As filed with the Securities and Exchange Commission on August 10, 1999
Registration No. 333-76683
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 2 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
Formica Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1046753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
David T. Schneider
Vice President, Chief Financial Officer and Secretary
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copies to:
Richard Truesdell, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date.
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
of 1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earliest effective registration statement for the
same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Aggregate Offering Amount of
of Securities to be Registered Registered Price(1) Price(1) Registration Fee(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 7/8% Series B Senior
Subordinated Notes due 2009........ $215,000,000 100% $215,000,000 $59,770
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
2) Previously paid on April 21, 1999.
------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $215,000,000 of new 10 7/8% Series B Senior Subordinated
Notes due 2009 of Formica Corporation that may be exchanged for equal principal
amounts of Formica's outstanding 10 7/8% Series A Senior Subordinated Notes due
2009. This Registration Statement also covers the registration of the new notes
for resale by Donaldson, Lufkin & Jenrette Securities Corporation in
market-making transactions. The complete prospectus relating to the exchange
offer follows immediately after this Explanatory Note. Following the prospectus
are certain pages of the prospectus relating solely to market-making
transactions, including alternate front and back cover pages, a section entitled
"Risk Factors--Trading Market for the New Notes" to be used in lieu of the
section entitled "Risk Factors--Lack of Public Market," an alternate "Use of
Proceeds" section and an alternate "Plan of Distribution" section. In addition,
the market-making prospectus will not include the following captions (or the
information set forth under those captions) in the exchange offer prospectus:
"Summary--The Exchange Offer," "Summary--Consequences of Exchanging Old Notes
pursuant to the Exchange Offer," "Risk Factors--Lack of Public Market," "The
Exchange Offer" and "Material United States Tax Consequences of the Exchange
Offer." All other sections of the exchange offer prospectus will be included in
the Market-Making prospectus.
2
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 10, 1999
PROSPECTUS
Formica Corporation
Offer to Exchange
up to $215,000,000 of our
10 7/8% Series A Senior Subordinated Notes Due 2009 for
up to $215,000,000 of our
10 7/8% Series B Senior Subordinated Notes Due 2009
which have been registered under the Securities Act of 1933, as amended
We are offering to exchange an aggregate principal amount of our new
10 7/8% Series B Senior Subordinated Notes due 2009, which have been registered
under the Securities Act of 1933 for our existing 10 7/8% Series A Senior
Subordinated Notes due 2009. We are offering to issue the new notes to satisfy
our obligations contained in the registration rights agreement entered into when
the old notes were sold in transactions permitted by Rule 144A and Regulation S
under the Securities Act and therefore not registered with the SEC.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under the
Securities Act, and the transfer restrictions and registration rights relating
to the old notes do not apply to the new notes.
To exchange your old notes for new notes:
o You must complete and send the letter of transmittal that accompanies
this prospectus to the exchange agent by 5:00 p.m., New York time, on
, 1999.
o If your old notes are held in book-entry form at The Depository Trust
Company, you must instruct DTC through your signed letter of
transmittal that you wish to exchange your old notes for new notes.
When the exchange offer closes, your DTC account will be changed to
reflect your exchange of old notes for new notes.
o You should read the section called "The Exchange Offer" for additional
information on how to exchange your old notes for new notes.
The notes are our general obligations and rank junior to all of our senior
indebtedness, including any borrowings under our credit facility and effectively
rank junior to all liabilities of our subsidiaries, none of which have
guaranteed the notes. At June 30, 1999, we had approximately $84.5 million of
outstanding senior indebtedness and our subsidiaries had $179.4 million of
outstanding liabilities, excluding intercompany obligations and guarantees of
our credit facility.
See "Risk Factors" beginning in page 13 for a discussion of risk factors
that should be considered by you prior to tendering your old notes in the
exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be issued in the exchange
offer or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is , 1999.
<PAGE>
SUMMARY
This section summarizes the more detailed information in this prospectus
and you should read the entire prospectus carefully and in its entirety.
THE EXCHANGE OFFER
Securities Offered..................... We are offering up to $215,000,000
aggregate principal amount of
10 7/8% Senior Subordinated Series
B Notes due 2009, which have been
registered under the Securities
Act.
The Exchange Offer..................... We are offering to issue the new
notes in exchange for a like
principal amount of your old
notes. We are offering to issue
the new notes to satisfy our
obligations contained in the
registration rights agreement
entered into when the old notes
were sold in transactions
permitted by Rule 144A under the
Securities Act and therefore not
registered with the SEC. For
procedures for tendering, see "The
Exchange Offer."
Tenders, Expiration Date, Withdrawal... The exchange offer will expire at
5:00 p.m. New York City time on
, 1999 unless it is extended.
If you decide to exchange your old
notes for new notes, you must
acknowledge that you are not
engaging in, and do not intend to
engage in, a distribution of the
new notes. If you decide to tender
your old notes in the exchange
offer, you may withdraw them at
any time prior to , 1999. If we
decide for any reason not to
accept any old notes for exchange,
your old notes will be returned to
you without expense to you
promptly after the exchange offer
expires.
Federal Income Tax Consequences........ Your exchange of old notes for new
notes in the exchange offer will
not result in any income, gain or
loss to you for Federal income tax
purposes. See "Material United
States Federal Income Tax
Consequences of the Exchange
Offer."
Use of Proceeds........................ We will not receive any proceeds
from the issuance of the new notes
in the exchange offer.
Exchange Agent......................... Summit Bank is the exchange agent
for the exchange offer.
Failure to Tender Your Old Notes....... If you fail to tender your old
notes in the exchange offer, you
will not have any further rights
under the registration rights
agreement, including any right to
require us to register your old
notes or to pay you liquidated
damages.
