) or, in the case of any Asset Disposition by a
Subsidiary, any payment of Debt of such Subsidiary or any other Wholly owned
Subsidiary (other than Debt owed to the Company or another Wholly owned
Subsidiary) and in connection with any such repayment, any related loan
commitment shall be reduced in an amount equal to the principal amount so
repaid, (ii) second, to the extent that such Net Cash Proceeds are not actually
applied in accordance with clause (i), or, if after being so applied there
remain Net Cash Proceeds, to make an Offer (as defined below) to purchase Notes
or Subordinated Discount Debentures, as the case may be, pursuant to and subject
to the conditions set forth in the subsequent paragraph and (iii) third, to the
extent such Net Cash Proceeds are not applied, or cannot be applied, in
accordance with clause (i) or (ii), such Net Cash Proceeds are reinvested (A) in
the business or businesses of the Company or any of its Subsidiaries as of the
date of the Indentures or are used for working capital purposes in connection
therewith, (B) in any business of the Company or any of its Subsidiaries related
to building products and related services therefor or are used for working
capital in connection therewith or (C) in any other business of the Company or
any of its Subsidiaries which business has been conducted for not less than one
year preceding such reinvestment and represents the lesser of (1) $25.0 million
or (2) 5% of sales for the four fiscal quarters preceding such reinvestment as
it would appear on the consolidated income statement for the Company and its
Consolidated Subsidiaries determined in accordance with generally accepted
accounting principles; provided that (x) in the case of (i) above, the Net Cash
Proceeds are applied within 90 days from the later of the date of such sale and
the receipt of the Net Cash Proceeds or, with respect to the Subordinated
Discount Debentures such later date if the Company is required to make a tender
offer for the Notes in accordance with the Notes Indenture and (y) to the extent
that any or all of the Net Cash Proceeds of any Asset Disposition by a Foreign
Subsidiary are prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Cash Proceeds so
affected will not be required to be applied to repay Senior Debt (other than
Debt of the Subsidiary making such Asset Disposition or Debt of a Wholly owned
Subsidiary of the Company, in each case as contemplated by clause (i) above) at
the time provided above but may be retained by the applicable Subsidiary so
long, but only so long as the applicable local law will not permit repatriation
to the United States (the Company hereby agreeing to cause the applicable
Subsidiary to promptly take all actions required by the applicable local law to
permit such repatriation) and once such repatriation of any of such affected Net
Cash Proceeds is permitted under the applicable local law, such repatriation
will be immediately effected and such repatriated Net Cash Proceeds will be
applied in the manner set forth in this covenant; and (z) to the extent that the
Company has determined in good faith that repatriation of any or all of the Net
Cash Proceeds of any Asset Disposition by a Foreign Subsidiary would have a
material adverse tax cost consequence, the Net Cash Proceeds so affected may be
retained by the applicable Subsidiary for so long as such material adverse tax
cost event would continue.
In the event Net Cash Proceeds are required to be applied to the purchase
of Notes or, if Net Cash Proceeds remain for application to the purchase of
Subordinated Discount Debentures, the Company will offer to purchase the Notes
or the Subordinated Discount Debentures, as the case may be, tendered pursuant
to a tender offer by the Company (the "Offer") at a purchase price of 100% of
their principal amount in the case of the Notes and 100% of the Default Amount
in the case of the Subordinated Discount Debentures, plus accrued interest, if
any, (subject to proration in the event of oversubscription). If the aggregate
purchase price of Notes or Subordinated Discount Debentures, as the case may be,
tendered pursuant to the Offer is less than the Net Cash Proceeds allotted to
the purchase of the Notes or the Subordinated Discount Debentures, as the case
may be, the Company may apply the remaining Net Cash Proceeds in accordance with
clause (iii) of the preceding paragraph. The Company will not be required to
make an Offer for Notes or Subordinated Discount Debentures, as the case may be,
if the Net Cash Proceeds available therefor are less than $10.0
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million (which lesser amounts will be carried forward and cumulated for each 36
consecutive month period for purposes of determining whether an Offer is
required with respect to any Net Cash Proceeds of any subsequent Asset
Disposition).
The Company will make such Offer by mailing to each Holder, within 100 days
from the later of the date of any Asset Disposition and the receipt of Net Cash
Proceeds or, in the case of the Subordinated Discount Debentures, the later of
(i) the end of such 100 day period and (ii) 30 days following consummation of
any tender offer for the Notes after which the Company has Net Cash Proceeds
with which the Company must make an Offer, a written notice specifying the
purchase date, which shall be not less than 30 days nor more than 60 days after
the date of such notice (the "Purchase Date") and shall contain certain
information concerning the business of the Company which the Company believes in
good faith will enable the Holders to make an informed decision. Holders
electing to have their Notes or Subordinated Discount Debentures, as the case
may be, purchased will be required to surrender such Notes or Subordinated
Discount Debentures at least one Business Day prior to the Purchase Date. If at
the expiration of the offer period the aggregate principal amount of Notes or
Subordinated Discount Debentures, as the case may be, surrendered by Holders
exceeds the amount available to purchase Notes or Subordinated Discount
Debentures, as the case may be, the Company will select the Notes or
Subordinated Discount Debentures to be purchased on a pro rata basis.
In the event the Company is unable to purchase Notes or Subordinated
Discount Debentures, as the case may be, from Holders in an Offer because of
provisions of applicable law, the Company need not make an Offer. The Company
shall then be obligated to use the Net Cash Proceeds in accordance with clause
(iii) in the first paragraph of this covenant description.
The Company may not, and may not permit any of its Subsidiaries to, make
any Asset Disposition having a fair market value in excess of $25.0 million
(such fair market value to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a resolution
of the Board of Directors) for consideration other than cash unless the Company
shall have obtained a written opinion of an Independent Financial Advisor
stating that the terms of such transaction are fair from a financial point of
view to the Company or its Subsidiaries.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, create, assume or otherwise cause or suffer to exist or to become effective
any consensual encumbrance or restriction on the ability of any of its
Subsidiaries to (a) pay dividends or make any other distributions on its Capital
Stock; (b) make payments in respect of any Debt owed to the Company or any of
the Company's Subsidiaries; (c) make loans or advances to the Company or any of
the Company's Subsidiaries; or (d) transfer any of its assets to the Company or
any of the Company's Subsidiaries, other than (i) those required by the Credit
Documents, the Notes or the Subordinated Discount Debentures (or any indentures
relating to any of the foregoing), (ii) those required by the terms of any
operating lease, (iii) consensual encumbrances or restrictions in connection
with any refinancing of Debt incurred under the Credit Documents, which are no
less favorable to the Company than those required by the Credit Documents, (iv)
consensual encumbrances or restrictions binding upon any Person at the time such
Person becomes a Subsidiary of the Company or (v) any restrictions with respect
to a Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary. Nothing contained in this covenant
shall prevent the Company from entering into any agreement not otherwise
prohibited by the covenant "Limitation on Liens" described below.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to create, assume or otherwise cause or suffer to exist
any Subsidiary Preferred Stock except: (a) Subsidiary Preferred Stock
outstanding on the date hereof; (b) Subsidiary Preferred Stock issued to and
held by the Company or a wholly owned subsidiary (but only so long as held or
owned by the Company or a Wholly owned Subsidiary); (c) Subsidiary Preferred
Stock issued by a Person prior to the time (i) such Person became a Subsidiary,
(ii) such Person merges with or into a Subsidiary or (iii) another Subsidiary
merges with or into such Person (in a transaction in which such Person becomes a
Subsidiary), which Preferred Stock was not incurred in anticipation of such
transaction; (d) Preferred Stock which is exchanged for, or the
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proceeds of which are used to refinance, any Preferred Stock permitted to be
outstanding pursuant to clauses (a) through (c) (or any extension, renewal or
refinancing thereof), having a liquidation preference not to exceed the
liquidation preference of the Preferred Stock so exchanged or refinanced; and
(e) additional Subsidiary Preferred Stock having a liquidation preference at any
one time outstanding not in excess of $1.0 million or the Dollar Equivalent
thereof.
Limitations on Liens. The Company may not incur any Debt (i) which is, by
the terms of the instrument creating or evidencing such Debt or pursuant to
which it is outstanding, subordinated in right of payment to any other Debt and
(ii) which is secured, directly or indirectly, with a Lien on the Property or
assets of the Company or any of its Subsidiaries except for any such Debt
secured by Liens on the assets of any entity existing at the time such assets
are acquired by the Company or any of its Subsidiaries, whether by merger,
consolidation, purchase of assets or otherwise; provided that such Liens (x) are
not created, incurred or assumed in contemplation of such assets being acquired
by the Company or any of its Subsidiaries and (y) do not extend to any other
Property of the Company or any of its Subsidiaries.
Transactions with Affiliates. So long as any of the Securities remain
outstanding, neither the Company nor any of its Subsidiaries will directly or
indirectly enter into any transaction involving aggregate consideration in
excess of $1.0 million with any Affiliate or holder of 5% or more of any class
of Capital Stock of the Company except for transactions (including, subject to
the covenant "Limitation on Restricted Payments" described above, any loans or
advances by or to any Affiliate) in good faith the terms of which are fair and
reasonable to the Company or such Subsidiary, as the case may be, and are at
least as favorable as the terms which could be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis with Persons who are not such a holder or Affiliate; provided
that any such transaction shall be conclusively deemed to be on terms which are
fair and reasonable to the Company or any of its Subsidiaries and on terms which
are at least as favorable as the terms which could be obtained on an
arm's-length basis with Persons who are not such a holder or Affiliate if such
transaction is approved by a majority of the Company's directors (including a
majority of the Company's independent directors, if any) and; provided further
that with respect to the purchase or disposition of assets of the Company or any
of its Subsidiaries having a net book value in excess of $10 million, in
addition to approval of its board of Directors, the Company shall obtain a
written opinion of an Independent Financial Advisor stating that the terms of
such transaction are fair to the Company or its Subsidiary, as the case may be,
from a financial point of view. This covenant shall not apply to (a) any
transaction between the Company and Dillon Read, Travelers or Wertheim Schroder
or any Affiliate thereof relating to the Offer, the Merger or the financing
thereof or the payment of fees to any of the foregoing for financial and
consulting services, (b) transactions between the Company or any of its
Subsidiaries and any employee of the Company or any of its Subsidiaries that are
approved by the Board of Directors, (c) the payment of reasonable and customary
regular fees to directors of the Company, (d) any transaction between the
Company and any of its Wholly owned Subsidiaries or between any of its Wholly
owned Subsidiaries or (e) any Permitted Payment and any Restricted Payment not
otherwise prohibited by the covenant "Limitation on Restricted Payments."
Transfer of Assets to Subsidiaries. Notwithstanding the covenant
"Restrictions on Disposition of Assets of the Company," the Company may not make
any sale, transfer or other disposition (including by way of sale-and-leaseback)
to any of its Subsidiaries (other than in the ordinary course of business and
excluding the sale of matte plates) of (i) any assets of the Company (other than
cash or cash equivalents) or (ii) any shares of Capital Stock of any of the
Company's Subsidiaries directly owned by the Company, with an aggregate fair
market value in excess of $10.0 million (as determined in good faith by the
Board of Directors) in any consecutive 12-month period unless the Company shall
receive consideration from the Subsidiary acquiring such assets or Capital Stock
by way of any such sale, transfer or otherwise from the Company which represent
the amount in excess of $10.0 million either in cash or in the form of a
subordinated debt instrument in an amount equal to such excess. In the event
that a Subsidiary of the Company should issue a subordinated debt instrument to
the Company in accordance with the foregoing, the Company may not be permitted
to treat such debt instrument as being satisfied unless the Company has received
cash or other property with a fair market value at least equal to the principal
amount of, and accrued interest if any, on such debt instrument.
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Limitation on Issuance of Other Subordinated Debt Senior to the Notes. The
Note Indenture only provides that the Company will not incur or suffer to exist
any Debt, other than Debt evidenced by or incurred in connection with the Notes
or the Subordinated Discount Debentures, that is subordinate in right of payment
to any Senior Debt unless such Debt, by its terms or the terms of the instrument
creating or evidencing it, is pari passu with or subordinate in right of payment
to the Notes and no payments of principal of such Debt by way of sinking fund,
mandatory redemption or otherwise (including defeasance) may be made by the
Company (including without limitation at the option of the holder thereof) at
any time prior to the maturity of the Notes; provided that any Debt of the
Company or any of its Subsidiaries which was outstanding at the Effective Time
shall be excluded from the operation of this covenant.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indentures. Reference is made to the Indentures for
the full definition of all terms as well as any other capitalized term used
herein for which no definition is provided. Unless specifically noted, such
definitions are contained in each Indenture.
"Accreted Value" is defined in the Debenture Indenture to mean, as of any
date with respect to any Subordinated Discount Debenture, an amount equal to the
sum of (i) the issue price of such Subordinated Discount Debenture as determined
in accordance with Section 1273 of the Code and (ii) the aggregate of the
portions of the original issue discount (the excess of the amounts considered as
part of the "stated redemption price at maturity" of each Subordinated Discount
Debenture within the meaning of Section 1273(a)(2) of the Code, whether
denominated as principal or interest, over the issue price of such Subordinated
Discount Debenture) which shall theretofore have accrued pursuant to Section
1272 of the Code (without regard to Section 1272(a)(7) of the Code) from the
date of issue of such Subordinated Discount Debenture to the date of
determination, minus (iii) any amount considered as part of the "stated
redemption price at maturity" of such Subordinated Discount Debenture which has
been paid on such Subordinated Discount Debenture from the date of issue to the
date of determination.
"Acquisition Debt" means, Debt of any Person existing at the time such
Person became a Subsidiary of the Company, including Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary of the Company
(but excluding Debt of such Person which is extinguished, retired or repaid in
connection with such Person becoming a Subsidiary of the Company).
"Affiliate" of any Person means, any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means, (i) an investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with the
Company or any of its Subsidiaries or (ii) the acquisition by the Company or any
of its Subsidiaries of the assets of any Person which constitute substantially
all of an operating unit or business of such Person.
"Asset Disposition" means, with respect to any Person, any sale, transfer
or other disposition (including by way of sale-and-leaseback) by such Person or
any of its Subsidiaries to any Person (other than to such Person or a Wholly
owned Subsidiary of such Person and other than in the ordinary course of
business) of (i) any assets of such Person or any of its Subsidiaries or (ii)
any shares of Capital Stock of such Person's Subsidiaries. For the purposes of
this definition, any disposition in connection with directors' qualifying shares
or investments by foreign nationals mandated by applicable law shall not
constitute an Asset Disposition.
"Asset Sale" means, the sale or other disposition by the Company or any of
its Subsidiaries (other than to Wholly owned Subsidiaries) of (i) any of the
Capital Stock of any of the Company's Subsidiaries or (ii)
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substantially all of the assets which constitute substantially all of an
operating unit or business of the Company or any of its Subsidiaries.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such debt security multiplied by the
amount of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the date of the
Indentures, including, without limitation, all Common Stock and all Preferred
Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
generally accepted accounting principles, is required to be capitalized on the
balance sheet of that Person.
"Capitalized Lease Obligation" means, as applied to any Person, the rental
obligation under any Capitalized Lease.
"Cash Equivalents" means, at any time, (i) any evidence of Debt with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any Lender or any financial institution that is
a member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500,000,000, (iii) commercial paper with a
maturity of 180 days or less issued by (A) a corporation (except an Affiliate of
the Company (other than Travelers)) organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by Standard &
Poor's Corporation or at least P-1 by Moody's Investors Service, Inc., (B) any
Lender or any Affiliates thereof, or (C) Travelers.
"Consolidated Capital Expenditures" means, for any period, the aggregate of
all expenditures incurred (whether paid in cash or accrued as liabilities and
including Capitalized Lease Obligations) by the Company and its Subsidiaries
during such period that, in conformity with generally accepted accounting
principles, are included in the property, plant or equipment or similar fixed
asset account reflected in the consolidated balance sheet of the Company and its
Consolidated Subsidiaries.
"Consolidated Cash Flow" of any Person for any period means, the
Consolidated Net Income of such Person plus the sum of, without duplication, (i)
notwithstanding clause (iii) of the definition of Consolidated Net Income, the
Net Income of any Subsidiary which is a borrower under the Credit Documents and
the Net Income of any other Subsidiary which is not subject to any consensual
restrictions, direct or indirect (other than pursuant to the Credit Documents),
or declaration or payment of dividends or similar distributions by that
Subsidiary to the Company or to any other Subsidiary, (ii) income taxes (other
than income taxes (x) (either positive or negative) attributable to
extraordinary, unusual or non-recurring gains or losses and (y) actually payable
with respect to such period), determined on a consolidated basis for such Person
and its Consolidated Subsidiaries in accordance with generally accepted
accounting principles, (iii) Consolidated Fixed Charges (other than dividends
paid on Subsidiary Preferred Stock), and (iv) depreciation and amortization
expense, all determined on a consolidated basis for such Person and its
Consolidated Subsidiaries in accordance with generally accepted accounting
principles.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate Fixed Charges of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Fixed Charge Ratio" means, the ratio, on a pro forma basis,
of (i) the aggregate amount of Consolidated Cash Flow of any Person for the
Reference Period immediately prior to the date of the transaction giving rise to
the need to calculate the Consolidated Fixed Charge Ratio (the "Transaction
Date")
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to (ii) the aggregate Consolidated Fixed Charges of such Person during such
Reference Period; provided that (A) for purposes of such computation, in
calculating Consolidated Cash Flow and Consolidated Fixed Charges, (1) the
Incurrence of the Debt giving rise to the need to calculate the Consolidated
Fixed Charge Ratio and the application of the proceeds therefrom shall be
assumed to have occurred on the first day of the Reference Period, (2) Asset
Sales and Asset Acquisitions which occur during the Reference Period or
subsequent to the Reference Period and prior to the Transaction Date (but
including any Asset Acquisition occurring in connection with the Incurrence of
Debt pursuant to (1) above) shall be assumed to have occurred on the first day
of the Reference Period, (3) the Incurrence of any Debt during the Reference
Period or subsequent to the Reference Period and prior to the Transaction Date
and the application of the proceeds therefrom shall be assumed to have occurred
on the first day of such Reference Period, (4) Interest Expense attributable to
any Debt (whether existing or being incurred) computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period,
unless such Person or any of its Subsidiaries is a party to an Interest Rate
Agreement which has the effect of reducing the interest rate below the rate on
the date of computation, in which case the lower rate shall be used and (5)
there shall be excluded from Consolidated Fixed Charges any Fixed Charges
related to any Debt which was outstanding during and subsequent to the Reference
Period but is not outstanding on the Transaction Date ("Repaid Debt"), unless
the Company may again incur, create or assume such Repaid Debt in an amount
equal to the weighted average amount of Repaid Debt outstanding during such
Reference Period (the "Weighted Average Amount") pursuant to clauses (b)(i),
(v), (vii), (ix), (x), (xi), (xii), (xiv) and (xv) of the covenant described
under "Limitation of Debt," above, in which case such Fixed Charges shall not be
excluded (it being understood that if the Company can again so incur, create or
assume an amount of Repaid Debt which is less than the Weighted Average Amount,
then a portion of such Fixed Charges shall not be excluded equivalent to a
fraction of which the numerator shall be the difference between the Weighted
Average Amount and the amount of such Repaid Debt which the Company can again so
incur, create or assume and of which the denominator shall be the Weighted
Average Amount) and (B) in making any calculation of the Consolidated Fixed
Charge Ratio for any period commencing prior to the Merger, the Merger and the
financing thereof shall be deemed to have taken place on the first day of such
period. For the purposes of making the computation referred to in clause (A)
above, Asset Sales and Asset Acquisitions which have been made by any Person
which has become a Subsidiary of the Company or been merged with or into the
Company or any Subsidiary of the Company during the Reference Period or
subsequent to the Reference Period and prior to the Transaction Date shall be
calculated on a pro forma basis (including all of the calculations referred it
in numbers (1) through (5) of clause (A) above) assuming such Asset Sales or
Asset Acquisitions occurred on the first day of the Reference Period.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate Interest Expense of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Net Income" of any Person for any period means, the Net
Income of such Person and its Consolidated Subsidiaries for such period,
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded (i) the Net Income
of any Person other than a Consolidated Subsidiary in which such Person or any
of its Consolidated Subsidiaries has a joint interest with a third party except
to the extent of the amount of dividends or distributions actually paid to such
Person or a Consolidated Subsidiary during such period, (ii) except to the
extent includible pursuant to the foregoing clause (i), the Net Income of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with such Person or any of its Subsidiaries or that
Person's assets are acquired by such Person or any of its Subsidiaries, (iii)
the Net Income (if positive) of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
to the Company of such Net Income is not at the time permitted by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or government regulation applicable to that Subsidiary, and (iv)
any gains or losses attributable to asset sales not in the ordinary course of
business (including any sales of Capital Stock)
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"Consolidated Subsidiary" of any Person means, a subsidiary which for
financial reporting purposes is or, in accordance with generally accepted
accounting principles, should be, accounted for by such Person as a consolidated
Subsidiary.