2
<PAGE>
You will be able to resell the notes without registering them with the SEC if
you meet the requirements described below
Based on interpretations by the SEC's staff in no-action letters issued to
third parties, we believe that new notes issued in exchange for old notes in the
exchange offer may be offered for resale, resold or otherwise transferred by you
without registering the new notes under the Securities Act or delivering a
prospectus, unless you are a broker-dealer receiving notes for your own account,
so long as:
o you are not one of our "affiliates", which is defined in Rule 405 of
the Securities Act;
o you acquire the new notes in the ordinary course of your business;
o you do not have any arrangement or understanding with any person to
participate in the distribution of the new notes; and
o you are not engaged in, and do not intend to engage in, a
distribution of the new notes.
If you are an affiliate of Formica, or you are engaged in, intend to
engage in or have any arrangement or understanding with respect to, the
distribution of new notes acquired in the exchange offer, you (1) should not
rely on our interpretations of the position of the SEC's staff and (2) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive new notes for your own account in
the exchange offer:
o you must represent that you do not have any arrangement with us or
any of our affiliates to distribute the new notes;
o you must acknowledge that you will deliver a prospectus in connection
with any resale of the new notes you receive from us in the exchange
offer. The letter of transmittal states that by so acknowledging and
by delivering a prospectus, you will not be deemed to admit that you
are an "underwriter" within the meaning of the Securities Act; and
o you may use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of new notes received in
exchange for old notes acquired by you as a result of market-making or
other trading activities.
For a period of 90 days after the expiration of the exchange offer, we
will make this prospectus available to any broker-dealer for use in connection
with any resale described above.
3
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The terms of the new notes and the old notes are identical in all material
respects, except that the new notes have been registered under the Securities
Act, and the transfer restrictions and registration rights relating to old notes
do not apply to the new notes.
Maturity Date..................... March 1, 2009
Interest Payment Dates............ Every March 1 and September 1, beginning
September 1, 1999.
Optional Redemption............... We may redeem any of the notes at our
option on or after March 1, 2004 at the
redemption prices set forth on page 73,
plus accrued interest. In addition, we
may redeem up to 35% of the notes on or
prior to March 1, 2002 at a redemption
price of 110.875% of the principal
amount, plus accrued interest, with the
net cash proceeds of one or more public
equity offerings provided that at least
65% of the aggregate principal amount of
the notes remain outstanding after the
redemption.
Change of Control................. Upon the occurrence of a change of
control, as defined in the section called
"Description of Notes", you may require
us to repurchase your notes at 101% of
their principal amount, plus accrued
interest. We cannot assure you that we
will have sufficient resources to satisfy
our repurchase obligation in the event of
a change of control. See "Risk
Factors--We may not be able to repurchase
your notes upon a change of control" and
"Description of Notes."
Ranking........................... The notes:
o rank junior to all of our senior
indebtedness and secured indebtedness,
including our credit facility.
o will effectively rank junior to all
liabilities of our subsidiaries.
o will rank equally with any of our
future senior subordinated
indebtedness.
As of June 30, 1999, we had outstanding
approximately $84.5 million of senior
indebtedness, and our subsidiaries had
$179.4 million of liabilities, excluding
intercompany obligations and guarantees
of the new credit facility.
Restrictive Covenants............. The indenture governing the notes contains
restrictive covenants limiting or
prohibiting our ability and our
subsidiaries' ability to:
4
<PAGE>
o incur additional indebtedness or issue
preferred stock;
o pay dividends or make distributions
on, and to redeem or repurchase,
capital stock or to repurchase
subordinated indebtedness;
o engage in transactions with affiliates;
o engage in sale and leaseback
transactions;
o create liens securing indebtedness;
o make investments and sell assets; and
o consolidate with or merge into, or
sell substantially all of our assets
to, another person.
See "Description of Notes--Certain
Covenants."
Use of Proceeds................... We will not receive any proceeds from the
exchange of new notes for old notes.
5
<PAGE>
OUR COMPANY
Overview
What we do
We believe that our company, Formica Corporation, is one of the leading
brand names in the decorative surfacing products market. "Decorative surfaces"
are products that are used to finish a surface, which may be a wall, a
countertop or a floor, and include everything from inexpensive vinyl floor to
marble countertops. We produce:
o high-pressure decorative laminates, our primary product:
o we take sheets of attractively designed paper and then seal them
with laminate using a high-pressure press
o because high-pressure laminate is durable, attractively designed,
easy to maintain and very versatile, it is used in a wide range
of commercial and residential surfaces, including kitchen
cabinets, countertops and floors
o we believe that we are one of the largest producers of high
pressure decorative laminates, which we market under the Formica
name, in the world
o we estimate that the total size of the world-wide market was
approximately $3 billion in 1998, evenly distributed between
North America, Europe and the rest of the world
o solid-surfacing:
o unlike high-pressure laminate, which consists of a thin cover
applied to the top of a surface, solid surfacing is quite thick,
which makes it more durable and permits easier repair in the
event of a scratch, since the surface can be sanded down to look
like new
o we market our solid-surfacing product under the names "Surell"
and "Fountainhead"
o laminate flooring
o we take laminate and apply it over any dry, clean and level
floor surface
o the flooring is water-resistant and is ideally suited to
kitchens and bathrooms
o we introduced our flooring line under the Formica name in 1996
We believe that our Formica brand name, which is recognized by many
consumers without prompting, contributes significantly to the sales of our
products. For the year ended December 31, 1998, our net sales and Adjusted
EBITDA, as defined on page 11, were $549.7 million and $50.2 million,
respectively. For the four months ended April 30, 1998 and the eight months
ended December 31, 1998, we had net losses of $14.6 million and $22.3 million,
respectively.
We market our products:
o through over 7,500 domestic and international independent
distributors and dealers as well as our own sales force
6
<PAGE>
o to major distributors, manufacturers of finished products, and to
architects and designers who specify products for commercial and
residential interiors.
Our History
Our company was founded in 1913 and created the world's first decorative
laminate in 1927. After several sales and an initial public offering, we were
sold to FM Acquisition Corporation in a buyout led by Vincent Langone, David
Schneider and Dillon Read & Co. in 1989. In January 1995, we were acquired by
BTR Nylex Ltd. an Australian company and a subsidiary of BTR plc.