"Credit Documents" means, the Credit Agreement dated as of September 7,
1989 among the Company and certain of its Subsidiaries, the Agent and the
Lenders, together with the UK Loan Agreement and the French Loan Agreement (as
such terms are defined in such Credit Agreement) and all other agreements,
documents and instruments from time to time delivered in connection with any
thereof, including, without limitation, (i) all collateral security documents,
(ii) each letter of credit, (iii) any reimbursement agreements from time to time
made with the Company or any of its Foreign Subsidiaries located in Spain and
Canada, and (iv) any Guarantees (including, without limitation, any Guarantee by
(a) the Company of the obligations of Holdings and any Subsidiaries of the
Company, (b) Formica International Corporation, a New Jersey corporation which
is a Subsidiary of the Company, of the obligations of Holdings, the Company and
Subsidiaries of the Company and (c) certain Foreign Subsidiaries of the Company
of the obligations of other such Foreign Subsidiaries), in each case as such
agreements, documents and instruments may be amended, amended and restated,
supplemented or otherwise modified from time to time and includes any agreement,
document or instrument extending, refinancing, refunding, or otherwise
restructuring or replacing all or any portion of the Debt then outstanding or
permitted to be outstanding pursuant to such agreements, documents and
instruments, or any successor agreements and documents or otherwise.
"Currency Agreement" means, any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred purchase price of property or
services, except Trade Payables, (v) all obligations of such Person as lessee
under Capitalized Leases, (vi) all Debt of others secured by a Lien on any asset
of such Person, whether or not such Debt is assumed by such Person, provided
that, for purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the fair market value of such asset,
(vii) all Debt of others Guaranteed by such Person, and (viii) to the extent not
otherwise included, obligations under Currency Agreements and Interest Rate
Agreements.
"Default Amount" is defined in the Debenture Indenture as follows:
For each $1,000 face amount of Subordinated Discount Debentures
outstanding, the Default Amount will be:
<TABLE>
<CAPTION>
DEFAULT
AMOUNT
(PER $1,000
PRINCIPAL
SEMI-ANNUAL ACCRUAL DATE AMOUNT)
<S> <C>
April 1, 1990................................................. $ 505.49
October 1, 1990............................................... 545.30
April 1, 1991................................................. 588.24
October 1, 1991............................................... 634.56
April 1, 1992................................................. 684.54
October 1, 1992............................................... 738.44
April 1, 1993................................................. 796.59
October 1, 1993............................................... 859.33
April 1, 1994................................................. 927.00
October 1, 1994 and thereafter................................ 1,000.00
</TABLE>
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<PAGE> 86
If the date of acceleration occurs between two Semi-Annual Accrual Dates, the
Default Amount will be the sum of (1) the Default Amount for the Semi-Annual
Accrual Date immediately preceding the date of acceleration, and (2) the
Proportionate Share (as defined below). The "Proportionate Share" is an amount
equal to the product of (i) the Default Amount for the immediately following
SemiAnnual Accrual Date less the Default Amount for the immediately preceding
Semi-Annual Accrual Date times (ii) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date, or the
original date of issuance of the Subordinated Discount Debentures (the "Issue
Date"), as the case may be, to the date of acceleration, using a 360-day year or
twelve 30-day months, elapsed from the Issue Date to the first Semi-Annual
Accrual Date, as the case may be; provided that in the case of an acceleration
prior to the first Semi-Annual Accrual Date, the amount subtracted referred to
in clause (i) shall be the dollar amount referred to below. If the date of
acceleration occurs prior to the first Semi-Annual Accrual Date, the Default
Amount will be the sum of (1) $469.18 and (2) the Proportionate Share.
"Effective Time" means, the date and time the Merger became effective as
set forth in the Merger Agreement.
"Fixed Charges" of any Person for any period means, (a) Interest Expense,
plus (b) the interest component of Capitalized Leases plus (c) cash and non-cash
dividends paid on any Subsidiary Preferred Stock of such Person less, to the
extent included in Interest Expense, amortization of debt issuance costs.
"Foreign Subsidiary" means, any Subsidiary of any Person which is organized
under the laws of a jurisdiction other than the United States of America or any
state thereof and more than 80% of the sales, earnings or assets (determined on
a consolidated basis in accordance with generally accepted accounting
principles) of which are located or derived from operations located in
territories of the United States of America or jurisdictions outside the United
States of America.
"Guarantee" by any Person means, any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation of such other Person (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incurrence" means, the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
comparable meaning.
"Independent Financial Advisor" means, a nationally recognized investment
banking firm (i) which does not (and whose directors, officers, employees and
Affiliates do not) have a direct or indirect material financial interest in the
Company and (ii) which, in the sole judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which
such firm is being engaged.
"Interest Expense" of any Person for any period means, interest expense
(including amortization of original issue discount and non-cash interest
payments or accruals) all as determined in accordance with generally accepted
accounting principles.
"Interest Rate Agreement" means, any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge arrangement, to or under which the Company or
any of its Subsidiaries is a party or a beneficiary on the date of the Indenture
or becomes a party or a beneficiary thereafter.
"Joint Venture" means, a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation
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<PAGE> 87
shall not, as to any Person of which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a party.
"Lenders" means, the lenders who are from time to time parties to the
Credit Documents.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For the purposes of the Indentures, the Company shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relation to such Property.
"Material Subsidiary" of any Person means, as of any date, any Subsidiary
of such Person (a) the value of whose assets, as such assets would appear on a
consolidated balance sheet of such Subsidiary and its Consolidated Subsidiaries
prepared as of the end of the fiscal quarter next preceding such determination
in accordance with generally accepted accounting principles, is at least 10% of
the value of the assets of such Person and its Consolidated Subsidiaries,
determined as aforesaid, or (b) which has revenues, as such revenues would
appear on a consolidated income statement of such Subsidiary and its
Consolidated Subsidiaries prepared as of the end of the fiscal quarter next
preceding such determination in accordance with generally accepted accounting
principles, constituting at least 10% of the revenues of such Person and its
Consolidated Subsidiaries, or (c) whose "income before interest expense and
income taxes" (as such term is used in the December 31, 1988 consolidated
statement of income of the Company and its Subsidiaries) for the most recently
completed fiscal quarter immediately preceding such date was at least 10% of
such Person's consolidated income before interest income and income taxes.
"Merger" means, the merger of FM Acquisition with and into the Company
pursuant to the Merger Agreement, with the Company continuing as the surviving
corporation.
"Merger Agreement" means, the Agreement and Plan of Merger dated as of
February 6, 1989, as amended, among the Company, Holdings and FM Acquisition, as
the same may be amended from time
to time.
"Net Cash Proceeds" from a sale, transfer or other disposition of
properties or assets means, cash payments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received (including
any cash received upon sale, or disposition of such note or receivable),
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to such properties or
assets or received in any other noncash form) therefrom, in each case, net of
all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability under generally accepted accounting
principles (i) as a consequence of such sale, transfer or other disposition,
(ii) as a result of the repayment of any Debt in any jurisdiction other than the
jurisdiction where the properties or assets disposed of were located or (iii) as
a result of any repatriation to the United States of any proceeds of sale as
required by the terms of the covenant "Restrictions on Disposition of Assets"
for the purpose of making an Offer, and in each case net of a reasonable reserve
for the after tax-cost of any indemnification payments (fixed and contingent)
attributable to seller's indemnities to the purchaser undertaken by the Company
or any of its Subsidiaries in connection with such sale or disposition (but
excluding any payments, which by the terms of the indemnities will not, under
any circumstances, be made during the term of the Subordinated Discount
Debentures or the Notes, as applicable), and net of all payments made on any
Debt which is secured by such assets, in accordance with the terms of any Lien
upon or with respect to such assets or which must by its terms or by applicable
law be repaid out of the proceeds from such sale, transfer or other disposition,
and net of all distributions and other payments made to minority interest
holders in Subsidiaries or Joint Ventures as a result of such sale, transfer or
other disposition.
'Net Income" of any Person for any period means, the net income (loss) of
such Person for such period, determined in accordance with generally accepted
accounting principles, except that extraordinary, unusual
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<PAGE> 88
and non-recurring gains and losses as determined in accordance with generally
accepted accounting principles shall be excluded.
"Net Worth" of any Person means, as of any date the aggregate of capital,
surplus and retained earnings of such Person and its Consolidated Subsidiaries
as would be shown on a consolidated balance sheet of such Person and its
Consolidated Subsidiaries prepared as of such date in accordance with generally
accepted accounting principles.
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries (i) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Redeemable Stock) or in options, warrants or
other rights to purchase Capital Stock (other than Redeemable Stock); (ii) any
dividend payable to the Company by any of its Subsidiaries or by a Subsidiary to
another Subsidiary, (iii) cash dividends, investments, loans or advances to
Holdings (A) to satisfy certain put and call obligations related to Holdings'
Common Stock (or options in respect thereof) issued to employees of the Company
or any of its Subsidiaries and (B) to pay reasonable out-of-pocket expenses
incurred by Holdings; provided that the aggregate amount of such cash payments
under clause (A) shall not exceed $5,000,000 at any time plus any amounts paid
(in cash or property) by such employees in respect of such Common Stock (or
options) and, within five days of receipt of such dividend, investment, loan or
advance Holdings applies the amount thereof to satisfy such obligations; (iv)
the repurchase or other acquisition or retirement for value of any shares of the
Company's Capital Stock with additional shares of, or out of the proceeds of a
substantially contemporaneous issuance of, Capital Stock other than Redeemable
Stock (unless the redemption provisions of such Redeemable Stock prohibit the
redemption thereof prior to the date on which the Capital Stock to be acquired
or retired could have been redeemed); (v) any defeasance, redemption, repurchase
or other acquisition for value of any Debt which is subordinate to the
Subordinated Discount Debentures or the Notes, as the case may be, with the
proceeds from the issuance of Debt which is subordinate to the Subordinated
Discount Debentures or the Notes, as the case may be, at least to the extent and
in the manner as the Debt to be defeased, redeemed, repurchased or otherwise
acquired is subordinate to the Subordinated Discount Debentures or the Notes, as
the case may be; provided that such new subordinated Debt provides for no
payments of principal by way of sinking funds, mandatory redemption or otherwise
(including defeasance or at the option of the holder) prior to the maturity of
Debt being replaced and the proceeds of such new Debt are utilized for such
purpose within 90 days of issuance; (vi) as to the Notes only, the repurchase of
the Subordinated Discount Debentures pursuant to the "Change of Control"
covenant set forth in the Debenture Indenture; provided that such repurchases
shall only be permitted if all of the terms and conditions in such provisions
have been fully complied with and such repurchases are made in accordance with
the terms of the Debenture Indenture and the Note Indenture; and provided
further that the Company has repurchased all Notes required to be repurchased by
the Company pursuant to the terms and conditions of the covenant "Change of
Control" prior to the repurchase of any Subordinated Discount Debentures
pursuant to the covenant "Change of Control" included in the Debenture
Indenture, (vii) investments, loans or advances to Restricted Subsidiaries in an
aggregate amount at any time not to exceed $7,500,000, and (viii) investments,
loans or advances to Masco or any Affiliate thereof in connection with any Joint
Venture or other business arrangement involving the Company or any of its
Subsidiaries relating to the production, manufacture, sale or distribution of
products manufactured or distributed by Masco, any of its Affiliates or by the
Company or any of its Subsidiaries.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indentures, and includes, without limitation, all classes and
series of preferred or preference stock.
"Redeemable Stock" means, any class or series of Capital Stock that by its
terms or otherwise is required to be redeemed prior to the stated maturity of
the Subordinated Discount Debentures or the Notes, as the case may be, or is
redeemable at the option of the holder thereof at any time prior to stated
maturity of the Notes or the Subordinated Discount Debentures, as the case may
be.
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<PAGE> 89
"Reference Period" means, the four fiscal quarters for which financial
information is available preceding the date of a transaction giving rise to the
need to make a financial calculation.
"Restricted Payment" means, with respect to any Person (i) any dividend or
other distribution on any shares of such Person's Capital Stock, (ii) any
payment on account of the purchase, redemption, retirement or other acquisition
of (a) any shares of such Person's Capital Stock or (b) any option, warrant or
other right to acquire shares of such Person's Capital Stock, (iii) any
defeasance, redemption, repurchase or other acquisition or retirement for value
prior to scheduled maturity of any Debt ranked pari passu or subordinate in
right of payment to the Subordinated Discount Debentures or the Notes, as the
case may be, and having a maturity date subsequent to the maturity of the
Subordinated Discount Debentures or the Notes, as the case may be, or (iv) any
investment, loan or advance to (x) any Restricted Subsidiary, (y) Holdings or
(z) any holder of 5% or more of any class of Capital Stock of the Company or
Holdings (including any Affiliates thereof other than Subsidiaries of the
Company); provided that clause (iv) shall not prohibit the purchase of
commercial paper issued by Travelers. Notwithstanding the foregoing, "Restricted
Payment" shall not include any Permitted Payment.
"Restricted Subsidiary" means, (i) any Joint Venture in which the Company
or any of its Subsidiaries holds a 50% or less interest or (ii) any Subsidiary
that is (x) not a borrower under any of the Credit Documents and (y) subject to
consensual restrictions, direct or indirect (other than pursuant to any of the
Credit Documents), on the declaration or payment of dividends or similar
distributions by that Subsidiary to the Company or any other Consolidated
Subsidiary of the Company.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Subsidiary Preferred Stock" with respect to any Person means, any series
of Preferred Stock issued by a subsidiary of such Person.
"Trade Payables" means, accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Company or any
Subsidiary of the Company in the ordinary course of business in connection with
the obtaining of materials or services.
MERGERS AND CONSOLIDATIONS
The Company may not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially an entirety
in one transaction or a series of related transactions), to any Person unless:
(i) the Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or to
which properties and assets of the Company are transferred shall be a solvent
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume in writing
all the obligations of the Company under the Securities; (ii) immediately after
giving effect to such transaction no Event of Default or event or condition
which through the giving of notice or lapse of time or both would become an
Event of Default shall have occurred and be continuing; (iii) the Net Worth of
the Company or the surviving entity, as the case may be, on a pro forma basis
after giving effect to such transaction is not less than the Net Worth of the
Company immediately prior to such transaction; and (iv) immediately after giving
effect to such transaction on a pro forma basis, the Company or the surviving
entity would be able to incur at least $1.00 of Debt under the Consolidated
Fixed Charge Ratio of the covenant "Limitation of Debt." Notwithstanding the
foregoing, clause (iv) of this paragraph shall not prohibit a transaction, the
principal purpose of which is (as determined in good faith by the Board of
Directors of the Company and evidenced by a resolution thereof) to change the
state of incorporation of the Company, and such transaction does not have as one
of its purposes the evasion of the limitations imposed by this paragraph.
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<PAGE> 90
DEFAULTS
Each of the Indentures defines an "Event of Default" as being: (a) default
in the payment of any interest upon any of the Notes or Subordinated Discount
Debentures, as the case may be, as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; or (b)(i)
default in the payment of all or any part of the principal on any of the Notes
or Subordinated Discount Debentures, as the case may be, as and when the same
shall become due and payable, either at maturity, upon any redemption, by
declaration or otherwise or (ii) default in the payment of any sinking fund
installment as and when the same shall become due and payable; provided that, in
the case of any obligation to repurchase Notes or Subordinated Discount
Debentures, as the case may be, pursuant to a Change of Control, more than 35%
of the then outstanding Notes or Subordinated Discount Debentures, as the case
may be, have been surrendered to the Company for repurchase and the Company has
failed to repurchase all of the Notes or Subordinated Discount Debentures, as
the case may be, so surrendered, whether or not such purchase is prohibited by
the Credit Documents or any other agreement binding upon the Company; or (c)
failure on the part of the Company to observe or perform any other of the
covenants or agreements on the part of the Company contained in the Notes or
Subordinated Discount Debentures, as the case may be, or in their respective
Indentures, and the continuance of such failure for a period of 45 days after
notice as set forth in the respective Indentures; (d)(i) there shall have
occurred with respect to any issue or issues of Debt of the Company and/or one
or more Material Subsidiaries having an outstanding principal amount when due of
one or more issues of Debt of $15.0 million individually or $25.0 million in the
aggregate for all such issues of all such Persons, whether such Debt now exists
or shall hereafter be created, an event of default which has caused the holder
thereof to declare such Debt to be due and payable prior to its stated maturity;
or (ii) the Company and/or one or more Material Subsidiaries shall have failed
to make any principal payment when due of $15.0 million individually or $25.0
million in the aggregate; provided that in the case of both clauses (i) and
(ii), if the amount which has become due as a result of an acceleration or the
amount not paid when due has been incurred by Foreign Subsidiaries pursuant to
borrowings supported by letters of credit or similar instruments issued as part
of the Credit Documents, such acceleration or failure to pay shall not have been
cured or waived on or before the later of (x) the 60th day after such
acceleration or payment default and (y) the expiration of any letter of credit
or similar instrument without drawing under such letter of credit or similar
instrument sufficient to pay all amounts accelerated or then due and payable
provided, however, that in the case of clause (ii) if the amount not paid when
due (other than at final maturity) has been incurred pursuant to the Credit
Documents, such failure to pay shall not have been cured or waived within 60
days after such payment; (e) a judgment or order (not covered by insurance) for
the payment of money shall be rendered against the Company or any Material
Subsidiary of the Company in excess of $15.0 million individually or in the
aggregate for all such judgments or orders against all such Persons (treating
any deductibles, self insurance or retentions as not so covered) that shall not
be discharged or waived and all such judgments and orders remain outstanding and
there shall be any period of 60 consecutive days following entry of such
judgment or order in excess of $15.0 million or the judgment or order which
causes the aggregate amount to exceed $15.0 million during which a stay of
enforcement of such judgment or order by reason of a pending appeal or
otherwise, shall not be in effect; or (f) there shall have occurred certain
events of bankruptcy, insolvency or reorganization with respect to the Company
or a Material Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(f) above) occurs and is continuing under either of the Indentures, the Trustee
thereunder or the Holders of not less than 35% of the aggregate principal amount
of the applicable Securities then outstanding, by written notice to the Company
(and to the appropriate Trustee if such notice is given by the Holders) (the
"Acceleration Notice"), may, and the appropriate Trustee at such request of such
Holders shall, declare all unpaid principal of and accrued interest, if any, on
the Notes or the Default Amount of and accrued interest, if any, on the
Subordinated Discount Debentures, as the case may be, to be due and payable
immediately, and upon a declaration of acceleration, such principal or Default
Amount, and accrued interest, shall become immediately due and payable; provided
that so long as the Credit Documents are in effect, such declaration shall not
become effective until the earlier of (i) five days after delivery of the
Acceleration Notice to CIBC and the Company and (ii) an acceleration under the
Credit Documents. In the event of a declaration of acceleration under either of
the Indentures because an Event of Default set forth in clause (d) above has
occurred and is
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<PAGE> 91
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (d) shall be remedied, cured by the Company or waived by the holders
of the relevant Debt. If an Event of Default specified in clause (f) above
occurs, all unpaid principal of and accrued interest, if any, on the Notes then
outstanding and the Default Amount of and accrued interest, if any, on the
Subordinated Discount Debentures then outstanding shall become and be
immediately due and payable without any declaration or other act on the part of
the applicable Trustee or any Holder. The Holders of at least a majority in
principal amount of the respective outstanding Securities by notice to the
applicable Trustee may rescind an acceleration and its consequences if all
existing Events of Default, other than the nonpayment of the principal of such
Securities which became due solely by such declaration of acceleration, have
been cured or waived.
The Holders of at least a majority in principal amount of the outstanding
Subordinated Discount Debentures or Notes, as the case may be, may direct the
time, method and place of conducting any proceeding for any remedy available to
the applicable Trustee or exercising any trust or power conferred on such
Trustee. However, a Trustee may refuse to follow any direction that conflicts
with law or the applicable Indenture, or that may involve such Trustee in
personal liability. A Holder of Notes or Subordinated Discount Debentures, as
the case may be, may not pursue any remedy with respect to their respective
Indenture unless: (i) such Holder gives to the applicable Trustee written notice
of a continuing Event of Default; (ii) such Holders of not less than 35% in
aggregate principal amount of outstanding Subordinated Discount Debentures or
Notes, as the case may be, make a written request to the applicable Trustee to
pursue the remedy; (iii) such Holder or Holders offer to the appropriate Trustee
reasonable indemnity against any cost, liability or expense; (iv) the applicable
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity; and (v) during such 60-day period the
Holders of a majority in principal amount of the outstanding Subordinated
Discount Debentures or Notes, as the case may be, do not give the applicable
Trustee a direction which is inconsistent with the request.
Each of the Indentures requires certain officers of the Company to certify,
on or before a date not more than 120 days after the end of each fiscal year
beginning with the fiscal year ending December 31, 1990 that a review has been
conducted of the activities of the Company and its Subsidiaries and of the
Company's and its Subsidiaries' performance under such Indenture and that the
Company has fulfilled all obligations thereunder throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default and the nature and status thereof. The Company will also be
obligated to notify the Trustees of any default or defaults in the performance
of any covenants or agreements under the Indentures.
AMENDMENTS AND SUPPLEMENTS
Each of the Indentures contains provisions permitting the Company and the
applicable Trustee, with the consent of the Holders of not less than a majority
in aggregate principal amount of the Securities issued thereunder at the time
outstanding, to amend or supplement such Indenture or any supplemental indenture
or modify the rights of such Holders, provided that no such modification may,
without the consent of each such Holder affected thereby, (i) reduce the rate of
or extend the time for payment of interest on any Subordinated Discount
Debenture or Note, as the case may be, reduce the principal amount of or extend
the final maturity of any Subordinated Discount Debenture or Note, as the case
may be, reduce any amount payable on redemption of any Subordinated Discount
Debenture or Note, as the case may be, or impair or affect the right of any such
Holder to institute suit for the payment therefor or after the Company's
obligation to make any sinking fund payment or make any change in the "Change of
Control" covenant or the provision relating to the waiver of past defaults or
(ii) reduce the percentage of Subordinated Discount Debentures or Notes, as the
case may be, whose Holders must consent to any amendment, supplement or waiver.
The Company and each of the Trustees may amend or supplement the Debenture
Indenture or the Note Indenture, as the case may be: (a) to convey, transfer,
assign, mortgage or pledge to the applicable Trustee as security for the
Subordinated Discount Debentures or Notes, as the case may be, any property or
assets; (b) to provide for the assumption by a successor to the obligations of
the Company under such Indenture; (c) to add to the covenants of the Company
such further covenants, restrictions, conditions or provisions as the Company's
Board of Directors and the applicable Trustee shall consider to be for the
protection of the holders
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of Subordinated Discount Debentures or Notes, as the case may be, and to make
the occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies provided in
such Indenture as herein set forth; provided that in respect of any such
additional covenant, restriction, condition or provision such supplemental
indenture may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of other defaults)
or may provide for an immediate enforcement upon such an Event of Default or may
limit the remedies available to the applicable Trustee upon such an Event of
Default or may limit the right of the Holders of a majority in aggregate
principal amount of Subordinated Discount Debentures or Notes, as the case may
be, to waive such an Event of Default; and (d) to cure any ambiguity or to
correct or supplement any provision contained in the Debenture Indenture or the
Note Indenture, as the case may be, which may be defective or inconsistent with
any other provision contained in such Indenture or in any supplemental
indenture; or to make such other provisions in regard to matters or questions
arising under such Indenture or under any supplemental indenture which does not
adversely affect the interests of the holders of the Securities issued
thereunder.
SATISFACTION AND DISCHARGE OF THE INDENTURES; COVENANT DEFEASANCE
The Indentures will cease to be of further effect as to all outstanding
Securities issued thereunder (except as to (i) rights of registration of
transfer and exchange, and the Company's right of optional redemption, (ii)
rights of holders to receive payments of principal of and interest on the
Subordinated Discount Debentures or Notes, as the case may be, and remaining
rights of the holders to receive mandatory sinking fund payments, (iii) the
rights, obligations and immunities of the Trustees under such Indentures and
(iv) the rights of such holders with respect to the property deposited with the
applicable Trustee pursuant to this paragraph) if (i) all outstanding
Subordinated Discount Debentures or Notes, as the case may be, (except lost,
stolen or destroyed Subordinated Discount Debentures or Notes, as the case may
be, which have been replaced or paid) have been delivered to the applicable
Trustee for cancellation or (ii) the Company shall have paid or caused to be
paid the principal of and interest on all outstanding Subordinated Discount
Debentures or Notes, as the case may be, as and when the same shall have become
due and payable or (iii) (a) the Subordinated Discount Debentures or Notes, as
the case may be, not previously delivered to the applicable Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year, or are to be called for redemption under
arrangements satisfactory to the applicable Trustee upon delivery of notice of
redemption and (b) the Company shall have irrevocably deposited or caused to be
deposited with the applicable Trustee, as trust funds, the entire amount in cash
sufficient to pay principal of and interest on the outstanding Subordinated
Discount Debentures or Notes, as the case may be, at maturity or upon
redemption, as the case may be.
Each of the Indentures will also cease to be in effect (except as
aforesaid) on the 123rd day after the irrevocable deposit by the Company with
the applicable Trustee, in trust for the benefit of the relevant Holders, of (i)
money in an amount, or (ii) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one day before
the due dates of payments in respect of the applicable Securities money in an
amount, or (iii) a combination thereof, sufficient in the opinion of a
nationally recognized firm of independent public accountants to pay or discharge
without consideration of the reinvestment of interest and after payment of all
Federal, state and local taxes or other charges and assessments in respect
thereof payable by such Trustee, (x) the principal of and interest on the
applicable Securities then outstanding at the maturity date of such principal or
interest and (y) any mandatory sinking fund payments or analogous payments
applicable to such Securities on the day on which such payments are due and
payable. Such a trust may only be established if, among other things, the
Company has delivered to the applicable Trustee an opinion of counsel to the
effect that, (A) the trust funds will not be subject to any rights of holders of
Senior Debt with respect to the Subordinated Discount Debentures or the Notes,
as the case may be, including without limitation those arising under Article
Thirteen of each of the Indentures, and (B) after the passage of 123 days
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally. The Indentures will not be discharged if, among
other things, (i) an Event of Default, or an event which with notice or lapse of
time or both would become an Event of Default, with respect to the applicable
Securities
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shall have occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after such date, (ii) such deposit would cause
the applicable Trustee to have a conflicting interest, as defined in the
applicable Indenture for purposes of the Trust Indenture Act or (iii) such
deposit would result in a breach or violation of, or constitute a default under,
the Debenture Indenture or the Note Indenture, as the case may be, or any other
agreement or instrument to which the Company is a party or by which it is bound.
In the event of any such defeasance and discharge, affected Holders will
thereafter be able to look only to such trust fund for payment of principal and
interest on the applicable Securities.
Each of the Indentures provides that the Company may cease to comply with
the covenants set forth above under "Certain Covenants," if the Company
irrevocably deposits with the Trustee thereunder as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of Subordinated Discount Debentures or Notes, as the case may be,
(i) money in an amount or (ii) U.S. Government Obligations, which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any payment
in respect of the Subordinated Discount Debentures or Notes, as the case may be,
money in an amount or (iii) a combination thereof, sufficient, in the opinion of
a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to such Trustee, to pay and discharge
without consideration of the reinvestment of such interest and after payment of
all Federal, state and local taxes or other charges and assessments in respect
thereof payable by such Trustee, (x) the principal of and interest on the
outstanding Subordinated Discount Debentures or Notes, as the case may be, on
the maturity date of such principal or installment of principal or interest and
(y) any mandatory sinking fund payments or analogous payments applicable to the
Subordinated Discount Debentures or the Notes, as the case may be, on the day on
which such payments are due. The obligations of the Company under such Indenture
other than with respect to the covenants referred to above shall remain in full
force and effect. Such a trust may only be established if, among other things,
the Company has delivered to such Trustee an opinion of counsel to the effect
that (i) the creation of the trust will not violate the Investment Company Act
of 1940 and (ii) Holders of the Subordinated Discount Debentures or the Notes,
as the case may be, will have a valid first priority security interest in the
trust funds.
In the event the Company takes the necessary action to enable it to omit to
comply with the covenants of either of the Indentures as described above and the
Subordinated Discount Debentures or Notes, as the case may be, are declared due
and payable because of the occurrence of an Event of Default with respect
thereto, the amount of money and U.S. Government Obligations on deposit with the
applicable Trustee will be sufficient to pay amounts due on the Subordinated
Discount Debentures or Notes, as the case may be, at the time of their stated
maturity but may not be sufficient to pay amounts due on the Subordinated
Discount Debentures or Notes, as the case may be, at the time of the
acceleration resulting from such Event of Default. In such event, the Company
will remain liable for such payments.
The Merger Credit Agreement contains provisions that prohibit the
defeasance of the Subordinated Discount Debentures and the Notes.
THE TRUSTEES
Each of the Indentures provides that, except during the continuance of an
Event of Default with respect thereto, the Trustee thereunder will perform only
such duties as are specifically set forth in such Indenture. During the
existence of an Event of Default, such Trustee will exercise such rights and
powers vested in it under such Indenture and use the same degree of care and
skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
Each of the Indentures and the provisions of the Trust Indenture Act
contain limitations on the rights of the Trustee thereunder, should it become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise.
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The Trustee is permitted to engage in other transactions; provided, that if it
acquires any conflicting interest (as defined in the Indentures) it must
eliminate such conflict or resign.
Mr. Langone is a director of United Jersey Bank, the Note Trustee.
REPORTS
So long as Subordinated Discount Debentures or Notes are outstanding, the
Company will furnish to the relevant Holders quarterly and annual financial
reports that the Company is required to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934 (or
similar reports in the event the Company is not at the time required to file
such reports with the Commission).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain of the expected federal income tax
consequences to the holders of the Subordinated Discount Debentures. The summary
does not discuss all of the aspects of federal income taxation that may be
relevant to particular investors in light of their individual circumstances or
to investors that are subject to special treatment under the federal income tax
laws (for example, financial institutions, broker dealers, tax-exempt
organizations, insurance companies and foreign corporations or persons), nor
does it discuss any foreign, state or local tax considerations. The summary is
based on current law, which is subject to change. Prospective investors are
advised to consult their own tax advisers regarding the federal, state, local,
foreign and other tax consequences of purchasing, holding and disposing of the
Subordinated Discount Debentures.
ORIGINAL ISSUE DISCOUNT
The Department of the Treasury has issued proposed regulations (the
"Proposed Regulations") governing the recognition of original issue discount by
holders of debt instruments such as the Subordinated Discount Debentures. The
Company currently intends to adopt the positions described herein as reflecting
the appropriate federal income tax treatment of the Subordinated Discount
Debentures, but such positions are subject to change in response to final
regulations or clarification from the Internal Revenue Service (the "IRS"). No
assurance can be given that the IRS will agree with these interpretations or
that the final regulations will not differ materially from the Proposed
Regulations, possibly on a retroactive basis.
The amount of original issue discount, if any, on a debt instrument is the
difference between its "issue price" and its "stated redemption price at
maturity," subject to a statutory de minimis exception. Under the Proposed
Regulations, the portion of original issue discount, if any, accrued (and
required to be recognized as income) with respect to a debt instrument will be
determined for each "accrual period" (as defined in the Proposed Regulations) by
(i) multiplying (x) the adjusted issue price at the beginning of the accrual
period (that is, the initial issue price, plus previously accrued original issue
discount, reduced by the amount of previous cash payments other than payments of
qualified periodic interest) by (y) the yield to maturity of the debt instrument
(determined on the basis of compounding at the end of each accrual period)
divided by the number of accrual periods in a year, and (ii) subtracting from
that product the amount of qualified periodic interest payable during that
accrual period. The resulting amount is allocated on a straight-line basis to
each day in the accrual period, and the amount includable in a holder's income
(whether the holder utilizes the cash or accrual method of accounting) with
respect to the debt instrument is the sum of the resulting daily portions of
original issue discount for each day of the taxable year on which the holder
held the debt instrument. For this purpose, the term "qualified periodic
interest" includes a series of payments equal to the outstanding principal
balance of the debt multiplied by a single fixed rate of interest that is
payable at fixed periodic intervals of one year or less during the entire term
of the debt. Generally, the tax basis of a debt instrument in the hands of the
holder will be increased by the amount, if any, of original issue discount on a
debt instrument that is included in the holder's income pursuant to those rules
and will be decreased by the amount of cash payments received other than
qualified periodic interest.
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The Subordinated Discount Debentures were issued with original issue
discount that holders will be required to include in their gross income for
federal income tax purposes in advance of receiving cash payments. As discussed
above, the total amount of original issue discount with respect to each of the
Subordinated Discount Debentures will be the excess of its stated redemption
price at maturity over its issue price. The Company intends to treat the "issue
price" of the Subordinated Discount Debentures as being equal to their "stated
principal amount" of $469.18 for each $1,000 of face amount. Because the
Subordinated Discount Debentures have no "qualified periodic interest," the
stated redemption price at maturity of a Subordinated Discount Debenture will be
the sum of all amounts payable over the life of the Subordinated Discount
Debenture. Under the foregoing rules, during at least the first five years of
the term of the Subordinated Discount Debentures, holders will be required to
include in income for each accrual period an amount of original issue discount
before receipt of the cash payments related to that original issue discount.
It is possible that the IRS may assert that the issue price of the
Subordinated Discount Debentures is higher than $469.19 for each $1,000.00 of
face amount. If the IRS were to prevail in such an assertion, there would be
less original issue discount for Holders to include in their incomes with
respect to the Subordinated Discount Debentures during their term, but the
amount of market discount (discussed below) would be increased.
If it were determined that, at the time of original issue, the Company had
an intention to call any of the Subordinated Discount Debentures before
maturity, any gain realized by a holder on a sale or exchange of such
Subordinated Discount Debentures up to the amount of original issue discount on
such Subordinated Discount Debenture not yet accrued would generally be treated
as ordinary income. The Company does not intend to call any of the Subordinated
Discount Debentures prior to maturity, other than pursuant to the mandatory
redemption provisions in the Indenture. Although the Proposed Regulations do not
address the effect of such a mandatory redemption feature, the Company believes
that the provisions of the Code concerning an early call intention will not
apply to Subordinated Discount Debentures.
The amount of original issue discount that a holder will be required to
include in income may vary depending on the price paid for the Subordinated
Discount Debentures by such purchaser. If a purchaser pays an "acquisition
premium" (as defined in Section 1272(a)(7) of the Code) for the Subordinated
Discount Debentures, the amount of such premium will reduce the amount of
original issue discount that such holder must include in income.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of the Subordinated Discount Debentures,
information with respect to original issue discount accruing during the calendar
year.
MARKET DISCOUNT
Purchasers of Subordinated Discount Debentures may be affected by the
market discount provisions of the Code. Those rules generally provide that, if a
holder of a debt instrument purchases it at a market discount and thereafter
realizes (or is treated as realizing) gain on a disposition of the debt
instrument, the lesser of such gain or the portion of the market discount that
accrued while the debt instrument was held by such holder generally will be
treated as ordinary interest income. For this purpose, a purchase at a market
discount will occur when a Subordinated Discount Debenture is purchased at a
price below its "revised issue price." Generally, the "revised issue price" of a
Subordinated Discount Debenture will equal (i) the issue price plus the original
issue discount includible in the incomes of all prior holders of the
Subordinated Discount Debenture (disregarding any reduction on account of
acquisition premium), less (ii) the amount of any cash payments with respect to
the Subordinated Discount Debentures. Market discount will be treated as
accruing on a straight line basis unless the holders elect to accrue it on a
constant interest rate basis. Under a de minimis exception, if the market
discount is less than 1/4 of one percent of the stated redemption price at
maturity multiplied by the number of complete years to maturity, the market
discount is deemed to be zero. The market discount rules also provide that a
holder who acquires a debt instrument at a market discount (and who does not
elect to include such market discount in income on a current basis) may be
required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or
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maintained to purchase or carry such debt instrument until the holder disposes
of the debt instrument in a taxable transaction.