In May 1998, our parent company, FM Holdings, was bought by Laminates
Acquisition Co., which was organized by DLJ Merchant Banking Partners II, L.P.,
affiliated funds and entities, three institutional investors, including CVC
European Equity Partners, L.P. and CVC European Equity Partners (Jersey) L.P.
and MMI Products L.L.C., and Messrs. Langone and Schneider.
As a result, we are wholly-owned by Holdings, which in turn is
wholly-owned by Laminates, which is owned by the DLJ Merchant Banking funds, the
institutional investors and the management shareholders. You should read the
section called "The Acquisition" for additional information about our recent
acquisition by Laminates.
Competitive Strengths
We possess a number of competitive strengths, including:
o strong global market position
o worldwide awareness of our brand name
o established, effective distribution channels
o acclaimed design leadership
o diverse and stable customer base
For more complete information on our competitive strengths, you should
read the section called "Business--Competitive Strengths."
Recent Developments
In connection with our recent acquisition, Vincent Langone, our chief
executive officer from 1988 to 1994, and David Schneider, our chief financial
officer from 1989 to 1994, have returned to assume senior management roles.
Messrs. Langone and Schneider, who have a combined 23 years of tenure at
Formica, have a successful record of managing two previous leveraged buyouts of
Formica. During their tenure at Formica, they consistently ran the business at
significantly lower selling, general and administrative expenses levels than
those incurred from 1995 to 1997 and successfully managed us through a building
products recession in North America from 1990 to 1992 with no material
deterioration in sales or EBITDA. Since 1994, although our net sales increased
from $489.2 million in 1994 to $533.4 million in 1997, our EBITDA declined from
$71.4 million to $38.6 million. With the assistance of Messrs. Langone and
Schneider, we have begun to implement a business strategy that is intended to
address declines in the financial results of the business since 1994.
We believe that our decline in profitability and cash flows from 1994
through 1997 was largely attributable to:
(1) a large increase in selling, general and administrative
expenses,
7
<PAGE>
(2) a significant increase in capital expenditures, the majority of
the productivity and efficiency benefits of which management
believes have yet to be realized,
(3) the autonomous operation of our North American, European and
Asian divisions,
(4) significant management turnover,
(5) prior management's emphasis on gross margins and the resulting
elimination of a number of lowermargin, yet still profitable,
accounts and
(6) a change in the emphasis of our product design and marketing, as
we began to focus our product design efforts, and our marketing
of new product designs, towards consumers instead of contractors
and architects, who are more likely to actually select products.
Business Strategy
We have begun to implement a strategy that we believe will return us to
pre-1995 levels of profitability and cash flows. We expect our operating
performance to benefit from the following factors:
o the return of Vincent Langone and David Schneider
o a targeted reduction in selling, general and administrative expense
spending
o an expected increase in unit volume shipments as customer service is
improved through better management of the inventory and distribution
systems
o the realization of substantial savings due to manufacturing
efficiencies resulting from the significant capital investments made
since 1994 and
o a reduction in capital spending to historical pre-1995 levels.
For more complete information on our business strategies, you should read
the section called "Business--Business Strategies."
Cost Savings
We have begun to implement a cost savings program intended to reduce
operating expenses. We devised this program after a detailed review of our
financial and operating results from 1995 to 1997, based on our management's
expertise in successfully operating the business at significantly lower selling,
general and administrative spending levels than were incurred between 1995 and
1997, yet with stronger EBITDA results.
The majority of the savings relate to reductions in advertising and sales
promotion spending as well as other selling and administrative spending.
Implementation of the cost savings began early in 1998, but we do not expect the
full savings to be realized until 1999.
We also expect to realize savings and efficiencies from substantial
capital improvements made since 1994 over the next three years, but have not
reflected them below. See "Business--Capital Investments."
The following is a summary of management's estimate of
o the amount of cost savings reflected in our results of operations in
1998 and
8
<PAGE>
o the annual cost savings expected to be reflected in our results of
operations for 1999 and thereafter based on our 1999 budget compared
to management's estimate of total spending on each category in 1997
and including cost savings already realized in 1998:
Cost Savings Estimated
reflected in 1999 Annual
year ended Cost Savings
December 31, Compared to
1998 1997 Levels
------------ ------------
($ in millions)
Excess Advertising & Sales
Promotion/Other Selling
& Administrative Expenses............... $ 10.5 $ 18.0
Flooring..................................... 5.5 6.0
Operating Expenses........................... 2.0 4.0
Staff Reductions............................. 3.0 5.0
Consultants/Legal/Other...................... 4.0 4.0
------- -------
Total Estimated Cost Savings.............. $ 25.0 37.0
Additional Standalone Costs............ (3.0) (7.0)
------- -------
Total Estimated Net Cost Savings.......... $ 22.0 $ 30.0
======= =======
You should read the section called "Business--Cost Savings" for more
complete information on our cost savings program.
While we believe that the advertising and promotional spending that
constituted a large part of the increased selling, general and administrative
expenses was unnecessary and generally ineffective in its focus on consumers
rather than the real decisionmakers like contractors and architects, we cannot
assure you that a reduction in advertising and promotional spending will not
reduce net sales. See "Risk Factors--You may not be able to rely on
forward-looking statements" and "Risk Factors--Our cost cutting strategy may not
be successful and may reduce our sales."
You should read the section called "Risk Factors" for a discussion of
risks that you should consider before you tender your old notes in exchange for
new notes.
------------------------
Our principal executive offices are located at 15 Independence Boulevard,
Warren, New Jersey 07059, and our telephone number is 908-647-8700.