A holder of Subordinated Discount Debentures acquired at a market discount
may elect to include the market discount in income as the discount accrues,
either on a straight line basis or, if elected, on a constant interest rate
basis. The current inclusion election applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies, and may not be revoked without the consent of the IRS. If a
holder of a Subordinated Discount Debenture elects to include market discount in
income in accordance with the preceding sentence, the foregoing rules with
respect to the recognition of ordinary income on a sale or other disposition of
such Subordinated Discount Debenture and the deferral of interest deduction on
indebtedness related to such Subordinated Discount Debentures would not apply.
The Subordinated Discount Debentures provide that they may be redeemed, in
whole or in part, before maturity. In general, if principal on a debt is paid in
more than one installment, the holder is required to include accrued market
discount in income with respect to each principal payment up to the amount of
such payment (which could be in advance of the time otherwise required). That
provision could apply to the holder of a Subordinated Discount Debenture with
market discount that is redeemed in part.
DISPOSITION OF SUBORDINATED DISCOUNT DEBENTURES
In general, a holder of Subordinated Discount Debentures will recognize
gain or loss upon the sale, redemption or other taxable disposition of the
Subordinated Discount Debentures measured by the difference between (i) the
amount of cash and the fair market value of property received (except to the
extent attributable to the payment of accrued interest) and (ii) the holder's
tax basis in the Subordinated Discount Debentures. Subject to the discussion
above concerning market discount and original issue discount, any such gain or
loss will generally be long-term capital gain or loss, provided the Subordinated
Discount Debentures were capital assets in the hands of the holder and had been
held for more than one year. Under present law, long-term capital gain and
ordinary income are taxed at the same rates. Deduction of capital losses is
subject to limitation.
THE REVENUE RECONCILIATION ACT OF 1989
The Revenue Reconciliation Act of 1989 (the "1989 Act"), enacted on
December 19, 1989, as amended retroactively by the Revenue Reconciliation Act of
1990, provides that interest deductions with respect to certain debt instruments
which bear original issue discount are deferred until the interest is paid in
cash and, in some cases, are disallowed in part. The 1989 Act provides further
that interest disallowed as described in the preceding sentence is treated as
dividends under some circumstances for some federal income tax purposes. If
these 1989 Act provisions were determined to apply to the Subordinated Discount
Debentures, the deferral and/or partial elimination of the deduction for
original issue discount with respect to Subordinated Discount Debentures would
likely affect the Company adversely. The Company believes that, under the
effective date provisions of the 1989 Act, the rules described in this paragraph
will not apply to the Subordinated Discount Debentures.
BACKUP WITHHOLDING
A holder of Subordinated Discount Debentures may be subject to backup
withholding at the rate of 20% with respect to interest paid on, or original
issue discount accrued on, and gross proceeds of a sale of, the Subordinated
Discount Debentures, unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required demonstrates that fact or (b)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF
SUBORDINATED DISCOUNT DEBENTURES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES TO IT OF THE OWNERSHIP
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AND DISPOSITION OF THE SUBORDINATED DISCOUNT DEBENTURES, INCLUDING THE
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
SELLING DEBENTURE HOLDERS
The following table provides certain information with respect to the
Subordinated Discount Debentures beneficially held by the Selling Debenture
Holders at March 31, 1994 and that may be sold pursuant to this Prospectus. As
of the date of this Prospectus, the Selling Debenture Holders have sold
approximately $94.8 million aggregate principal amount of Subordinated Discount
Debentures. None of such Selling Debenture Holders has been an officer or
director of, or has had any material relationship with, the Company during the
past three years. The Subordinated Discount Debentures offered by this
Prospectus may be offered from time to time in whole or in part by such Selling
Debenture Holders.
<TABLE>
<CAPTION>
FACE
AMOUNT OF
SUBORDINATED
NAME OF SELLING DISCOUNT % OF CLASS
DEBENTURE HOLDER DEBENTURES OWNED
<S> <C> <C>
Brown University Third Century Fund............. $ 1,065,000 1.1%
========== ===========
</TABLE>
PLAN OF DISTRIBUTION
GENERAL
The Notes were issued in an underwritten public offering by the Company
which was completed in October 1989. The Subordinated Discount Debentures were
issued in October 1989 pursuant to a previously completed private placement to
the Bridge Participants in exchange for their participation interests in the
Bridge Notes and have been registered under the Securities Act pursuant to a
Registration Statement of which this Prospectus is a part, on behalf of the
Selling Debenture Holders to permit the public sale or other distribution
thereof.
This Prospectus is to be used (i) by the Selling Debenture Holders in
connection with sales of the Subordinated Discount Debentures and (ii) by Dillon
Read in connection with offers and sales of the Notes or the Subordinated
Discount Debentures in market-making transactions at negotiated prices related
to prevailing market prices at the time of sale. Dillon Read may act as
principal or agent in such transactions and has no obligation to make a market
in the Notes or the Subordinated Discount Debentures, and may discontinue its
market-making activities at any time without notice, at its sole discretion.
Charles P. Durkin, Jr. and Bret E. Russell are employees of Dillon Read and
directors of the Company and will continue to serve as directors of the Company
until their respective successors are duly elected and qualified.
There is currently no established public market for the Notes or the
Subordinated Discount Debentures. The Company does not currently intend to apply
for listing of the Notes or the Subordinated Discount Debentures on any stock
exchange. Therefore, any trading that does develop will occur on the over-the-
counter market. The Company has been advised by Dillon Read that it intends to
make a market in the Notes and the Subordinated Discount Debentures; however,
Dillon Read is not obligated to do so, any market making may be discontinued at
any time and there can be no assurance that an active public market for the
Notes or the Subordinated Discount Debentures will develop.
Although there is no agreement to do so, it is anticipated that, as part of
its normal broker-dealer activities, Dillon Read may purchase from one or more
of the Selling Debenture Holders or the Noteholders at least a portion and
possibly a substantial portion or all of the Subordinated Discount Debentures
and/or Notes. As of the date of this Prospectus, Dillon Read has no intention to
make any purchase of Notes or Subordinated Discount Debentures except for
resale.
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Dillon Read is affiliated with entities that beneficially own a majority of
the voting power of the capital stock of Holdings, the Company's parent company.
See "Certain Risk Factors--Interest of Dillon Read and Affiliates" and
"Ownership of the Capital Stock of the Company and Holdings." For other
information regarding the involvement of Dillon Read and its affiliates in
connection with the Acquisition and their equity ownership in Holdings, see "The
Acquisition," "Management," "Ownership of Capital Stock of the Company and
Holdings" and "Certain Transactions and Relationships."
Dillon Read acted as the underwriter in connection with the original
offering of the Notes and received an underwriting discount of approximately
$3.5 million in connection therewith. Dillon Read also acted as agent in
connection with the original placement of the Subordinated Discount Debentures
and received aggregate placement fees of approximately $1.7 million in
connection therewith. For information regarding the fees received by Dillon Read
and its affiliates in connection with the Acquisition and Financing, see "The
Acquisition". Although there are no agreements to do so, Dillon Read, as well as
others, may act as broker or dealer in connection with the sale of Notes and/or
Subordinated Discount Debentures contemplated by this Prospectus and may receive
fees or commissions in connection therewith.
THE SUBORDINATED DISCOUNT DEBENTURES
Any or all of the Subordinated Discount Debentures may be sold from time to
time to purchasers directly by the Selling Debenture Holders. Alternatively, the
Selling Debenture Holders may from time to time offer the Subordinated Discount
Debentures through underwriters, dealers or agents (which may include Dillon
Read), who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Debenture Holders and/or the
purchasers of Subordinated Discount Debentures for whom they may act as agent.
The Selling Debenture Holders and any such underwriters, dealers or agents that
participate in the distribution of the Subordinated Discount Debentures may be
deemed to be underwriters, and any profit on the sale of the Subordinated
Discount Debentures by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular offer of Subordinated Discount Debentures is made, to the extent
required, a Prospectus Supplement will be distributed that will set forth the
aggregate principal amount and type of Subordinated Discount Debentures being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Debenture Holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, including
the proposed selling price to the public. In accordance with guidelines of the
National Association of Securities Dealers, Inc. (the "NASD"), the maximum
underwriting compensation to be received by a NASD member in connection with an
offering of Subordinated Discount Debentures will not exceed 8.00%.
The Subordinated Discount Debentures may be sold from time to time in one
or more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in a distribution of
any of the Subordinated Discount Debentures may not simultaneously engage in
market making activities with respect to the Subordinated Discount Debentures
for a period of nine business days prior to the commencement of such
distribution. In addition to and without limiting the foregoing, each Selling
Debenture Holder and any other person participating in a distribution will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-2, 10b-6 and
10b-7, which provisions may limit the timing of purchases and sales of any of
the Subordinated Discount Debentures by the Selling Debenture Holders or any
such other person. All of the foregoing may affect the marketability of the
Subordinated Discount Debentures and Dillon Read's ability to engage in market
activities with respect to the Subordinated Discount Debentures.
The distribution of the Subordinated Discount Debentures is required to be
made in compliance with applicable provisions of Schedule E of the By-laws of
the NASD because Dillon Read may be considered to be an "affiliate" of the
Company, as such term is defined in Schedule E. Accordingly, PaineWebber
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Incorporated ("PaineWebber") has agreed to act as a "qualified independent
underwriter" for the purposes of participating in the preparation of this
Prospectus and the related Registration Statement and exercising its usual
standards of "due diligence" in respect thereto. The Company is not required to
retain PaineWebber to recommend the price or yield at which the Subordinated
Discount Debentures are to be sold because sales of Subordinated Discount
Debentures made by Selling Debenture Holders by any affiliate of the Issuer
participating in the distribution of the Subordinated Discount Debentures (other
than pursuant to an underwritten distribution) will be made only to
institutional investors. PaineWebber received a fee from the Company and
reimbursement from certain expenses. Views expressed by the NASD and the
Commission indicate that, in acting as a qualified independent underwriter,
PaineWebber may be deemed to be an "underwriter" within the meaning of the
Securities Act and that any amount paid to it for services for so acting may be
deemed to be underwriting compensation. However, the extent of the
responsibilities and liabilities of a qualified independent underwriter for
acting in such capacity has not yet been judicially determined. The Company has
agreed to indemnify PaineWebber against certain liabilities, including
liabilities under the Securities Act, or to contribute with respect to payments
which PaineWebber may be requested to make in respect thereof. Schedule E also
provides, among other things, that NASD members may not execute transactions in
the Subordinated Discount Debentures in a discretionary account without the
prior specific written approval of the customer.
In order to comply with certain states' securities laws, if applicable, the
Subordinated Discount Debentures will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Subordinated Discount Debentures may not be sold unless the Subordinated
Discount Debentures have been registered or qualify for sale in such state or an
exemption from registration or qualification is available and is complied with.
Pursuant to certain Registration Rights Agreements between the Company and
the Selling Debenture Holders (the "Registration Rights Agreements"), the
Company agreed to file with the Commission the Registration Statement of which
this Prospectus is a part relating to the Subordinated Discount Debentures and
to use its best efforts to have such Registration Statement declared effective
as soon as practicable after such filing. The Company agreed to maintain the
effectiveness of the Registration Statement for a period of up to two years. The
Registration Rights Agreements also grant the holders of Registrable Securities
(as defined in the Registration Rights Agreement) certain demand and
"piggy-back" registration rights. Pursuant to the Registration Rights
Agreements, the Company has agreed to indemnify the Selling Debenture Holders
and certain other persons against certain liabilities, including liabilities
arising under the Securities Act.
The Company will pay the expenses incident to this offering of the
Subordinated Discount Debentures to the public, including expenses relating to
qualification of the Subordinated Discount Debentures under state securities
laws, other than commissions and discounts of underwriters, dealers or agents.
Under agreements entered into with the Company, the Selling Debenture Holders
and any underwriter they may utilize, including, without limitation, Dillon
Read, will be indemnified by the Company against certain civil liabilities,
including liabilities under the Securities Act.
THE NOTES
Under the By-laws of the NASD, when an NASD member such as Dillon Read
distributes an affiliated company's debt securities rated below investment grade
and when more than 10% of the net proceeds of an offering are intended to be
paid to an affiliate of Dillon Read, the yield on such debt securities can be no
lower than that recommended by a "qualified independent underwriter." The NASD
requires that the "qualified independent underwriter" (i) be an NASD member
experienced in the securities or investment banking business, (ii) be actively
engaged in the underwriting of public offerings of securities of a similar size
and type to this offering, (iii) not be an affiliate of the issuer of the
securities, and (iv) agree to undertake the responsibilities and liabilities of
an underwriter under the Securities Act. In accordance with this requirement,
PaineWebber served in such role and the initial yield on the Notes was not lower
than the yield recommended by it. PaineWebber also participated in the
preparation of the Registration Statements of which this Prospectus is a part
and has performed due diligence with respect thereto. The Company paid
PaineWebber a fee and reimbursed PaineWebber for certain expenses. In addition,
the Company has agreed to indemnify
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PaineWebber against certain liabilities, including liabilities under the
Securities Act. Dillon Read has advised the Company that the offering complied
with the requirements of Schedule E of the By-laws of the NASD regarding a
member firm's underwriting securities of an affiliate.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Notes were passed
upon for the Company by Charles A. Brooks, general counsel of the Company, and
by Cahill Gordon & Reindel (a partnership including professional corporations),
New York, New York and certain legal matters in connection with the sale of the
Notes were passed upon for Dillon Read by Davis Polk & Wardwell, New York, New
York. The validity of the Subordinated Discount Debentures has also been passed
upon by Cahill Gordon & Reindel. Cahill Gordon & Reindel represented Holdings
and FM Acquisition in connection with the Acquisition and the Financing.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") two Registration Statements (which term shall include all
amendments, exhibits and schedules thereto) under the Securities Act with
respect to the Securities: Registration Statement No. 33-30012 (with respect to
the Notes) and Registration Statement No. 33-31900 (with respect to the
Subordinated Discount Debentures). This Prospectus does not contain all the
information set forth in the Registration Statements, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any document referred to are not necessarily complete. With respect
to each such document filed as an exhibit to the Registration Statements,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statements may be inspected at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604 and 75 Park Place, New York, New York
10007. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files periodic reports and other information
with the Commission. Additional information concerning the Company, FM
Acquisition, Holdings and the Acquisition is set forth in the Schedule 14D-1
Tender Offer Statement and the exhibits thereto filed with the Commission by
Holdings, FM Acquisition, Saratoga and Masco Corporation, the Rule 13E-3
Transaction Statement and the exhibits thereto filed with the Commission by
Holdings, FM Acquisition, the Company, Vincent P. Langone, John Boanas and David
T. Schneider, the Schedule 13E-4 Issuer Tender Offer Statement and the exhibits
thereto filed with the Commission by Holdings, FM Acquisition and the Company,
and the Schedule 14D-9 and the exhibits related thereto filed with the
Commission by the Company. All such information may be inspected and copied at
the public reference facilities maintained by the Commission at the locations
referenced above.
The Company will continue to be required to file periodic reports with the
Commission pursuant to the Exchange Act during the Company's current fiscal year
and, thereafter, so long as either the Subordinated Discount Debentures or the
Notes are held by at least 300 registered holders. At any time that the Company
is not subject to the information and reporting requirements of Sections 13 and
15(d) of the Exchange Act,
97
<PAGE> 101
the Company is required by the Note Indenture and the Debenture Indenture to
distribute to the holders of the Notes and the Subordinated Discount Debentures,
respectively, annual reports containing audited consolidated financial
statements and a report thereon by the Company's independent public accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited condensed consolidated financial information.
98
<PAGE> 102
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . F2
Consolidated Balance Sheets at December 31, 1993 and 1992. . . . . . . . . F3
Consolidated Statements of Operations for the years ended December
31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . . . . . . . . . F4
Consolidated Statement of Stockholder's Equity for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . F5
Consolidated Statements of Cash Flows for the years ended December
31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . . . . . . . . . F6
Notes to Consolidated Financial Statements, December 31, 1993. . . . . . . F7
Condensed Consolidated Balance Sheet at March 31, 1994 (unaudited) . . . . F26
Condensed Consolidated Statements of Operation for the three-months
ended March 31, 1994 and 1993 (unaudited). . . . . . . . . . . . . . . . F27
Condensed Consolidated Statement of Stockholder's Equity for the period
December 31, 1993 through March 31, 1994 (unaudited) . . . . . . . . . . F28
Condensed Consolidated Statements of Cash Flows for the three-months
ended March 31, 1994 and 1993 (unaudited). . . . . . . . . . . . . . . . F29
Notes to Condensed Consolidated Financial Statements,
March 31, 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . F30
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Formica Corporation:
We have audited the accompanying consolidated balance sheets of Formica
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 Formica Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 2, 6 and 8 of the consolidated financial statements
referred to above, effective January 1, 1993, the Company changed its method of
accounting for income taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 1, 1994
F2
<PAGE> 104
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE OF STOCK)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,446 $ 867
Accounts receivable, less allowances of
$10,231 (1993) and $10,431 (1992) 81,350 75,199
Inventories, net 67,678 80,306
Other current assets 18,150 16,238
Total current assets 169,624 172,610
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST 212,120 228,942
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF
$5,050 (1993) AND $3,967 (1992) 38,231 39,314
TRADEMARKS AND PATENTS, NET OF ACCUMULATED
AMORTIZATION OF $17,668 (1993) AND $13,997 (1992) 92,024 96,109
DEFERRED CHARGES AND OTHER ASSETS, NET 29,632 25,868
-------- --------
$541,631 $562,843
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 11,351 $ 14,941
Accounts payable 40,313 35,643
Accrued salaries and benefits 24,678 21,233
Interest payable 3,814 4,647
Other accrued liabilities 10,032 5,643
Income taxes payable 2,367 204
-------- --------
Total current liabilities 92,555 82,311
-------- --------
LONG-TERM DEBT 255,180 303,638
-------- --------
OTHER LONG-TERM LIABILITIES 15,849 26,462
-------- --------
DEFERRED INCOME TAXES 97,685 111,099
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock; $.01 par value; authorized
2,000 shares; 100 shares outstanding -- --
Preferred stock; $.01 par value; authorized
1,000 shares; none outstanding -- --
Capital in excess of par value 116,879 69,379
Accumulated deficit (18,747) (18,235)
Cumulative translation adjustment (17,770) (11,811)
-------- --------
Total stockholder's equity 80,362 39,333
-------- --------
$541,631 $562,843
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F3
<PAGE> 105
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net sales $447,079 $446,217 $421,181
Cost of sales 319,873 314,457 293,224
-------- -------- --------
Gross profit 127,206 131,760 127,957
Selling expenses 83,679 79,042 71,493
General and administrative expenses 15,094 15,194 16,843
-------- -------- --------
Operating income 28,433 37,524 39,621
Other income, net 6,993 14,712 3,872
-------- -------- --------
Income before interest expense,
income taxes and accounting change 35,426 52,236 43,493
Interest expense 47,352 52,805 53,114
-------- -------- --------
Loss before income taxes
and accounting change (11,926) (569) (9,621)
Provision (benefit) for income taxes (8,564) 1,066 (2,492)
-------- -------- --------
Loss before accounting change (3,362) (1,635) (7,129)
Accounting change - cumulative
effect to January 1, 1993, of
accounting for income taxes (2,850) -- --
-------- -------- --------
Net loss $ (512) $ (1,635) $ (7,129)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F4
<PAGE> 106
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PREFERRED CAPITAL IN CUMULATIVE
-------------- -------------- EXCESS OF ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT ADJUSTMENT
------ ------ ------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1990 100 $ -- -- $ -- $69,379 $ (9,471) $ (8,937)
Net loss for the year -- -- -- -- -- (7,129) --
Translation adjustment -- -- -- -- -- -- 606
--- ---- --- ---- ------- -------- --------
Balance at
December 31, 1991 100 -- -- -- 69,379 (16,600) (8,331)
Net loss for the year -- - -- -- -- (1,635) --
Translation adjustment -- -- -- -- -- -- (3,480)
--- ---- --- ---- ------- -------- --------
Balance at
December 31, 1992 100 -- -- -- 69,379 (18,235) (11,811)
Capital Contribution
from FM Holdings Inc. -- -- -- -- 47,500 -- --
Net loss for the year -- -- -- -- -- (512) --
Translation adjustment -- -- -- -- -- -- (5,959)
--- ---- --- ---- ------- -------- --------
Balance at
December 31, 1993 100 $ -- -- $ -- $116,879 $(18,747) $(17,770)
=== ==== === ==== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F5
<PAGE> 107
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (512) $ (1,635) $ (7,129)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 24,152 25,253 24,568
Amortization of Subordinated Discount
Debentures and deferred
financing costs 15,972 12,892 11,704
Deferred income taxes (7,078) 10 (4,289)
Change in assets and liabilities:
Accounts receivable, net (10,316) (522) 10,264
Inventories, net 9,888 (9,816) (395)
Other current assets (692) (1,341) (2,243)
Accounts payable 5,989 2,305 (6,091)
Accrued salaries and benefits 4,455 5,589 (992)
Interest payable (757) (638) (1,510)
Other accrued liabilities 4,867 (4,457) (3,312)
Income taxes payable (3,884) (1,117) (6,229)
Other long-term liabilities (9,423) (12,242) 11,804
Other, net (10,567) 862 (1,274)
-------- -------- -------
Net cash provided by operating
activities 22,094 15,143 24,876
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from FM Holdings Inc. 47,500 -- --
Net (payments) borrowings under
short-term borrowings (6,423) 5,749 (2,089)
Net payments under bank credit agreements (52,352) (9,864) (16,366)
Other, net 1,619 (1,122) 921
-------- -------- -------
Net cash used in financing activities (9,656) (5,237) (17,534)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (10,916) (10,811) (8,555)
Other, net (1) 127 52
-------- -------- -------
Net cash used in investing activities (10,917) (10,684) (8,503)
--------- -------- --------
EXCHANGE RATE EFFECT ON CASH 58 288 (531)
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,579 (490) (1,692)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 867 1,357 3,049
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,446 $ 867 $ 1,357
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F6
<PAGE> 108
FORMICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACQUISITION BY FM ACQUISITION CORPORATION
In connection with a tender offer which commenced February 10, 1989 (the
"tender offer"), FM Acquisition Corporation (FM Acquisition), a wholly-owned
subsidiary of FM Holdings Inc. (Holdings), acquired approximately 87.3% of the
common stock of Formica Corporation and subsidiaries (the "Company") on May 3,
1989 for $19 per share (the "acquisition"). On September 7, 1989, a merger was
approved by the Company's stockholders and on September 11, 1989 (the "merger
date"), FM Acquisition was merged with and into the Company. The remaining
12.7% of the Company's common stock was converted into rights to receive $19.00
per share in cash. The investment in the Company represents substantially all
of the assets of Holdings.
The acquisition was accounted for by the Company using the purchase method
of accounting. The purchase cost with respect to the shares of the Company
attributed to investors who have a continuing interest in Holdings following
the acquisition consists of such investor's basis in their shares(i.e., the
original cost of their investment in the Company plus their proportionate share
of the earnings and losses of the Company since the date such investment was
acquired). The purchase cost was finalized during the second quarter of 1990.
The total purchase cost of approximately $354 million was allocated first to
the assets and liabilities of the Company based on their estimated fair values
as determined by valuations and other studies, with the remainder,
approximately $43.3 million, allocated to excess of purchase price over net
assets acquired (goodwill).
The funds required for the merger and related transactions were obtained
pursuant to several credit agreements, from the issuance of subordinated bridge
notes totalling $125 million and from equity financing of approximately $87
million from Holdings. Subsequent to the merger date, certain of the funds
received from the issuance of Senior Subordinated Notes ($100 million) and
Subordinated Discount Debentures ($45 million) were used to repay the
subordinated bridge notes. See Note 4 - Long-term debt for a further
discussion of these obligations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Earnings per
share data are not presented because the Company's common stock is not publicly
traded and since the Company is a wholly-owned subsidiary of Holdings.
F7
<PAGE> 109
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cumulative effect of change in accounting principles
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactments of changes
in the tax law or rates. Previously, the Company used the SFAS 96 asset and
liability approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying amounts.
Under SFAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
International operations
Assets and liabilities of international operations are translated at
the rate of exchange in effect at the balance sheet date. Revenues and
expenses are translated at the weighted average exchange rate for the period.
The resulting translation adjustments are reflected as a separate component of
stockholders' equity. Substantially all foreign subsidiaries are consolidated
on the basis of fiscal years ending on November 30 to facilitate year end
closing. Net assets of foreign subsidiaries totalled $13,540,000 and
$14,257,000 at December 31, 1993 and 1992, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventories in the United States ($33,431,000 at December 31, 1993 and
$38,269,000 at December 31, 1992) and the first-in, first-out (FIFO) method for
all other inventories. Had the FIFO method of determining cost been utilized
for all inventories, inventory values would have been approximately $1,634,000
and $682,000 higher at December 31, 1993 and 1992, respectively. The tax basis
of the LIFO inventories at December 31, 1993 was approximately $16,006,000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies $26,665 $32,371
Work in process 9,627 10,282
Finished goods 31,386 37,653
------- -------
Inventories, net $67,678 $80,306
======= =======
</TABLE>
F8
<PAGE> 110
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
Property, plant and equipment at December 31, 1993 and 1992 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
<S> <C> <C>
Land and improvements $ 15,355 $ 15,180
Buildings and improvements 46,439 48,096
Machinery and equipment 228,403 227,901
-------- --------
290,197 291,177
Less--Accumulated depreciation (78,077) (62,235)
-------- --------
Total property, plant and equipment $212,120 $228,942
======== ========
</TABLE>
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets; generally 25 years for buildings and 12
years for major machinery and equipment. Expenditures for maintenance and
repairs are charged to operations as incurred. Improvements that significantly
extend the useful economic lives of assets are capitalized as well as interest
costs incurred in connection with major capital expenditures. Capitalized
interest is amortized over the lives of the related assets. Gains or losses on
dispositions are included in the consolidated statements of operations.
Depreciation expense for the years ended December 31, 1993, 1992 and 1991 was
$18,573,000, $19,729,000, and $19,172,000, respectively. Net interest costs of
$561,000, $763,000, and $542,000 were capitalized during 1993, 1992 and 1991,
respectively.
Goodwill
Goodwill (the excess of the purchase price over net assets acquired)
is being amortized on a straight-line basis over 40 years. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of the goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. The
Company uses estimates of the results of operations of Formica over the
remaining life of the goodwill in measuring whether the goodwill is
recoverable.
Trademarks and patents
As a result of the transaction described in Note 1, trademarks and
patents were adjusted to their fair values as of May 4, 1989. Trademarks
($90,000,000) are being amortized on a straight-line basis over 40 years.
Patents ($20,400,000) are being amortized on a straight-line basis over periods
ranging between 9 and 15 years. The Company continually evaluates the
remaining useful lives and the recoverability of trademarks and patents as
described above for goodwill.
F9
<PAGE> 111
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred charges and other assets
Deferred charges and other assets consist principally of deferred
financing costs incurred in connection with the merger. These assets are being
amortized using the interest method over periods ranging from 8 to 12 years.
Accumulated amortization of deferred financing costs was $12,800,000 and
$8,900,000 at December 31, 1993 and 1992, respectively.
Research and development
Research and development costs are charged to operations as they are
incurred. Such costs amounted to $3,291,000, $3,488,000 and $3,604,000, for
the years ended December 31, 1993, 1992 and 1991, respectively.
Other income, net
Other income, net generally consists primarily of royalty income,
interest income and gains and losses on foreign currency transactions. In
1993, other income, net includes $1.9 million relating to the reversal of other
long-term liabilities associated with reserves attributable to the realization
of the Company's investment in a product line which, based upon current and
anticipated operating results, management believed were no longer needed. In
1992, other income, net consists primarily of $9.1 million relating to a
reduction of other long-term liabilities attributable to changes in certain of
the Company's postretirement medical benefit plans (See Notes 6 and 10) and
$2.0 million relating to the reversal of other long-term liabilities as a
result of the release of certain warranties and representations made by the
Company in connection with the prior sale of a subsidiary.
Statements of cash flows
For purposes of the statements of cash flows, the Company generally
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. During the years ended December 31,
1993, 1992 and 1991, the Company paid interest of $32,880,000, $41,726,000 and
$43,290,000, and income taxes of $1,026,000, $602,000, and $1,111,000,
respectively.
F10
<PAGE> 112
(3) SHORT-TERM BORROWINGS
Short-term borrowings of Formica consisted of various bank borrowings,
overdraft facilities, international discounted receivables and commercial
loans. The following information relates to short-term borrowings:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Balance outstanding at end of the year $11,351 $14,941 $ 9,766
Average amount outstanding during the year(a) 14,937 14,852 15,998
Maximum amount outstanding during the year(a) 25,715 23,494 28,048
Weighted average interest rate at end of year 8.9% 12.3% 11.3%
Weighted average interest rate during the year(b) 10.5% 12.4% 12.0%
</TABLE>
(a) Based on month-end balances.
(b) Calculated by relating appropriate interest expense to monthly average
borrowings.
(4) LONG-TERM DEBT
Long-term debt of Formica at December 31, 1993 and 1992 consisted of
the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
(IN THOUSANDS)
<S> <C> <C>
Bank Credit Agreements--
U.S. borrowings $ 13,200 $ 19,300
U.K. borrowings 31,116 36,913
French borrowings 3,389 17,504
Spanish borrowings 3,213 35,514
Canadian borrowings 13,220 14,550
Taiwan borrowings 1,404 1,187
-------- --------
Total Bank Credit Agreements 65,542 124,968
-------- --------
Senior Subordinated Notes 100,000 100,000
Subordinated Discount Debentures 85,681 73,647
Other long-term debt, net of current maturities 3,957 5,023
-------- --------
$255,180 $303,638
======== ========
</TABLE>
F11
<PAGE> 113
(4) LONG-TERM DEBT (CONTINUED)
Bank Credit Agreements
In September 1989, Formica executed revolving credit agreements with
Canadian Imperial Bank of Commerce (CIBC), as agent, and certain other banks
for borrowings in the U.S. and by Formica's Canadian, French, Spanish and U.K.
subsidiaries, which agreements have since been amended from time to time (the
"CIBC Bank Credit Agreement"). Additionally, Formica's Taiwan subsidiary
entered into a revolving credit facility with a local bank to repay existing
debt and provide for working capital requirements.
The U.S. borrowings were made under a credit agreement (the "U.S.
Credit Agreement") with CIBC, as agent, and certain other banks. The U.S.
Credit Agreement comprises a revolving credit facility of $26.6 million, a
working capital facility of $15.0 million to be used for domestic and
international working capital purposes and a letter of credit facility for a
U.S. dollar equivalent of approximately $34.8 million. The letter of credit
facility covers letters of credit denominated in Spanish pesetas (up to Pts
2,893,792,500) and Canadian dollars (up to C$18,670,322) to support,
respectively, the Spanish and Canadian subsidiaries' principal borrowings and a
portion of the interest imputed thereon.
The obligations of Formica under the U.S. Credit Agreement are
guaranteed by Holdings and certain of the subsidiaries of Formica and are
secured by first priority mortgages on real property, liens on other
significant assets (including inventory, receivables, machinery and equipment,
contract rights and intangibles) and pledges of the capital stock of Formica
and a portion of the capital stock of certain of its subsidiaries. Formica's
assets are available first and foremost to satisfy the claims of its own
creditors.
The U.S. Credit Agreement expires September 1997 with mandatory
commitment reductions under the revolving credit facility which began in 1991.
The working capital facility matures in September 1994. The letters of credit
issued under the letter of credit facility have stated expiration dates of no
more than one year, and are renewable (as long as no default exists) for
additional one-year periods with a final expiration in September 1997.
The U.K. and French borrowings are made under credit facilities with
local affiliates of CIBC, as agents, and certain other banks. These credit
facilities provide for aggregate borrowings of Pounds Sterling 26,030,000
(approximately $38.8 million) and French Francs 154,500,000 (approximately
$26.2 million), respectively, subject to currency exchange provisions. The
final maturity of such borrowings is September 1997 with mandatory commitment
reductions which began in 1991.
The obligations under the U.K. and French credit facilities are
guaranteed by Formica and certain of its subsidiaries. In addition, such
obligations are secured by certain security agreements covering significant
assets of the U.K. and French subsidiaries (including real property, machinery
and equipment, inventory, receivables and intangibles) and, with respect to the
U.K. subsidiary, by the pledge of the capital stock of its subsidiaries.
F12
<PAGE> 114
(4) LONG-TERM DEBT (CONTINUED)
The Canadian and Spanish borrowings are made under revolving credit
arrangements with local banks. Such borrowings are supported by the letter of
credit facility referred to above covering up to C$17,500,000 (approximately
$13.2 million) and Pts 2,700,000,000 (approximately $19.3 million) in
principal, respectively. The final maturity of such borrowings is September
1997 with mandatory commitment reductions which began in 1991.
The U.S. Credit Agreement contains covenants, the most restrictive of
which significantly limit Formica's ability to borrow additional funds, acquire
or dispose of certain operating assets, redeem its stock and repay its senior
subordinated notes and subordinated discount debentures prior to maturity.
Formica is also prohibited from making loans, paying dividends and otherwise
making distributions to Holdings, except under certain limited circumstances.
Additionally, Formica must maintain minimum levels of working capital and
earnings before interest expense, income taxes, depreciation expense and
amortization expense. Also Formica must maintain minimum interest coverage
ratios and cannot exceed certain maximum leverage ratios. Certain of the
minimum levels and ratios become more restrictive in each succeeding year of
the agreement.
Agreements covering the U.K., French, Spanish and Canadian loan
facilities provide for events of default consistent with the events of default
as defined in the U.S. Credit Agreement. The CIBC Bank Credit Agreement carry
cross default language should an event of default occur under any of the CIBC
Bank Credit Agreement.
Under the terms of the CIBC Bank Credit Agreement, the commitments
have been reduced commencing with the second anniversary of the merger date.
Further reductions are as follows (expressed in U.S. dollars using December 31,
1993 exchange rates): 1994-- $18.3 million; 1995--$13.4 million; 1996--$19.4
million; 1997--remainder. Additionally, the Working Capital Facility of $15.0
million, which is part of the CIBC Credit Agreement, matures in September 1994.
Borrowings under the CIBC Bank Credit Agreement would have to be repaid only to
the extent that outstanding local borrowings exceed the commitment level in
effect after the aforementioned reductions.
In November 1989, Formica's Taiwan subsidiary entered into a loan
agreement with a local bank which permits local currency borrowings of up to
NT$150,000,000 (approximately $5.6 million) at variable interest rates quoted
by the bank. This loan agreement was renewed as of November 30, 1993 and now
includes a separate short-term line of credit facility. At December 31, 1993,
such borrowings bore interest at 6.7%. The loan agreement has a maturity of
one year and may be extended for successive twelve-month periods at the option
of the bank. Formica expects to renew this facility on an annual basis as of
November 30, of each succeeding year. The loan is collateralized by a first
priority mortgage on all of the borrower's real property. The borrower also
undertakes not to encumber any of its other assets unless the benefit of such
security is also extended to the bank. If Formica fails to maintain beneficial
ownership in its Taiwan subsidiary, the bank will be entitled to terminate the
commitment and accelerate
F13
<PAGE> 115
(4) LONG-TERM DEBT (CONTINUED)
the maturity of any outstanding borrowings. This loan agreement is unrelated
to the CIBC Bank Credit Agreement.
The CIBC Bank Credit Agreement bear interest, at the option of
Formica, at one of several variable rates. Borrowings under the CIBC Bank
Credit Agreement and the Taiwan revolving credit facility bear interest at
floating rates which in 1993 averaged approximately 11.8%. Formica has
interest rate swap agreements outstanding at December 31, 1993 on approximately
$18.6 million of these borrowings at an average interest rate of approximately
11.9%. The average interest rate of borrowings under the CIBC Bank Credit
Agreement and the Taiwan revolving credit facility for 1993, after taking into
consideration the adverse impact of the interest rate swap agreements,
approximated 12.7%. The estimated cost to cancel the interest rate swap
agreements at December 31, 1993 was $1.2 million, taking into account current
interest rates.
As of December 31, 1993, utilizing foreign currency exchange rates in
effect at that time, Formica had approximately $69.6 million of available and
unused principal borrowing commitments for both revolving credit and working
capital purposes over and above the $75.0 million of outstanding borrowings
under both the CIBC Bank Credit Agreement and the Taiwan revolving credit
facility. Commitment fees of 1/2% are paid on the unused lines of credit
under the CIBC Bank Credit Agreement. Considering Formica's right to repay the
loans under the CIBC Bank Credit Agreement and the Taiwan revolving credit
facility without penalty and the floating interest rates, Formica believes the
carrying amounts approximate fair value at December 31, 1993.
Senior Subordinated Notes
In October 1989, Formica sold $100 million principal amount of Senior
Subordinated Notes pursuant to an Indenture dated September 15, 1989 (the
"Notes"). Such Notes bear interest at 14% per annum, payable semi-annually,
and mature on October 1, 1999. A sinking fund payment of $40 million is
required to be made on October 1, 1998. The Notes are not redeemable prior to
October 1, 1994, except under limited circumstances. However, in the event of
a change of control, as defined in the Indenture, holders of the Notes will
have the right to require Formica to repurchase the Notes at 101% of their
principal amount. The estimated fair value of the Notes at December 31, 1993
was $107.0 million based on quoted market prices. This estimated fair value
does not represent Formica's actual obligation to the holders of the Notes as
of December 31, 1993.
Subordinated Discount Debentures
In October 1989, Formica issued $95.9 million principal amount of
Subordinated Discount Debentures pursuant to an Indenture dated September 15,
1989 (the "Discount Debentures"). The Discount Debentures were issued at
46.918% ($45 million) of their principal amount and bear interest at 15 3/4%
per annum. No interest is payable until October 1, 1994 and thereafter
interest is payable semi-annually. The Discount Debentures mature on October
1, 2001, however, a sinking fund payment of $38.4 million is required to be
made on October 1, 2000.