9
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The following table includes:
o summary historical financial data for Formica before we were acquired
from BTR for the year ended December 31, 1994.
o summary historical financial data for Formica after we were acquired
by BTR for the eleven months ended December 31, 1995, beginning
January 25, 1995, the date when we were acquired by BTR, the years
ended December 31, 1996 and 1997, and the four months ended April 30,
1998.
o summary historical financial data for Formica for the two months ended
June 30, 1998, the eight months ended December 31, 1998 and the six
months ended June 30, 1999.
o summary pro forma financial data for the year ended December 31, 1998
and for the six months ended June 30, 1998 and 1999.
The historical data for Pre-BTR Formica for the year ended December 31, 1994
have been derived from the audited consolidated financial statements of Pre-BTR
Formica. The historical financial data for BTR-owned Formica as of and for the
eleven months ended December 31, 1995 and as of and for the years ended December
31, 1996 and 1997 and the four months ended April 30, 1998 have been derived
from the audited consolidated financial statements of BTR-owned Formica. The
Historical Financial Data for the eight months ended December 31, 1998 have
been derived from our audited consolidated financial statements. The
historical financial data for the two months ended June 30, 1998 and the six
months ended June 30, 1999 have been derived from our unaudited consolidated
financial statements. The unaudited pro forma financial data have not been
designed to represent and do not represent what our results of operations
actually would have been had the transactions described under "Unaudited Pro
Forma Condensed Consolidated Financial Statements" been completed at the
beginning of the period indicated, or to project our financial position or
results of operations at any future date or for any future period. You should
read the following table in conjunction with "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and our consolidated financial statements and notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
Pre-BTR
Formica BTR-owned Formica Formica
-------- ------------------------------------------ ---------------------------------- -
Eleven Four Eight
Year Months Months Two Months
Ended Ended Ended Months Ended Six Months
December December Years Ended April Ended June December Ended
31, 31, December 31, 30, 30, 31, June 30,
-------- -------- -------------------- ------ ---------- -------- ----------
1994 1995 1996 1997 1998 1998 1998 1999
-------- -------- ------- ------- ------ ---------- -------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales............ $ 489.2 $ 468.2 $ 521.6 $ 533.4 $ 178.3 $ 98.3 $371.4 $ 294.6
Cost of products sold 341.8 324.0 348.3 350.1 131.1 67.6 266.2 209.9
-------- -------- ------- ------- ------ -------- ------- --------
Gross profit......... 147.4 144.2 173.3 183.3 47.2 30.7 105.2 84.7
Selling, general
and administrative
expenses........... 108.5 145.2 186.7 202.2 60.9 28.1 100.5 78.5
Cost of terminated
acquisition........ -- -- -- -- -- -- 3.0 --
Goodwill impairment
charge(1).......... -- -- -- 484.4 -- -- -- --
-------- -------- ------- ------- ------ -------- ------- --------
Operating income
(loss)............. 38.9 (1.0) (13.4) (503.3) (13.7) 2.6 1.7 6.2
</TABLE>
Pro Forma
--------------------------------------
Six
Months Six Months
Year Ended Ended Ended
December 31, June 30, June 30,
------------ -------- ----------
1998 1998 1999
------------ -------- ----------
(dollars in millions)
Statement of
Operations Data:
Net sales............ $ 549.7 $ 276.6 $ 294.6
Cost of products sold 397.3 198.7 209.9
------- ------- -------
Gross profit......... 152.4 77.9 84.7
Selling, general
and administrative
expenses........... 164.6 92.2 78.5
Cost of terminated
acquisition........ 3.0 -- --
Goodwill impairment
charge(1).......... -- -- --
------- ------- -------
Operating income
(loss)............. (15.2) (14.3) 6.2
10
<PAGE>
<TABLE>
<CAPTION>
Pre-BTR
Formica BTR-owned Formica Formica
-------- -------------------------------------------- ----------------------------------
Eleven Four Eight
Year Months Months Two Months
Ended Ended Ended Months Ended Six Months
December December Years Ended April Ended June December Ended
31, 31, December 31, 30, 30, 31, June 30,
-------- -------- -------------------- ------ ---------- -------- ----------
1994 1995 1996 1997 1998 1998 1998 1999
-------- -------- ------- ------- ------ ---------- -------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income
(loss)............. 38.9 (1.0) (13.4) (503.3) (13.7) 2.6 1.7 6.2
Interest expense(2).. (46.4) (31.7) (10.6) (3.1) (1.7) (5.5) (25.7) (19.0)
Other income......... 16.2 0.4 1.1 1.8 0.8 0.4 4.5 1.6
-------- -------- ------- ------- ------ -------- ------- --------
Income (loss)
before income
taxes.............. 8.7 (32.3) (22.9) (504.6) (14.6) (2.5) (19.5) (11.2)
Income tax
(provision)
benefit............ 7.0 5.8 (5.0) (0.2) -- -- (2.8) (1.9)
-------- -------- ------- ------- ------ -------- ------- --------
Net income
(loss)(3).......... $ 15.7 $ (26.5) $ (27.9) $(504.8) $ (14.6) $ (2.5) $ (22.3) $ (13.1)
======== ======== ======= ======= ======= ======== ======= ========
Other Data:
EBITDA:
Net Income (Loss).. $ 15.7 $ (26.5) $ (27.9) $(504.8) $ (14.6) $ (2.5) $ (22.3) $ (13.1)
Interest expense... 46.4 31.7 10.6 3.1 1.7 5.5 25.7 19.0
Income tax
expense
(benefit)........ (7.0) (5.8) 5.0 0.2 -- -- 2.8 1.9
Depreciation and
Amortization..... 23.9 37.3 52.1 55.7 11.1 6.8 29.3 22.5
Goodwill
impairment
charge........... -- -- -- 484.4 -- -- -- --
Non-recurring gain
on license sale.. (7.6) -- -- -- -- -- -- --