F14
<PAGE> 116
(4) LONG-TERM DEBT (CONTINUED)
The Discount Debentures may be redeemed under certain circumstances, but only
after the Notes have been redeemed in full. In the event of a change of
control, as defined in the Indenture, holders of the Discount Debentures will
have the right to require Formica to repurchase the Discount Debentures at 101%
of their accreted value. The accreted value of the Discount Debentures at
December 31, 1993 was $85.7 million. The estimated fair value of the Discount
Debentures was $94.0 million at December 31, 1993 based on quoted market
prices. The estimated fair value does not represent Formica's actual
obligation to the holders of the Discount Debentures as of December 31, 1993.
The Notes and Discount Debentures are subordinated in right of payment
to all debt outstanding under the CIBC Bank Credit Agreement, (including, in
the case of the Discount Debentures, the Notes) as defined in the respective
Indentures. The Indentures for the Notes and Discount Debentures contain
covenants which, among other things, limit the incurrence of additional
indebtedness, restrict the payment of dividends and the making of other
distributions and of certain loans and investments by Formica and its
subsidiaries, limit asset sales, limit the ability of Formica and its
subsidiaries to create liens, limit the ability of Formica to enter into
certain transactions with affiliates and limit the ability of Formica to merge
or consolidate or to transfer substantially all of its assets.
Other long-term debt
Other long-term debt consists principally of certain international
subsidiaries' direct borrowings. Interest on these borrowings is calculated at
adjusted local market rates ranging from 7.0% to 11.0%. Other long-term debt
matures in the next five years as follows (in thousands): 1995--$954;
1996--$771; 1997--$636; 1998--$583; and thereafter--$1,013.
(5) STOCKHOLDERS' EQUITY
On September 27, 1993, Holdings consummated a private placement of $50
million of 13 1/8% Accrual Debentures due September 15, 2005. Interest on the
Accrual Debentures will accrue and compound on a semi-annual basis and will be
payable in cash on September 15, 1998 in an aggregate amount of approximately
$44 million. Thereafter, interest will be payable on March 15 and September 15
of each year. Using funds received from the closing of the private placement,
Holdings made a capital contribution of $47.5 million to Formica in 1993. The
$47.5 million capital contribution was then used by Formica to pay down debt
outstanding under its bank credit agreements. After the private placement was
completed, Holdings filed a registration statement with the SEC, and upon the
registration statement being declared effective, Holdings exchanged the
privately placed Accrual Debentures for identical publicly registered
Debentures.
F15
<PAGE> 117
(6) BENEFIT PLANS
Formica has established pension plans covering substantially all
United States and Canadian employees and certain employees in other countries.
Benefits payable under the plans are reduced by any amounts received by the
participants from Formica's former parent corporation.
The aggregate amount of net periodic pension cost for the principal
defined benefit retirement plans is presented below:
<TABLE>
<CAPTION>
NET PERIODIC PENSION COST
-------------------------
U.S. FOREIGN TOTAL
---- ------- -----
(IN THOUSANDS)
<C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1993
- -----------------
Service cost $ 769 $ 1,252 $ 2,021
Interest cost 1,748 3,224 4,972
Actual return on assets (1,600) (8,542) (10,142)
Net amortization and deferral (518) 4,525 4,007
------- ------- -------
Total $ 399 $ 459 $ 858
======= ======= =======
FOR THE YEAR ENDED
DECEMBER 31, 1992
- -----------------
Service cost $ 779 $ 1,691 $ 2,470
Interest cost 1,575 3,611 5,186
Actual return on assets (1,932) (7,225) (9,157)
Net amortization and deferral (31) 2,328 2,297
------- ------- -------
Total $ 391 $ 405 $ 796
======= ======= =======
FOR THE YEAR ENDED
DECEMBER 31, 1991
- -----------------
Service cost $ 790 $ 1,861 $ 2,651
Interest cost 1,548 3,481 5,029
Actual return on assets (2,947) (5,440) (8,387)
Net amortization and deferral 1,601 1,003 2,604
------- ------- -------
Total $ 992 $ 905 $ 1,897
======= ======= =======
</TABLE>
F16
<PAGE> 118
(6) BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts reflected
in the accompanying balance sheets for the benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- ------ -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Benefit obligations:
Accumulated benefit
obligation
Vested $(22,402) $(21,932) $(34,313) $ (501)
Nonvested (401) (10,396) (2,759) (4,768)
-------- -------- -------- -------
Total $(22,803) $(32,328) $(37,072) $(5,269)
======== ======== ======== =======
Projected benefit obligation $(30,101) $(38,734) $(45,321) $(8,965)
Market value of plan assets 43,459 18,874 54,488 --
-------- -------- -------- -------
Overfunded (underfunded)
projected benefit
obligation 13,358 (19,860) 9,167 (8,965)
Unrecognized (gain) loss (2,147) 5,263 (3,369) (463)
Unrecognized net transition
liability (10) -- (12) --
Unrecognized prior service
cost (1,635) (303) (2,226) --
-------- -------- -------- -------
Pension asset (liability) $ 9,566 $(14,900) $ 3,560 $(9,428)
======== ======== ======== =======
</TABLE>
The pension asset is included in deferred charges and other assets and
the pension liability is included in other long-term liabilities and accrued
salaries and benefits in the consolidated balance sheets.
The projected benefit obligations at December 31, 1993 and 1992 were
determined using an average assumed discount rate of approximately 7.8% and
9.4%, respectively, and an assumed average rate of increase in future
compensation levels of approximately 4.8% and 5.8%, respectively. The average
expected long-term rate of return on assets for 1993 and 1992 was approximately
9.6% and 10.1%, respectively.
In addition to pension benefits, Formica provides certain health care
benefits to its domestic retirees on a shared-cost basis. Eligible employees
receive postretirement benefits comparable to those received while working for
Formica. Formica may terminate, amend or change the plan periodically.
Substantially all of the current domestic retirees receive coverage from
Formica's former parent corporation's health care benefit plan.
F17
<PAGE> 119
(6) BENEFIT PLANS (CONTINUED)
As a result of changes to certain of Formica's postretirement medical
benefit plans, Formica's estimated accumulated postretirement benefit
obligation decreased by $9.1 million at December 31, 1992. This adjustment of
Formica's estimated obligation was recorded as other income in the Company's
Consolidated Statement of Operations for the year ended December 31, 1992. The
income tax provision associated with the increase in other income was $3.5
million and the resulting decrease in the net loss was $5.6 million.
In the first quarter of 1993, Formica adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106). This statement requires the accrual
of the cost of providing postretirement benefits, including medical and life
insurance coverage, during the active service of the employee. There was no
effect on the 1993 financial statements as a result of adopting SFAS 106. In
accordance with the provisions of this statement, postretirement benefit
information for prior years has not been restated. Such expense was immaterial
in each year.
The Net Periodic Postretirement Benefit Cost (NPPBC) is the amount to
be expensed for any given year. The NPPBC for 1993 was approximately $269,000.
The pro-forma effect of this change on years prior to 1993 was not
determinable. Prior to 1993, Formica recognized expense in the year the
benefits were paid.
Included in other long-term liabilities in the December 31, 1993 and
1992 consolidated balance sheet are approximately $2.2 million and $1.9
million, respectively, representing the accumulated postretirement benefit
obligation ("APBO") related to these other postretirement health care benefits.
The NPPBC for the year ended December 31, 1993 includes the following
components (in thousands):
<TABLE>
<S> <C>
Service cost--benefits attributed to employee
service during the year $ 108
Interest cost on APBO 161
-----
NPPBC $ 269
=====
</TABLE>
The discount rate used in determining the APBO and the assumed average
rate of increase in future compensation levels was 7.0% and 5.0%, respectively,
at December 31, 1993. The assumed trend rate used in projecting health care
costs was 15% in 1993, declining by 1% per year to an ultimate level of 6% per
year in 2002. However, the impact of these projected health care costs on the
APBO was limited by the current plans' provisions. Accordingly, a 1% increase
in the health care cost trend rate assumptions would have no impact on the APBO
at December 31, 1993 or the service cost and interest cost components of the
NPPBC for 1993.
F18
<PAGE> 120
(7) COMMITMENTS AND CONTINGENCIES
Formica rents office and warehouse space, transportation equipment and
certain other items under noncancellable operating leases. Certain of these
leases include additional charges based on inflation and increases in real
estate taxes. Rent expense for the years ended December 31, 1993, 1992 and
1991 was $8,568,000, $7,617,000 and $8,819,000, respectively. Minimum
commitments under these leases are $6,296,000 in 1994; $4,314,000 in 1995;
$2,805,000 in 1996; $2,125,000 in 1997; $1,085,000 in 1998 and $548,000
thereafter. The Company also leases certain plant and equipment pursuant to
agreements accounted for as capital leases. Minimum rental commitments and
amounts capitalized under these agreements are not significant.
In the ordinary course of business, Formica is the subject of or party
to various pending or threatened litigation and claims. Formica is also
involved in various environmental matters in which the Environmental Protection
Agency or other third parties have claimed that Formica may be partially
responsible for certain costs related to the clean up of waste disposal sites.
While it is not possible to predict with certainty the outcome of any of these
matters, management believes that the ultimate result of such actions or claims
individually or in the aggregate, will not have a material adverse effect on
the consolidated financial statements of the Company.
(8) INCOME TAXES
The (benefit) provision for income taxes consists of the following
components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
United States $ (420) $ -- $(1,399)
Foreign (790) 1,003 2,806
State (276) 53 390
------- ------ -------
(1,486) 1,056 1,797
------- ------ -------
Deferred:
United States (6,155) (603) 527
Foreign (923) 613 (4,816)
------- ------ -------
(7,078) 10 (4,289)
------- ------ -------
$(8,564) $1,066 $(2,492)
======= ====== =======
</TABLE>
F19
<PAGE> 121
(8) INCOME TAXES (CONTINUED)
United States and foreign operations contributed to loss before income
taxes as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
United States $(11,244) $(1,737) $(13,340)
Foreign (682) 1,168 3,719
-------- ------- --------
Loss before income taxes $(11,926) $ (569) $ (9,621)
======== ======= ========
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at December
31, 1993:
<TABLE>
<S> <C>
Differences in the tax basis and the book
basis of -
Property, plant and equipment $ 56,005
Trademarks and patents 35,453
Inventories 5,631
Undistributed earnings of subsidiaries 4,030
Other (no item exceeds 5% of net deferred
tax liability) 19,479
--------
Gross deferred tax liabilities 120,598
--------
Loss carryforwards and carrybacks (9,904)
Tax credit carryforwards (6,542)
Other (no item exceeds 5% of net deferred
tax liability) (15,903)
--------
Gross deferred tax assets (32,349)
--------
Deferred tax assets valuation allowance 7,519
--------
Net deferred tax liability $ 95,768
========
</TABLE>
F20
<PAGE> 122
(8) INCOME TAXES (CONTINUED)
The principal items giving rise to deferred taxes in 1992 and 1991 are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1992 1991
---- ----
(IN THOUSANDS)
<S> <C> <C>
Book in excess of tax depreciation $(1,641) $(2,599)
Provisions for inventory reserves (1,467) 763
Amortization of trademarks and patents (1,100) (1,321)
Differences between book and tax deductions for
accruals 4,004 (590)
Impact of enacted changes in foreign tax rates (75) (520)
Other, net 289 (22)
------- -------
$ 10 $(4,289)
======= =======
</TABLE>
The difference between the U.S. statutory tax rate and the Company's
effective tax rate was due to the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
PERCENT PERCENT PERCENT
------- ------- -------
<S> <C> <C> <C>
U.S. statutory tax rate (35)% (34)% (34)%
State tax, net of Federal tax -- 9 3
Expenses not deductible for tax purposes 5 98 5
Impact of foreign deemed dividends 19 299 22
Impact of foreign tax rates and
foreign tax audits (13) (185) (30)
Impact of enacted changes in tax rates 13 (13) (5)
Impact of operating loss carryback (10) -- --
Reversal of deferred taxes
no longer needed (41) -- --
Alternative minimum tax adjustment -- -- 2
Other, net (10) 13 11
--- --- ---
Effective tax rate (72)% 187% (26)%
=== === ===
</TABLE>
The net change in the valuation allowance for deferred tax assets was
an increase of $2,839,000 which is exclusive of foreign exchange effects. The
Company increased its U.S. Federal deferred income tax liability in 1993 by
approximately $1,566,000 as a result of legislation enacted during 1993,
increasing the corporate income tax rate from 34% to 35% commencing January 1,
1993.
F21
<PAGE> 123
(8) INCOME TAXES (CONTINUED)
The Company has provided foreign withholding and U.S. Federal income
taxes on the cumulative unremitted earnings of certain consolidated
international subsidiaries and joint ventures. The Company has not provided
for certain income taxes on the undistributed earnings of one of its
international subsidiaries, as it is the Company's intention to permanently
reinvest such earnings, which amount to $22,303,000 at December 31, 1993. At
December 31, 1993, the Company had foreign tax credit carryforwards available
of $6,377,360 which expire in 1994 ($4,192,646); 1997 ($1,184,714); and 1998
($1,000,000). At December 31, 1993, the Company had for Federal income tax
purposes net operating loss carryforwards available of $12,008,956 expiring as
follows: 2006-- $10,809,725 and 2008--$1,199,231.
In February 1992, the Financial Accounting Standards Board issued a
Statement of Financial Accounting Standards No. 109 ("SFAS 109") on accounting
for income taxes. This statement supersedes SFAS 96, Accounting for Income
Taxes. The Company adopted the accounting and disclosure rules prescribed by
SFAS 109 as of January 1, 1993. The adjustments to the January 1, 1993 balance
sheet to adopt SFAS 109 netted to $2,850,000. This amount is reflected in the
1993 net loss as the cumulative effect of a change in accounting principle.
F22
<PAGE> 124
(9) SEGMENT AND GEOGRAPHIC DATA
Formica is engaged in one line of business--the design, manufacture
and distribution of decorative laminates and other surfacing products.
Information about the business of Formica by geographic area is presented in
the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
United States $252,455 $233,793 $203,589
International 248,003 274,123 260,165
Eliminations (53,379) (61,699) (42,573)
-------- -------- --------
$447,079 $446,217 $421,181
======== ======== ========
Operating income(a)
United States(b) $10,525 $ 9,177 $ 8,219
International 17,908 28,347 31,402
-------- -------- --------
$ 28,433 $ 37,524 $ 39,621
======== ======== ========
Capital expenditures
United States $7,837 $ 4,302 $ 4,054
International 3,079 6,509 4,501
-------- -------- --------
$ 10,916 $ 10,811 $ 8,555
======== ======== ========
Depreciation and amortization(a)
United States $15,313 $ 14,859 $ 14,639
International 8,839 10,394 9,929
-------- -------- --------
$ 24,152 $ 25,253 $ 24,568
======== ======== ========
Assets (at period end)
United States $317,141 $324,491 $330,745
International 224,490 238,352 259,034
-------- -------- --------
$541,631 $562,843 $589,779
======== ======== ========
</TABLE>
(a) Includes additional depreciation and amortization expense of
$8,248,000, $8,665,000 and $8,667,000 for the years ended December 31,
1993, 1992 and 1991, respectively, relating to the revaluation of
certain assets in connection with the acquisition.
(b) Includes unallocated corporate and research expenses of $6,693,000, in
1993, $6,101,000 in 1992, and $6,503,000 in 1991.
F23
<PAGE> 125
(9) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
Geographic data concerning international operations are as follows:
<TABLE>
<CAPTION>
PACIFIC
EUROPE BASIN OTHER
------ ----- -----
<S> <C> <C> <C>
Revenues:
1993 65% 19% 16%
1992 71 15 14
1991 74 11 15
Operating Income:
1993 58% 35% 7%
1992 75 19 6
1991 81 13 6
Identifiable Assets:
1993 73% 13% 14%
1992 76 10 14
1991 78 8 14
</TABLE>
Export sales are not a significant part of the Company's domestic
operations. Transfers between areas are valued at cost plus markup, which
approximates fair market value.
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
1993
THREE MONTHS ENDED
MARCH 31(A) JUNE 30 SEPT. 30(B) DEC. 31(C)
----------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $103,183 $112,490 $109,499 $121,907
Gross profit 29,432 32,820 29,510 35,444
Net income (loss) 117 (2,035) (3,392) 4,798
1992
THREE MONTHS ENDED
MARCH 31(D) JUNE 30(E) SEPT. 30 DEC. 31
----------- ---------- -------- -------
Net sales $104,214 $114,621 $111,699 $115,683
Gross profit 28,894 33,505 31,870 37,491
Net income (loss) (3,335) 3,199 (1,885) 386
</TABLE>
(a) The results of operations for the three months ended March 31, 1993
included $2.85 million reflected as the cumulative effect of a change
in accounting principle, relating to the adoption of SFAS 109.
(b) The results of operations for the three months ended September 30,
1993 included $1.9 million relating to the reversal of other long-term
liabilities associated with reserves attributable to the realization
of the Company's investment in a product line which, based upon
current and anticipated operating results, management believed were no
longer needed.
F24
<PAGE> 126
(10) QUARTERLY FINANCIAL INFORMATION (CONTINUED)
(c) The results of operations for the three months ended December 31, 1993
included $2.9 million income tax benefit related to the reversal of
certain deferred taxes which the Company believes are no longer
needed.
(d) The results of operations for the three months ended March 31, 1992
included $2.8 million relating to a reduction of other long-term
liabilities attributable to changes in certain of the Company's
postretirement medical benefit plans.
(e) The results of operations for the three-month period ended June 30,
1992 included $6.3 million relating to a reduction of other long-term
liabilities attributable to changes in certain of the Company's
postretirement medical benefit plans and $2.0 million relating to the
reversal of other long-term liabilities as a result of the release of
certain warranties and representations made by Formica in connection
with the prior sale of a subsidiary.