EBITDA(4)........ $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ (1.8) $ 9.8 $ 35.5 $ 30.3
1998 Charges........... -- -- -- -- 5.7(5) 7.8(5) 10.8(5) --
Adjusted
EBITDA (4)........ $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ 3.9 $ 17.6 $ 46.3 $ 30.3
Adjusted EBITDA
Margin............... 14.6% 7.8% 7.6% 7.2% 2.2% 17.9% 12.5% 10.3%
Net cash provided
by (used in):
Operating
activities......... $ (5.6) $ (9.9) $ 1.5 $ 5.7 $ (11.7) $ (12.8) $ 26.7 $ (12.0)
Investing
activities......... (17.5) (27.5) (44.5) (46.5) (8.3) (9.0) (35.5) (25.6)
Financing
activities......... 35.2 28.5 56.5 47.1 (0.1) 33.9 33.0 16.4
Depreciation and
amortization......... 23.9 37.3 52.1 55.7 11.1 6.8 29.3 22.5
Capital expenditures... 17.5 27.5 44.5 46.5 8.3 9.0 35.5 10.0
Ratio of earnings
to fixed
charges(6)........... 1.20 -- -- -- -- -- -- --
</TABLE>
Pro Forma
--------------------------------------
Six
Months Six Months
Year Ended Ended Ended
December 31, June 30, June 30,
------------ -------- ----------
1998 1998 1999
------------ -------- ----------
(dollars in millions)
Operating income
(loss)............. (15.2) (14.3) 6.2
Interest expense(2).. (35.5) (16.6) (17.2)
Other income......... 5.3 1.2 1.6
------- ------- -------
Income (loss)
before income
taxes.............. (45.4) (29.7) (9.4)
Income tax
(provision)
benefit............ (2.8) -- (1.9)
------- -------- -------
Net income
(loss)(3).......... (48.2) $ (29.7) $ (11.3)
===== ======= =======
Other Data:
EBITDA:
Net Income (Loss).. (48.2) $ (29.7) $ (11.3)
Interest expense..... 35.5 16.6 17.2
Income tax
expense
(benefit).......... 2.8 -- 1.9
Depreciation and
Amortization....... 43.6 21.1 22.5
Goodwill
impairment
charge............. -- -- --
Non-recurring gain
on license sale.... -- -- --
EBITDA(4).......... $ 33.7 $ 8.0 $ 30.3
1998 Charges........... 16.5 13.5 --
Adjusted EBITDA (4).. $ 50.2 $ 21.5 $ 30.3
Adjusted EBITDA
Margin............... 9.1% 7.8% 10.3%
Net cash provided
by (used in):
Operating
activities......... -- -- --
Investing
activities......... -- -- --
Financing
activities......... -- -- --
Depreciation and
amortization......... $ 43.6 $ 21.1 $ 22.5
Capital expenditures... 43.8 17.3 10.0
Ratio of earnings
to fixed
charges(6)........... -- -- --
11
<PAGE>
As of
June 30, 1999
Historical
(in millions)
-------------
Balance Sheet Data (End of Period):
Working capital....................... $124.9
Total assets.......................... 707.5
Net debt, net of cash and cash equivalents 334.4
Stockholder's equity.................. 94.9
(1) During 1997, we recorded a goodwill impairment charge of $484.4 which was
determined utilizing the fair value of our assets considering, among other
things, the purchase price for the sale of Formica. The impairment charge
did not result in the reduction of property, plant and equipment.
(2) Interest expense is not net of interest income. For the year ended
December 31, 1994, the eleven months ended December 31, 1995, the years
ended December 31, 1996 and 1997, the four months ended April 30, 1998,
the two months ended June 30, 1998, the eight months ended December 31,
1998, the six months ended June 30, 1999 and pro forma for the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999 interest
income was $0.4, $0.5, $1.0, $1.1, $0.3, $0.4, $1.1, $0.4, $1.4, $0.4 and
$0.4, respectively, and is included in other income.
(3) Net income for the year ended December 31, 1994 is exclusive of an
extraordinary loss of $9.2.
(4) "EBITDA" is defined as income before extraordinary item and change in
accounting principles plus interest expense (not net of interest
income), income tax expense, depreciation and amortization expenses and
goodwill impairment charge. EBITDA is a key financial measure but should
not be construed as an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles). EBITDA for 1994 excludes a
non-recurring gain of $7.6 on a sale of a license. "Adjusted EBITDA" for
the four months ended April 30, 1998, the two months ended June 30, 1998
and the eight months ended December 31, 1998 represents EBITDA excluding
$5.7, $7.8 and $10.8 of the 1998 Charges, respectively. We believe that
EBITDA and Adjusted EBITDA are useful supplements to net income(loss)
and other consolidated income statement data in understanding cash flows
generated from operations that are available for taxes, debt service and
capital expenditures. Adjusted EBITDA is presented to assist in
comparing normalized EBITDA between periods. However, our method of
computation may or may not be comparable to other similarly titled
measures of other companies.
(5) Includes $5.7, $7.8 and $10.8 of charges reflecting adjustment of (1)
reserves for inventory obsolescence, doubtful accounts and customer
incentive rebate programs and (2) accruals for customs, property tax
expenses and other items and cost of terminated acquisition. See Notes 12
and 14 to our consolidated financial statements.
(6) For purposes of these computations, earnings consist of income (loss)
before 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). For the eleven months ended December
31, 1995, the years ended December 31, 1996 and 1997, the four months
ended April 30, 1998, the two months ended June 30, 1998, the eight months
ended December 31, 1998 and the six months ended June 30, 1999, earnings
were insufficient to cover fixed charges by $32.3, $23.1, $505.9, $14.6,
$2.5, $19.5, and $11.2, respectively. On a pro forma basis, earnings were
insufficient to cover fixed charges by $45.4, $29.7 and $9.4 for the year
ended December 31, 1998 and the six months ended June 30, 1998 and 1999,
respectively.
12
<PAGE>
RISK FACTORS
In addition to the other matters described in this prospectus you should
carefully consider the following risk factors before accepting the exchange
offer.
Risk factors relating to our debt and the notes
We have substantial debt, which could limit our cash available for other uses
and harm our competitive position
In connection with our acquisition by Laminates, we incurred significant
indebtedness. The level of our indebtedness could have important consequences to
us, including:
o limiting cash flow available for general corporate purposes, including
acquisitions, because a substantial portion of our cash flow from
operations must be dedicated to debt service;
o limiting our ability to obtain additional debt financing in the
future for working capital, capital expenditures or acquisitions;
o limiting our flexibility in reacting to competitive and other changes
in the industry and economic conditions generally; and
o exposing us to risks inherent in interest rate fluctuations because
some of our borrowings may be at variable rates of interest, which
could result in higher interest expense in the event of increases in
interest rates.
On a pro forma basis giving effect to our acquisition and the offering of
the old notes, for the year ended December 31, 1998 and the six months ended
June 30, 1999, earnings would have been insufficient to cover fixed charges by
approximately $45.4 million and $9.4 million respectively. As of June 30, 1999
we had (1) total consolidated indebtedness of approximately $341.6 million and
(2) approximately $81.4 million of additional borrowings available under the new
credit facility. In addition, subject to the restrictions in the new credit
facility and the indenture, we may incur significant additional indebtedness,
which may be secured.
Restrictive covenants in our indenture and new credit facility will limit our
ability to enter into many transactions; our failure to comply with those
covenants could cause our debt obligations to be accelerated
The indenture and our credit facility contain covenants that restrict our
ability to effectuate many types of transactions. In addition, our new credit
facility also requires us to maintain specified financial ratios and satisfy
other financial condition tests. Our ability to meet those financial ratios and
tests can be affected by events beyond our control, and there can be no
assurance that we will meet those tests. A breach of any of these covenants
could result in a default under our new credit facility and/or the notes. Upon
the occurrence of an event of default under our new credit facility, the lenders
could elect to declare all amounts outstanding under our new credit facility to
be immediately due and payable and terminate all commitments to extend further
credit. If we were unable to repay those amounts, the lenders could proceed
against the collateral granted to them to secure that indebtedness. We have
pledged substantially all of our assets, other than assets of our foreign
subsidiaries, as security under our new credit facility. We cannot assure you
that, if the lenders under our new credit facility accelerate the repayment of
borrowings thereunder, we will have sufficient assets to repay our new credit
facility and our other indebtedness, including your notes. See "Description of
Our Credit Facility."
13
<PAGE>
Your notes rank junior to our senior indebtedness in bankruptcy, and senior
debtholders may force us to stop making payments to you if we are in default on
our senior indebtedness
The notes rank junior to all of our senior indebtedness and secured
indebtedness, including all indebtedness under our new credit facility, and
liabilities of subsidiaries. As a result of the subordination provisions in the
notes, if:
(1) we are insolvent or enter into a bankruptcy or similar proceeding;
(2) we fail to make a payment when due on senior indebtedness; or
(3) any senior indebtedness is accelerated
then the holders of senior indebtedness and any other creditors of subsidiaries,
if any, must be paid in full before the holders of the notes may be paid.
In addition, we cannot make any cash payments to you if we have failed to
make payments to holders of senior indebtedness. Under the circumstances
described in "Description of Notes--Subordination," we cannot make any payments
to you for a period of up to 179 days if we have defaulted, other than failures
to make payments, on our senior indebtedness covenants.
As of June 30, 1999, we had approximately $84.5 million of senior
indebtedness. While the indenture does limit our ability to incur additional
indebtedness, it permits any or all additional indebtedness that we are allowed
to incur to be senior to the notes.
If we incur any additional debt that ranks equally with the notes, the
holders of that additional debt will be entitled to share ratably with you in
any proceeds distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other winding-up of us. This may have the effect
of reducing the amount of available proceeds we may pay to you.
We are a holding company that conducts operations through our subsidiaries, and
the notes effectively rank junior to indebtedness of our subsidiaries
We conduct a portion of our operations, including nearly all of our
foreign operations, through subsidiaries, and our ability to meet our debt
service obligations will be dependent upon the receipt of dividends from our
direct and indirect subsidiaries. Because our subsidiaries have not guaranteed
the notes, the notes are structurally junior to all creditors of our
subsidiaries, except to the extent that we are recognized as a creditor of any
subsidiary, in which case our claims would still be subordinate to any secured
debt of that subsidiary and any debt of that subsidiary senior to that held by
us. As of June 30, 1999, our subsidiaries had outstanding $179.4 million of
indebtedness and other liabilities, including trade payables but excluding
intercompany obligations and guarantees of the new credit facility
While the indenture requires us to offer to repurchase your notes upon a change
of control, we may not be able to repurchase your notes in that event
Upon the occurrence of a change of control as defined in "Description of
Notes," you may require us to purchase your notes at 101% of their principal
amount, plus accrued interest. Please note that the terms of our new credit
facility limit our ability to purchase your notes upon a change of control. Any
of our future debt agreements may contain similar restrictions and provisions.
Accordingly, we may not be able to satisfy our obligations to purchase your
notes unless we are able to refinance or obtain waivers with respect to those
agreements. We cannot assure you that we will have the financial resources to
purchase your notes, particularly if a change of control event triggers a
similar repurchase requirement for, or results in the acceleration of, other
indebtedness. Our new credit
14
<PAGE>
facility currently provides that specified change of control events will
constitute a default and could result in the acceleration of our indebtedness
under the new credit facility.
The restrictive covenants in the indenture may not prevent us from entering into
transactions that could adversely affect the value of your notes
You should be aware that the restrictive covenants in the indenture,
including the covenant that requires us to offer to repurchase your notes in the
event of a change of control, are subject to significant exceptions. As a
result, we may still be able to enter into a variety of transactions, including
acquisitions, refinancings and recapitalizations, that could increase the amount
of our indebtedness or otherwise affect our capital structure. Those
transactions could have an adverse impact on our ability to repay your notes, or
on our credit rating and the market value of your notes. Because those
transactions will not be restricted by the indenture, you will have no right to
prevent us from entering into any of those transactions or to compel us to
repurchase your notes.