F25
<PAGE> 127
FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
-------------- -----------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,507 $ 2,446
Accounts receivable, net 79,700 81,350
Inventories, net 76,396 67,678
Other current assets 18,714 18,150
-------- --------
TOTAL CURRENT ASSETS 178,317 169,624
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 209,108 212,120
GOODWILL, NET 37,961 38,231
TRADEMARKS AND PATENTS, NET 91,006 92,024
DEFERRED CHARGES AND OTHER ASSETS 29,864 29,632
-------- --------
$546,256 $541,631
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 19,758 $ 11,351
Accounts payable 34,890 40,313
Accrued compensation 25,603 24,678
Other accrued liabilities 9,227 13,846
Income taxes payable 2,373 2,367
-------- --------
TOTAL CURRENT LIABILITIES 91,851 92,555
-------- --------
LONG-TERM DEBT 266,370 255,180
-------- --------
OTHER LONG-TERM LIABILITIES 12,599 15,849
-------- --------
DEFERRED INCOME TAXES 97,109 97,685
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock; 100 shares
outstanding - -
Preferred stock; none outstanding - -
Capital in excess of par value 116,879 116,879
Accumulated deficit (20,691) (18,747)
Cumulative translation adjustment (17,861) (17,770)
-------- --------
TOTAL STOCKHOLDER'S EQUITY 78,327 80,362
-------- --------
$546,256 $541,631
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F26
<PAGE> 128
FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS
ENDED MARCH 31,
---------------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $107,592 $103,183
Cost of sales 76,284 73,751
-------- --------
Gross profit 31,308 29,432
Selling, general and
administrative expenses 24,637 24,053
-------- --------
Operating income 6,671 5,379
Other income, net 787 609
-------- --------
Income before interest expense,
income taxes and accounting change 7,458 5,988
Interest expense 9,625 11,914
-------- --------
Loss before income taxes and (2,167) (5,926)
accounting change
Income tax benefit (223) (3,193)
-------- --------
Loss before accounting change (1,944) (2,733)
Accounting change - cumulative
effect to January 1, 1993, of
accounting for income taxes - (2,850)
-------- --------
Net income (loss) $ (1,944) $ 117
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F27
<PAGE> 129
FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS
ENDED MARCH 31,
-------------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,944) $ 117
Depreciation and amortization 5,934 6,197
Amortization of Subordinated
Discount Debentures and deferred
financing costs 3,871 3,489
Deferred income taxes (442) (7,980)
Changes in operating assets and
liabilities, net (18,150) (22,749)
-------- ---------
Net cash used in operating
activities (10,731) (20,926)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 10,337 11,047
Net borrowings under bank credit
agreements 5,564 14,197
Other, net (2,089) (246)
-------- ---------
Net cash provided by financing
activities 13,812 24,998
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (2,029) (1,166)
Other, net (4) 21
-------- ---------
Net cash used in investing
activities (2,033) (1,145)
-------- ---------
Effect of exchange rate changes on cash 13 (10)
-------- ---------
Net change in cash and cash equivalents 1,061 2,917
Cash and cash equivalents at beginning
of period 2,446 867
-------- --------
Cash and cash equivalents at end of
period $ 3,507 $ 3,784
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F28
<PAGE> 130
FORMICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Formica Corporation and its subsidiaries (the "Company" or
"Formica"). All significant intercompany balances and transactions have been
eliminated. Earnings per share data are not presented because the Company's
common stock is not publicly owned and since the Company is a wholly-owned
subsidiary of FM Holdings Inc. ("Holdings"). In the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods presented have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
entire year. These interim financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(2) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, FAS 109 generally considers
all expected future events other than enactments of changes in the tax law or
rates. Previously, the Company used the FAS 96 asset and liability approach
that gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
Under FAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
The adjustments to the January 1, 1993 balance sheet to adopt FAS 109 netted to
$2,850,000. This amount is reflected in first quarter 1993 net income as the
cumulative effect of a change in accounting principle.
(3) INVENTORIES, NET
Major classes of inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials $28,003 $26,665
Work in process 10,234 9,627
Finished goods 38,159 31,386
------- -------
$76,396 $67,678
======= =======
</TABLE>
F29
<PAGE> 131
(4) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment balances were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land and improvements $ 15,450 $ 15,355
Buildings and improvements 46,185 46,439
Machinery and equipment 230,005 228,403
-------- --------
291,640 290,197
Less - accumulated depreciation (82,532) (78,077)
-------- --------
$209,108 $212,120
======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Bank Credit Agreements $ 70,594 $ 65,542
Senior Subordinated Notes 100,000 100,000
Subordinated Discount Debentures 88,921 85,681
Other long-term debt 6,855 3,957
-------- --------
$266,370 $255,180
======== ========
</TABLE>
(6) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the three month periods ended March 31, 1994 and 1993, the Company paid
interest of $9.0 million and $11.3 million and income taxes of $0.2 million and
$0.7 million, respectively.
(7) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions" ("FAS 106"). This statement requires the accrual of the
cost of providing postretirement benefits, including medical and life insurance
coverage, during the active service of the employee. There was no effect on
the accompanying 1993 financial statements as a result of adopting FAS 106.
In accordance with the provision of this statement, postretirement benefit
information for prior years has not been restated.
F30
<PAGE> 132
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY DILLON READ. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary...................... 3
The Company............................. 11
Certain Risk Factors.................... 12
Use of Proceeds......................... 17
The Acquisition......................... 17
Capitalization.......................... 21
Selected Historical Consolidated
Financial Data........................ 22
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................. 24
Business................................ 32
Management.............................. 43
Ownership of the Capital Stock of the
Company and Holdings.................. 50
Certain Transactions and
Relationships......................... 55
Description of Merger Credit
Agreement............................. 56
Description of the Securities........... 68
Certain Federal Income Tax
Considerations........................ 91
Selling Debenture Holders............... 94
Plan of Distribution.................... 94
Legal Matters........................... 97
Experts................................. 97
Additional Information.................. 97
Index to Financial Statements........... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(LOGO)
FORMICA CORPORATION
------------------------
$100,000,000
14% SENIOR SUBORDINATED
NOTES DUE 1999
$95,910,000
15 3/4% SUBORDINATED DISCOUNT
DEBENTURES DUE 2001
PROSPECTUS
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various approximate expenses in
connection with the sale and distribution of the securities being registered,
other than underwriting discounts and commissions, if any.
<TABLE>
<CAPTION>
SUBORDINATED
DISCOUNT
ITEM NOTES DEBENTURES
------------------------------------------------------------ --------
<S> <C> <C>
SEC registration fee........................................ $ 20,000 $ 9,000
NASD filing fee............................................. 10,500 5,000
Printing costs.............................................. 350,000 45,000
Blue Sky fees and expenses.................................. 30,000 5,000
Legal fees and expenses..................................... 225,000 20,000
Accounting fees and expenses................................ 295,000 5,000
Trustees' fees and expenses................................. 20,000 20,000
Miscellaneous............................................... 24,500 1,000
-------- -----------
Total........................................ $975,000 $ 110,000
======== ==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that no director of
the Registrant shall be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
In addition, the Registrant's Certificate of Incorporation provides that
each person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another Corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, permitted by the Delaware
General Corporation Law, against all expense, liability and loss penalties and
amounts paid or to be paid in settlement) actually reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators.
In addition, the Registrant has entered into indemnity agreements with each
of its directors with respect to liabilities and expenses incurred by directors
and certain officers, employees, agents and fiduciaries of the Registrant
arising from their association with the Registrant or related entities (the
"Indemnity Agreement"). The Indemnity Agreement provides for indemnification for
expenses and liabilities (including judgments, fines, settlements, penalties and
attorney's fees) incurred by reason of the fact that the person being
indemnified is or was an officer or director of the Registrant, but only if the
person being indemnified acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Registrant.
The Indemnity Agreement sets out a procedure for determining compliance
with the applicable standard of conduct. When a proper request for
indemnification under the Indemnity Agreement is submitted, the party or entity
making the determination as to whether indemnification is available shall
presume that the
II-1
<PAGE> 134
indemnified party is entitle to indemnification, and the Registrant bears the
burden of proof to overcome this presumption. Under certain circumstances, a
party to the Indemnity Agreement will be conclusively presumed to have met the
applicable standard of conduct unless the Registrant's Board of Directors,
stockholders or independent legal counsel determines within a specified period
that the relevant standard has not been met. The Indemnity Agreement requires
the Registrant to advance litigation expenses at the request of the indemnified
party in advance of the final resolution of a proceeding. In the Indemnity
Agreement, the indemnified party undertakes to repay such advances if it is
ultimately determined that such party is not entitled to indemnification for
expenses. The advance of litigation expenses is thus mandatory. The Indemnity
Agreement permits an indemnified party to bring suit to seek recovery of amounts
due under the Indemnity Agreement and to recover the expenses of such a suit if
the indemnified party is successful.
Under the terms of the Merger Agreement, the Registrant must indemnify and
hold harmless (and advance expenses to), each present and former director and
officer of the Registrant or any of its subsidiaries (the "Indemnified Parties")
to the fullest extent required or permitted under the Registrant's By-laws as in
effect on the date of the Merger Agreement, and under Delaware law, against any
losses, claims, damages, liabilities, costs, expenses and judgements in
connection with any claim, action, suit, proceeding or investigation arising out
of or pertaining to any action, alleged action, omission or alleged omission
occurring on or prior to the Effective Time (including, without limitation, any
claims, action, suits, proceedings or investigations which arise out of or
relate to the transactions contemplated by the Merger Agreement). For six years
after the Effective Time, the Registrant's Bylaws shall not be amended in a
manner that adversely affects the rights of any party to indemnification
thereunder or under the Merger Agreement.
The Merger Agreement further provides that for six years after the
Effective Date, the Registrant must use its best efforts to provide officers'
and directors' liability insurance covering the Indemnified Parties who are
currently covered by the Registrant's officers' and directors' liability
insurance policy, with respect to actions, alleged actions, omissions and
alleged omissions occurring at or prior to the Effective Time, on terms no less
favorable than those of such policy in terms of coverage and amounts; provided
that in no event shall the Company be required to spend in excess of 150% of the
rates for such insurance paid by the Company as of February 6, 1989.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Acquisition, FM Acquisition issued approximately
$125.0 million of Bridge Notes to Travelers. The Bridge Participants purchased
participations in $45 million of Bridge Notes from Travelers at the time of the
consummation of the Offer. These institutional investors agreed, among other
matters, to purchase the Subordinated Discount Debentures from the Company on a
private placement basis in exchange for their participation interests. The
Subordinated Discount Debentures were issued at a substantial discount. Such
issuances were effected in reliance on the exemption contained in Section 4(2)
of the Securities Act. Such issuances did not involve a public offering and were
purchased by the purchasers thereof for their own account without a view toward
distribution.
In January 1989 FM Acquisition issued 100 shares of common stock to
Holdings in consideration of $10.00 per share in cash. the issuance to Holdings
was effected in reliance on the exemption contained in Section 4(2) of the
Securities Act. Such issuance did not involve a public offering and was
purchased by Holdings for its own account without a view toward distribution.
II-2
<PAGE> 135
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C> <C>
1(m) -- Purchase Agreement dated September 17, 1993 between FM Holdings Inc. and
Dillon, Read & Co. Inc.
1.2(a) -- Agreement to Act as Qualified Independent Underwriter
2.1(a) -- Merger Agreement dated February 6, 1989, as amended, by and among FM
Holdings Inc., FM Acquisition Corporation and Formica Corporation
3.1(a) -- Articles of Incorporation of the Registrant
3.2(a) -- By-laws of the Registrant
4.1(a) -- Form of Senior Subordinated Note due 1999 (contained in Exhibit 4.3)
4.2(b) -- Form of Subordinated Discount Debenture due 2001 (contained in Exhibit
4.4)
4.3(a) -- Form of Indenture of Formica Corporation for Senior Subordinated Notes due
1999
4.4(b) -- Form of Indenture of Formica Corporation for Subordinated Discount
Debentures due 2001
4.5(a) -- Form of Credit Agreement dated as of September 7, 1989 by and among the
Registrant (certain subsidiaries of the Registrant), the financial
institutions then or thereafter parties thereto and Canadian Imperial Bank
of Commerce, New York Agency, as Agent
4.6(a) -- Form of Credit Agreement dated as of September 7, 1989 by and among
Formica Limited, the financial institutions then or thereafter parties
thereto and Canadian Imperial Bank of Commerce, London Branch, as Agent
4.7(a) -- Form of Loan Agreement dated as of September 7, 1989 by and among Formica
France S.A., the financial parties then or thereafter parties thereto and
Canadian Imperial Bank of Commerce (International), S.A., as Agent
4.8(a) -- Form of Credit Agreement dated as of September 7, 1989 between Canadian
Imperial Bank of Commerce and Formica Canada Inc.
4.9(a) -- Form of Loan Agreement dated as of September 7, 1989 between Formica
Espanola, S.A. and Banco Bilbao Vizcaya, S.A.
4.10(d) -- Loan Agreement dated November 30, 1990 between Credit Lyonnais, Taipei
Branch and Formica Taiwan Corporation
4.10.A(d) -- Schedules I, II and III to the Loan Agreement dated November 30, 1990
between Credit Lyonnais, Taipei Branch and Formica Taiwan Corporation
4.11(e) -- Amendment No. 1 dated as of January 15, 1990 to Loan Agreement dated as of
September 7, 1989 by and among Formica Limited, the financial institutions
then or thereafter parties thereto and Canadian Imperial Bank of Commerce,
London Branch, as Agent
4.12(g) -- Amendment No.1, dated as of September 20, 1990, to the Credit Agreement,
dated as of September 7, 1989, by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as Agent, and Consent and Waiver, dated as of September 20,
1990, and Initial Participant Consent related thereto
4.13(f) -- Amendment No. 2, dated as of August 8, 1991, to the Credit Agreement,
dated as of September 7, 1989, by and among Formica Corporation, the
financial institutions then and thereafter parties thereto and Canadian
Imperial Bank of Commerce, New York Agency, as Agent.
4.14(c) -- Recognition and Assumption Agreement, dated as of December 20, 1991 among
Formica Corporation, Formica Technology Inc., Texas, Formica Technology
Inc., Delaware and Canadian Imperial Bank of Commerce, New York Agency and
Pledge Agreement Supplement, dated as of December 20, 1991 between Formica
Corporation and Canadian Imperial Bank of Commerce, New York Agency
related thereto.
4.15(i) -- Amendment No. 1, dated as of February 17, 1992, to the Loan Agreement
dated November 30, 1990 between Credit Lyonnais, Taipei Branch and Formica
Taiwan Corporation.
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C> <C>
4.16(j) -- Consent to Release of Pledged Shares, dated as of July 6, 1992, to the
Credit Agreement, dated as of September 7, 1989, as amended, by and among
Formica Corporation, certain subsidiaries of Formica Corporation, the
financial institutions then and thereafter parties thereto and Canadian
Imperial Bank of Commerce, New York Agency, as Agent.
4.17(k) -- Amendment No. 3, dated as of March 9, 1993 to the Credit Agreement, dated
as of September 7, 1989, by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as Agent, and Consent related thereto.
4.18(l) -- Amendment dated as of July 20, 1993 to the Loan Agreement dated November
30, 1990 between Credit Lyonnais, Taipei Branch and Formica Taiwan
Corporation
4.19(l) -- Short-Term Line of Credit Facility dated as of July 20, 1993 between
Credit Lyonnais, Taipei Branch and Formica Taiwan Corporation
4.20(m) -- Amendment No. 4 dated as of August 20, 1993 to the Credit Agreement dated
as of September 7, 1989 by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as agent, and Consent related thereto
4.21(m) -- Form of 13 1/8% Accrual Debenture due 2005, Series A (included in Exhibit
4.23)
4.22(m) -- Form of 13 1/8% Accrual Debenture due 2005, Series B (included in Exhibit
4.23)
4.23(m) -- Indenture between FM Holdings Inc. and United Jersey Bank, as trustee,
relating to the Accrual Debentures due 2005, Series A and the Accrual
Debentures due 2005, Series B
4.24(m) -- Registration Rights Agreement dated September 27, 1993 between FM Holdings
Inc. and Dillon, Read & Co. Inc.
4.25(m) -- Debenture Pledge Agreement dated September 27, 1993 between FM Holdings
Inc. and United Jersey Bank, as trustee
4.26(m) -- Collateral Subordination and Intercreditor Agreement dated September 27,
1993 between Canadian Imperial Bank of Commerce, as collateral agent, and
United Jersey Bank, as trustee
4.27(m) -- Amended and Restated Pledge Agreement dated as of September 27, 1993 made
by FM Holdings Inc. in favor of Canadian Imperial Bank of Commerce, as
collateral agent
4.28(m) -- Amendment No. 1 to U.S. Pledge Agreement dated as of September 27, 1993
made by Formica Corporation and the other pledgors named therein in favor
of Canadian Imperial Bank of Commerce, as collateral agent
5(m) -- Opinion of Simpson Thacher & Bartlett regarding the legality of the New
Debentures being registered
5.1(a) -- Opinion of Cahill Gordon & Reindel with respect to the Notes
5.1(b) -- Opinion of Cahill Gordon & Reindel with respect to the Subordinated
Discount Debentures
8(m) -- Opinion of Simpson Thacher & Bartlett regarding tax matters
10.1(a) -- Employment Agreement between Vincent P. Langone and the Registrant
10.2(a) -- Employment Agreements between John Boanas and the Registrant
10.3(a) -- Employment Agreement between David Schneider and the Registrant
10.4(a) -- Formica Corporation Employee Savings Plan for employees not covered by a
collective bargaining agreement
10.5(a) -- Formica Corporation employee Savings Plan for employees covered by a
collective bargaining agreement
10.6(e) -- Formica Corporation Employee Retirement Plan, as Amended and Restated as
of January 1, 1990
10.7(a) -- Form of Indemnity Agreement dated as of June 27, 1987 between the
Registrant and its directors and officers
10.8(a) -- Form of Executive Officer Termination Agreement dated February 5, 1989 by
and between the Registrant and each of Messrs. Brooks, Kraus, Schneider
and Marshall
10.9(a) -- Form of Executive Officer Termination Agreement between the Registrant and
Vincent P. Langone
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C> <C>
10.10(a) -- Form of Executive Officer Termination Agreement between the Registrant and
John Boanas
10.11(a) -- Form of Employment Agreement between Peter Marshall and the Registrant
10.12(a) -- Form of Employment Agreement between Charles Brooks and the Registrant
10.13(a) -- Form of Employment Agreement between Robert Kraus and the Registrant
12.1(a) -- Computation of ratio of earnings to fixed charges
12.1.A(a) -- Computation of ratio of earnings to fixed charges
12.1.B -- Historical ratio of earnings to fixed charges and deficiency of earnings
available to cover fixed charges
12.2(a) -- Computation of pro forma deficiency of earnings to fixed charges
12.2.A(h) -- Pro forma deficiency of earnings available to cover fixed charges
21(n) -- List of subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen & Co.
23.2(a) -- Consent of Cahill Gordon & Reindel with respect to the Notes
23.2(b) -- Consent of Cahill Gordon & Reindel (included in Exhibit 5.1) with respect
to the Subordinated Discount Debentures
23.2(m) -- Consent of Simpson Thacher & Bartlett with respect to the Accrual
Debentures due 2005, Series B (included in their opinion filed as Exhibit
5)
24(a) -- Powers of Attorney
25.1(a) -- Statement of eligibility of Trustee on Form T-1 (separately bound)
25.1(b) -- Statement of eligibility of Debenture Trustee on Form T-1 (separately
bound)
99.1(m) -- Form of Letter of Transmittal
99.2(m) -- Form of Notice of Guaranteed Delivery
99.3(m) -- Form of Exchange Agent Agreement to be entered into between FM Holdings
Inc. and United Jersey Bank, as exchange agent
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Previously filed as an Exhibit to Registration Statement No. 33-30012 as the Exhibit
No. indicated and hereby incorporated into Registration Statement No. 33-31900 by
reference.
(b) Previously filed as an Exhibit to Registration Statement No. 33-31900 as the Exhibit
No. indicated and hereby incorporated into Registration Statement No. 33-30012 by
reference.
(c) Previously filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1991 as the Exhibit No. indicated and hereby incorporated by reference.
(d) Previously filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1990 as the Exhibit No. indicated and hereby incorporated herein by reference.
(e) Previously filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1989 as the Exhibit No. indicated and hereby incorporated herein by reference.
(f) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter ended June
30, 1991 as the Exhibit No. indicated and hereby incorporated by reference.
(g) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1990 as the Exhibit No. indicated and hereby incorporated herein by
reference.
(h) Previously filed as an Exhibit to Post-Effective Amendment No. 5 to Registration
Statement No. 33-30012 and Post-Effective Amendment No. 4 to Registration Statement No.
33-31900 as the Exhibit No. indicated and hereby incorporated by reference.
(i) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter ended March
31, 1992 as the Exhibit No. indicated and hereby incorporated by reference.
(j) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1992 as the Exhibit No. indicated and hereby incorporated by reference.
(k) Previously filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1992 as the Exhibit No. indicated and hereby incorporated by reference.
</TABLE>
II-5
<PAGE> 138
<TABLE>
<C> <S>
(l) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter ended June
30, 1993 as the Exhibit No. indicated and hereby incorporated by reference.
(m) Previously filed as an Exhibit to FM Holdings Inc.'s S-4 Registration Statement No.
33-70196 as the Exhibit No. indicated and hereby incorporated by reference.
(n) Previously filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1993 as the Exhibit No. indicated and hereby incorporated by reference.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules are as follows:
<TABLE>
<S> <C>
V -- Property, Plant and Equipment
VI -- Accumulated Depreciation of Property, Plant and Equipment
VIII -- Valuation and Qualifying Accounts
X -- Supplementary Income Statement Information
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is contained in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant,
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registration pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(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;
II-6
<PAGE> 139
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
II-7
<PAGE> 140
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 8 AND POST-EFFECTIVE AMENDMENT
NO. 7 TO REGISTRATION STATEMENT NOS. 33-30012 AND 33-31900, RESPECTIVELY, TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON THE 22ND DAY OF JUNE, 1994.
FORMICA CORPORATION
By: VINCENT P. LANGONE
VINCENT P. LANGONE
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 8 AND POST-EFFECTIVE AMENDMENT NO. 7 TO
REGISTRATION STATEMENT NOS. 33-30012 AND 33-31900, RESPECTIVELY, HAS BEEN SIGNED
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 22ND DAY OF JUNE,
1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ---------------------
<S> <C>
VINCENT P. LANGONE Director, Chairman,
Vincent P. Langone President and
Chief Executive Officer
CHARLES P. DURKIN, JR.* Director
Charles P. Durkin, Jr.
ILAN KAUFTHAL* Director
Ilan Kaufthal
WAYNE B. LYON* Director
Wayne B. Lyon
PETER J. PIRSCH* Director
Peter J. Pirsch
BRET E. RUSSELL Director
Bret E. Russell
DAVID SCHNEIDER* Vice President and
David Schneider Chief Financial Officer
(Principal Financial and
Accounting Officer)
*By: BRET E. RUSSELL
Bret E. Russell
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 141
SCHEDULE INDEX
<TABLE>
<S> <C>
Financial Statement Schedules Page
Report of Independent Public Accountants on Schedules.......... S2
Schedule V - Property, Plant and Equipment................. S3
Schedule VI - Accumulated Depreciation of Property, Plant
and Equipment............................. S4
Schedule VIII - Valuation and Qualifying Accounts............. S5
Schedule X - Supplementary Income Statement Information.... S6
</TABLE>
S1
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Formica Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Formica Corporation and subsidiaries
included on Pages F3 through F25 of this Registration Statement and have issued
our report thereon dated March 1, 1994. Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a
whole. The schedules listed in Item 21(b) of this Registration Statement are
the responsibility of the Company's management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 1, 1994
S2
<PAGE> 143
SCHEDULE V
FORMICA CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER TRANSLATION END OF
CLASSIFICATION OF YEAR AT COST RETIREMENTS CHANGES(1) ADJUSTMENT YEAR
-------------- ---------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1991:
Land and improvements $ 16,247 $ 33 $ - $ (1) $ (510) $ 15,769
Buildings and improvements 50,843 176 - 121 (1,412) 49,728
Machinery and equipment 231,402 8,346 (460) (394) (8,290) 230,604
-------- ------- ------- ----- -------- --------
$298,492 $ 8,555 $ (460) $(274) $(10,212) $296,101
======== ======= ======= ===== ======== ========
For the year ended
December 31, 1992:
Land and improvements $ 15,769 $ 15 $ - $ - $ (604) $ 15,180
Buildings and improvements 49,728 379 - - (2,011) 48,096
Machinery and equipment 230,604 10,417 (2,348) (361) (10,411) 227,901
-------- ------- ------- ----- -------- --------
$296,101 $10,811 $(2,348) $(361) $(13,026) $291,177
========= ======= ======= ===== ======== ========
For the year ended
December 31, 1993:
Land and improvements $ 15,180 $ 750 $ - $ 48 $ (623) $ 15,355
Buildings and improvements 48,096 496 (125) 53 (2,081) 46,439
Machinery and equipment 227,901 9,670 (403) (129) (8,636) 228,403
-------- ------- ------- ----- -------- --------
$291,177 $10,916 $ (528) $ (28) $(11,340) $290,197
======== ======= ======= ===== ======== ========
</TABLE>
(1) Other changes include reclassifications and activity relating to
nonrecurring items.
S3
<PAGE> 144
SCHEDULE VI
FORMICA CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COST AND OTHER TRANSLATION END OF
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS CHANGES(1) ADJUSTMENT YEAR
-------------- ---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1991:
Land and improvements $ 371 $ (25) $ - $ - $ (1) $ 345
Building and improvements 2,870 1,932 - - 39 4,841
Machinery and equipment 25,851 17,265 (408) (1) (774) 41,933
------- ------- ------- ----- ------- -------
$29,092 $19,172 $ (408) $ (1) $ (736) $47,119
======= ======= ======= ===== ======= =======
For the year ended
December 31, 1992:
Land and improvements $ 345 $ 171 $ - $ - $ 1 $ 517
Building and improvements 4,841 1,817 - (35) (179) 6,444
Machinery and equipment 41,933 17,741 (2,221) (346) (1,833) 55,274
------- ------- ------- ------ -------- -------
$47,119 $19,729 $(2,221) $ (381) $ (2,011) $62,235
======= ======= ======= ====== ======== =======
For the year ended
December 31, 1993:
Land and improvements $ 517 $ 142 $ - $ - $ (1) $ 658
Building and improvements 6,444 1,731 (123) 5 (219) 7,838
Machinery and equipment 55,274 16,700 (268) (36) (2,089) 69,581
------- ------- ------- ----- ------- -------
$62,235 $18,573 $ (391) $ (31) $(2,309) $78,077
======= ======= ======= ===== ======= =======
</TABLE>
(1) Other changes include reclassifications and activity relating to
nonrecurring items.
S4
<PAGE> 145
SCHEDULE VIII
FORMICA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER DEDUCTIONS FROM TRANSLATION END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES ADJUSTMENT YEAR
----------- ---------- ---------- -------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS AND SALES
RETURNS AND ALLOWANCES:
For the year ended
December 31, 1991 $ 7,729 $2,922 $402 $(1,189) $ (55) $ 9,809
For the year ended
December 31, 1992 $ 9,809 $1,698 $ 2 $ (820) $(258) $10,431
For the year ended
December 31, 1993 $10,431 $ 519 $184 $ (815) $ (88) $10,231
RESERVE FOR AMORTIZATION
OF INTANGIBLE ASSETS:
For the year ended
December 31, 1991 $ 8,735 $5,396 $ - $ - $ (67) $14,064
For the year ended
December 31, 1992 $14,064 $5,524 $ - $ - $(270) $19,318
For the year ended
December 31, 1993 $19,318 $5,579 $ - $ - $(269) $24,628
DEFERRED TAX ASSETS
VALUATION ALLOWANCE:
For the year ended
December 31, 1993 $4,720 $2,839 $ - $ - $ (40) $ 7,519
</TABLE>
S5
<PAGE> 146
SCHEDULE X
FORMICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $10,134 $10,851 $ 9,743
Advertising $ 9,770 $ 7,512 $ 6,062
</TABLE>
S6
<PAGE> 147
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C> <C> <C>
1(m) -- Purchase Agreement dated September 17, 1993 between FM Holdings Inc. and
Dillon, Read & Co. Inc.
1.2(a) -- Agreement to Act as Qualified Independent Underwriter
2.1(a) -- Merger Agreement dated February 6, 1989, as amended, by and among FM
Holdings Inc., FM Acquisition Corporation and Formica Corporation
3.1(a) -- Articles of Incorporation of the Registrant
3.2(a) -- By-laws of the Registrant
4.1(a) -- Form of Senior Subordinated Note due 1999 (contained in Exhibit 4.3)
4.2(b) -- Form of Subordinated Discount Debenture due 2001 (contained in Exhibit
4.4)
4.3(a) -- Form of Indenture of Formica Corporation for Senior Subordinated Notes due
1999
4.4(b) -- Form of Indenture of Formica Corporation for Subordinated Discount
Debentures due 2001
4.5(a) -- Form of Credit Agreement dated as of September 7, 1989 by and among the
Registrant (certain subsidiaries of the Registrant), the financial
institutions then or thereafter parties thereto and Canadian Imperial Bank
of Commerce, New York Agency, as Agent
4.6(a) -- Form of Credit Agreement dated as of September 7, 1989 by and among
Formica Limited, the financial institutions then or thereafter parties
thereto and Canadian Imperial Bank of Commerce, London Branch, as Agent
4.7(a) -- Form of Loan Agreement dated as of September 7, 1989 by and among Formica
France S.A., the financial parties then or thereafter parties thereto and
Canadian Imperial Bank of Commerce (International), S.A., as Agent
4.8(a) -- Form of Credit Agreement dated as of September 7, 1989 between Canadian
Imperial Bank of Commerce and Formica Canada Inc.
4.9(a) -- Form of Loan Agreement dated as of September 7, 1989 between Formica
Espanola, S.A. and Banco Bilbao Vizcaya, S.A.
4.10(d) -- Loan Agreement dated November 30, 1990 between Credit Lyonnais, Taipei
Branch and Formica Taiwan Corporation
4.10.A(d) -- Schedule I, II and III to the Loan Agreement dated November 30, 1990
between Credit Lyonnais, Taipei Branch and Formica Taiwan Corporation
4.11(e) -- Amendment No. 1 dated as of January 15, 1990 to Loan Agreement dated as of
September 7, 1989 by and among Formica Limited, the financial institutions
then or thereafter parties thereto and Canadian Imperial Bank of Commerce,
London Branch, as Agent
4.12(g) -- Amendment No. 1, dated as of September 20, 1990, to the Credit Agreement,
dated as of September 7, 1989, by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as Agent, and Consent and Waiver, dated as of September 20,
1990, and Initial Participant Consent related thereto
4.13(f) -- Amendment No. 2, dated as of August 8, 1991, to the Credit Agreement,
dated as of September 7, 1989, by and among Formica Corporation, the
financial institutions then and thereafter parties thereto and Canadian
Imperial Bank of Commerce, New York Agency, as Agent.
4.14(c) -- Recognition and Assumption Agreement, dated as of December 20, 1991 among
Formica Corporation, Formica Technology Inc., Texas, Formica Technology
Inc., Delaware and Canadian Imperial Bank of Commerce, New York Agency and
Pledge Agreement Supplement, dated as of December 20, 1991 between Formica
Corporation and Canadian Imperial Bank of Commerce, New York Agency
related thereto.
4.15(i) -- Amendment No. 1, dated as of February 17, 1992, to the Loan Agreement
dated November 30, 1990 between Credit Lyonnais, Taipei Branch and Formica
Taiwan Corporation.
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C> <C> <C>
4.16(j) -- Consent to Release of Pledged Shares, dated as of July 6, 1992, to the
Credit Agreement, dated as of September 7, 1989, as amended, by and among
Formica Corporation, certain subsidiaries of Formica Corporation, the
financial institutions then and thereafter parties thereto and Canadian
Imperial Bank of Commerce, New York Agency, as Agent.
4.17(k) -- Amendment No. 3, dated as of March 9, 1993 to the Credit Agreement, dated
as of September 7, 1989, by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as Agent, and Consent related thereto.
4.18(l) -- Amendment dated as of July 20, 1993 to the Loan Agreement dated November
30, 1990 between Credit Lyonnais, Taipei Branch and Formica Taiwan
Corporation
4.19(l) -- Short-Term Line of Credit Facility dated as of July 20, 1993 between
Credit Lyonnais, Taipei Branch and Formica Taiwan Corporation
4.20(m) -- Amendment No. 4 dated as of August 20, 1993 to the Credit Agreement dated
as of September 7, 1989 by and among Formica Corporation, certain
subsidiaries of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as agent, and Consent related thereto
4.21(m) -- Form of 13 1/8% Accrual Debenture due 2005, Series A (included in Exhibit
4.23)
4.22(m) -- Form of 13 1/8% Accrual Debenture due 2005, Series B (included in Exhibit
4.23)
4.23(m) -- Indenture between FM Holdings Inc. and United Jersey Bank, as trustee,
relating to the Accrual Debentures due 2005, Series A and the Accrual
Debentures due 2005, Series B
4.24(m) -- Registration Rights Agreement dated September 27, 1993 between FM Holdings
Inc. and Dillon, Read & Co. Inc.
4.25(m) -- Debenture Pledge Agreement dated September 27, 1993 between FM Holdings
Inc. and United Jersey Bank, as trustee
4.26(m) -- Collateral Subordination and Intercreditor Agreement dated September 27,
1993 between Canadian Imperial Bank of Commerce, as collateral agent, and
United Jersey Bank, as trustee
4.27(m) -- Amended and Restated Pledge Agreement dated as of September 27, 1993 made
by FM Holdings Inc. in favor of Canadian Imperial Bank of Commerce, as
collateral agent
4.28(m) -- Amendment No. 1 to U.S. Pledge Agreement dated as of September 27, 1993
made by Formica Corporation and the other pledgors named therein in favor
of Canadian Imperial Bank of Commerce, as collateral agent
5(m) -- Opinion of Simpson Thacher & Bartlett regarding the legality of the New
Debentures being registered
5.1(a) -- Opinion of Cahill Gordon & Reindel with respect to the Notes
5.1(b) -- Opinion of Cahill Gordon & Reindel with respect to the Subordinated
Discount Debentures
8(m) -- Opinion of Simpson Thacher & Bartlett regarding tax matters
10.1(a) -- Employment Agreement between Vincent P. Langone and the Registrant
10.2(a) -- Employment Agreements between John Boanas and the Registrant
10.3(a) -- Employment Agreement between David Schneider and the Registrant
10.4(a) -- Formica Corporation Employee Savings Plan for employees not covered by a
collective bargaining agreement
10.5(a) -- Formica Corporation employee Savings Plan for employees covered by a
collective bargaining agreement
10.6(e) -- Formica Corporation Employee Retirement Plan, as amended and restated as
of January 1, 1990
10.7(a) -- Form of Indemnity Agreement dated as of June 27, 1987 between the
Registrant and its directors and officers
10.8(a) -- Form of Executive Officer Termination Agreement dated February 5, 1989 by
and between the Registrant and each of Messrs. Brooks, Kraus, Schneider
and Marshall
10.9(a) -- Form of Executive Officer Termination Agreement between the Registrant and
Vincent P. Langone
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C> <C> <C>
10.10(a) -- Form of Executive Officer Termination Agreement between the Registrant and
John Boanas
10.11(a) -- Form of Employment Agreement between Peter Marshall and the Registrant
10.12(a) -- Form of Employment Agreement between Charles Brooks and the Registrant
10.13(a) -- Form of Employment Agreement between Robert Kraus and the Registrant
12.1(a) -- Computation of ratio of earnings to fixed charges
12.1.A(a) -- Computation of ratio of earnings to fixed charges
12.1.B -- Historical ratio of earnings to fixed charges and deficiency of earnings
available to cover fixed charges
12.2(a) -- Computation of pro forma deficiency of earnings to fixed charges
12.2.A(h) -- Pro forma deficiency of earnings available to cover fixed charges
21(n) -- List of subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen & Co.
23.2(a) -- Consent of Cahill Gordon & Reindel with respect to the Notes
23.2(b) -- Consent of Cahill Gordon & Reindel (included in Exhibit 5.1) with respect
to the Subordinated Discount Debentures
23.2(m) -- Consent of Simpson Thacher & Bartlett with respect to the Accrual
Debentures due 2005, Series B (included in their opinion filed as Exhibit
5)
24(a) -- Powers of Attorney
25.1(a) -- Statement of eligibility of Note Trustee on Form T-1 (separately bound)
25.1(b) -- Statement of eligibility of Debenture Trustee on Form T-1 (separately
bound)
99.1(m) -- Form of Letter of Transmittal
99.2(m) -- Form of Notice of Guaranteed Delivery
99.3(m) -- Form of Exchange Agent Agreement to be entered into between FM Holdings
Inc. and United Jersey Bank, as exchange agent
</TABLE>
- ---------------
(a) Previously filed as an Exhibit to Registration Statement No. 33-30012 as
the Exhibit No. indicated and hereby incorporated into Registration
Statement No. 33-31900 by reference.
(b) Previously filed as an Exhibit to Registration Statement No. 33-31900 as
the Exhibit No. indicated and hereby incorporated into Registration
Statement No. 33-30012 by reference.
(c) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1991 as the Exhibit No. indicated and hereby
incorporated by reference.
(d) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1990 as the Exhibit No. indicated and hereby
incorporated herein by reference.
(e) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1989 as the Exhibit No. indicated and hereby
incorporated herein by reference.
(f) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1991 as the Exhibit No. indicated and hereby incorporated by
reference.
(g) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
ended September 30, 1990 as the Exhibit No. indicated and hereby
incorporated herein by reference.
(h) Previously filed as an Exhibit to Post-Effective Amendment No. 5 to
Registration Statement No. 33-30012 and Post-Effective No. 4 to
Registration Statement No. 33-31900 as the Exhibit No. indicated and hereby
incorporated by reference.
(i) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1992 as the Exhibit No. indicated and hereby incorporated
by reference.
(j) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
ended September 30, 1992 as the Exhibit No. indicated and hereby
incorporated by reference.
<PAGE> 150
(k) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1992 as the Exhibit No. indicated and hereby
incorporated by reference.
(l) Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1993 as the Exhibit No. indicated and hereby incorporated by
reference.
(m) Previously filed as an Exhibit to FM Holdings Inc.'s S-4 Registration
Statement No. 33-70196 as the Exhibit No. indicated and hereby incorporated
by reference.
(n) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1993 as the Exhibit No. indicated and hereby
incorporated by reference.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Formica Corporation:
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made part of this
Registration Statement.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
June 22, 1994