Courts could invoke fraudulent transfer statutes to limit your right to receive
payments on your notes
Federal or state fraudulent transfer laws permit a court, if it makes the
findings described below, to
o avoid all or a portion of our obligations to you;
o subordinate our obligations to you to other existing and future
indebtedness of Formica, entitling other creditors to be paid in full
before any payment is made on the notes; and
o take other action detrimental to you, including, in various
circumstances, invalidating the notes.
In that event, there would be no assurance that you would ever be repaid.
Under federal and state fraudulent transfer laws, in order to take any of
the actions described above, courts will typically need to find that, at the
time the notes were issued, we:
(1) issued the notes with the intent of hindering, delaying or
defrauding current or future creditors; or
(2) received less than fair consideration or reasonably equivalent
value for incurring the indebtedness represented by the notes and
(a) were insolvent or were rendered insolvent by reason of the
issuance of the notes,
(b) were engaged, or about to engage, in a business or transaction
for which our assets were unreasonably small; or
(c) intended to incur, or believed or should have believed we
would incur, debts beyond our ability to pay as our debts
mature
as all of the foregoing terms are defined in or interpreted under
fraudulent transfer statutes,
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we incurred the indebtedness
constituting the notes if (1) the fair market value or fair saleable value of
our assets is less than the amount required to pay our total existing debts and
liabilities, including the probable liability on contingent liabilities, as they
become absolute or matured or (2) we were incurring debts beyond our ability to
pay as our debts mature. We cannot assure you as to what standard a court would
apply in order to determine whether we were "insolvent" as of the date the notes
were issued, and we cannot assure you that, regardless of the method of
valuation, a court would not determine that we were insolvent on that date. Nor
can we
15
<PAGE>
assure you that a court would not determine, regardless of whether we were
insolvent on the date the notes were issued, that the payments constituted
fraudulent transfers on another ground. To the extent that proceeds from the
sale of the notes are used to repay the bridge notes, a court may find that we
did not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented by the notes.
No public trading market for the notes exists, which could result in an illiquid
trading market and/or lower sales prices for your notes
The new notes are being offered to holders of the old notes, which were
issued on February 22, 1999 to a limited number of investors. There is currently
no active trading market for the notes, and it is not possible to predict how
the notes will trade in the secondary market or whether the secondary market
will be liquid or illiquid. If a trading market does develop, the notes may
trade at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities and other factors, including
economic conditions and the financial condition, and the performance of, and
prospects for, Formica. The liquidity of, and trading markets for, the notes may
also be adversely affected by declines in the market for high yield securities
generally. We do not intend to apply for listing of the notes on any securities
exchange or for quotation on NASDAQ.
Risk factors relating to our business
We intend to reduce our operating costs, including advertising and marketing
costs; that strategy may not be successful and may actually reduce our sales
Our business strategy includes the reduction of operating costs, primarily
advertising and marketing costs, and a shift in marketing focus away from
consumer-targeted marketing that we believe is ineffective. We cannot assure you
that we will be successful in reducing these costs. Additionally, reductions in
advertising and marketing expenditures could have an adverse impact on our
sales.
Our strategy of growing via acquisitions is risky, as we may have difficulty
managing a larger company and we may have difficulty financing new acquisitions
Our business strategy also includes the pursuit of an acquisition strategy
to promote our growth. For example, we recently acquired International Paper's
solid surfacing business. Our failure to manage our future growth effectively
could have a material adverse effect on us. We cannot assure you that we will be
able to find suitable acquisition candidates or that we can complete
acquisitions on reasonable terms. Additionally, our ability to finance
acquisitions will be dependent on our ability to generate sufficient cash flow
or obtain sufficient capital. We cannot assure you that:
o we will be able to generate sufficient cash flow
o financing will be available on acceptable terms or
o financing will be permitted to be incurred under the terms of the
indenture, the new credit facility and any future indebtedness
to fund acquisitions.
The decorative surfacing products market is mature and cyclical, so our business
will be impacted by an economic downturn
In the United States, high-pressure decorative laminate sales have
historically correlated closely with residential and commercial construction
activity. Spending on new construction and renovation in both the
16
<PAGE>
residential and commercial markets depends, in large part, upon the overall
strength of consumer and business spending, which in turn is linked to the
overall health of the economy. A decrease in overall spending for new
construction or renovation in any geographic region in which we do a
substantial amount of business could have a material adverse effect on our
financial condition and results of operations.
Our intellectual property is important to our business and may not be
sufficiently protected under the laws of the United States and other countries
Substantially all of our net sales are from sales of products bearing
proprietary trademarks, including Formica, the Anvil F mark, Colorcore, Surell
and Fountainhead. Accordingly, our future success may depend in part upon the
goodwill associated with our trademarks and the loss of our intellectual
property rights could have a material adverse effect on our financial condition
and results of operations. We cannot assure you that the steps taken by us to
protect our proprietary rights in our intellectual property will be adequate to
prevent the misappropriation thereof in the United States or abroad. In
addition, the laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States.
We are controlled by a small group of shareholders who will be able to make
important decisions about our business and capital structure; their interests
may be different than your interests as a debtholder
Circumstances may occur in which the interests of our principal
shareholders could be in conflict with the interests of the holders of the
notes. In addition, our shareholders may have an interest in pursuing
transactions that, in their judgment, enhance the value of their equity
investment in us, even though those transactions may involve risks to the
holders of the notes.
Approximately 47.7% of the outstanding shares of Laminates common stock is
held by DLJ Merchant Banking funds, 23.9% is held by CVC and 23.9% is held by
MMI, in each case without giving effect to 143,684 outstanding shares of
restricted stock issued to our management.
The DLJ Merchant Banking funds, CVC, MMI and members of our management who
chose to purchase shares of Laminate's common stock entered into a stockholders'
agreement which contains provisions that, among other things, entitle the DLJ
Merchant Banking funds to select two of the seven members of Laminates' and our
respective board of directors, each of CVC and MMI to select one member of each
board, and the DLJ Merchant Banking funds, CVC and MMI to collectively select
two other members. As a result, these shareholders control Laminates and,
through Laminates, us, and have the power to elect a majority of the directors
of Laminates and us, appoint new management and approve any action requiring the
approval of the holders of common stock of Laminates or us, including adopting
amendments to the certificate of incorporation of Laminates and us and approving
acquisitions or sales of all or substantially all of the assets of Laminates and
us. The directors elected by the DLJ Merchant Banking funds and the
institutional investors have the ability to control decisions affecting the
capital structure of Laminates and us, including the issuance of additional
capital stock, the implementation of stock repurchase programs and the
declaration of dividends.
The general partners of each of the DLJ Merchant Banking funds are
affiliates or employees of Donaldson, Lufkin & Jenrette, Inc. DLJ Capital
Funding, which is one of the lenders under the new credit facility, Laminates
Funding, Inc. which purchased our bridge notes, and Donaldson, Lufkin & Jenrette
Securities Corporation, which was one of the initial purchasers of the old
notes, are also affiliates of Donaldson, Lufkin & Jenrette.
Our international presence expose us to additional risks inherent in
international operations, including exchange rate fluctuations, repatriation of
funds and adverse economic conditions in other regions of the world
In 1998, approximately 37% of our net sales were made to purchasers
located, and all of our operating income was earned, outside of North America.
Because of our foreign operations, our business is subject to the currency
17
<PAGE>
risks of doing business abroad, including exchange rate fluctuations and limits
on repatriation of funds. As a result of the current downturn in the Asian
economy, there may be a decrease in new construction and renovation in the Asian
region or an overall worldwide economic contraction, which could have a material
adverse effect on our business, financial condition and results of operations.
Further, many developing economies have a significant degree of political and
economic uncertainty. Social unrest, the absence of trained labor pools and the
uncertainty of entering into joint ventures or other partnership arrangements
with local organizations have slowed business activities in some large
developing economies. The political and economic uncertainties present in these
promising growth markets may adversely impact our ability to implement and
achieve our foreign growth objectives.
We operate in a competitive industry and many of our competitors have greater
resources than we do, which could permit them to spend more on marketing and
research and development
The decorative surfacing product market is highly competitive. Many of our
competitors are owned by larger enterprises and may have greater assets or
resources than us, which could allow them to spend more money on marketing and
research and development, which would give them a competitive advantage. For
example, Corian, the major competitor for our Surell and Fountainhead products,
is produced by DuPont, one of the largest companies in the world. Our products
compete around the world with high pressure decorative laminates manufactured by
other producers, as well as with wood, veneers, marble, granite, solid
surfacing, tile, plastics, foils, papers, vinyls, acrylics, paint, wallpaper,
wall and floor coverings, low pressure laminates and other surfacing materials.
Competition is based principally on breadth of product line, product quality,
marketing, technology, price and service. We compete in a number of geographic
markets and our success in each of these markets is influenced by those factors.
See "Business--Competition."
We are dependent on key personnel and our business could be adversely affected
if we lost the services of these key employees; in particular, our business
strategy is dependent upon our CEO and CFO, who have a proven track record with
our company
Our success depends, to a large extent, upon the efforts and abilities of
key managerial employees, particularly our executive officers. In particular,
our business strategy is dependent upon Messrs. Langone and Schneider's prior
experience in the industry and with Formica, and our historical results of
operations were worse in their absence. The loss of the services of any of these
key employees or the failure to retain qualified employees when needed could
have a material adverse effect on our business, financial condition or results
of operations. Competition for qualified management personnel in the industry is
intense. We do not currently maintain key man life insurance.
Our operations and assets are subject to extensive environmental laws and
regulations, which could require us to spend significant amounts of money to
clean up contaminated property
Our operations are subject to various foreign and United States
environmental laws and regulations. We have conducted environmental assessments
on a limited number of properties. Based on these limited assessments, the
estimated range of costs and liabilities associated with potential on-site soil
and groundwater contamination and compliance with existing and potential
environmental regulations is approximately $1.6 million to $7.1 million,
exclusive of costs and liabilities associated with off-site contamination at
Superfund sites described below. In addition, we estimate that we will have
additional capital expenditures of approximately $0.8 million relating to air
emissions equipment upgrades at our Rocklin, California facility. We cannot
assure you, however, that we will be required to incur these estimated costs and
liabilities or that the actual costs and liabilities will not be significantly
higher. Unforseen expenditures or liabilities relating to contamination or
compliance with environmental laws could have a material adverse effect on our
financial condition or results of operation.
We have been, from time to time, the subject of administrative
proceedings, litigation and investigations relating to environmental matters.
Currently, we have been named as a potentially responsible party at several
Superfund sites and have reserved approximately $4.0 million for liabilities at
December 31, 1998 with respect to
18
<PAGE>
two sites. Although we believe, based on various factors, including, without
limitation, indemnification rights that we have with respect to some of the
Superfund sites, that the liabilities associated with Superfund sites should not
have a material adverse effect on our financial condition or results of
operations, we cannot assure you that we will not become involved in future
proceedings, litigation or investigations, that the Superfund or other
environmental liabilities will not be material or that indemnification under
those indemnification rights will otherwise be available. See "Business--
Environmental Matters."
Our business may be disrupted by Year 2000 problems in our computers or in the
computer systems of our customers or vendors
Our business could be adversely impacted by what is known as the year 2000
problem. Until recently, computer programs were written to store only two digits
of date-related information in order to more efficiently handle and store data.
Thus, the programs were unable to properly distinguish between the year 1900 and
the year 2000, which could result in incorrect computations or records or even
shut-down of those programs. The year 2000 problem is a broad business issue,
whose impact extends beyond traditional computer hardware and software to
possible failure of our plant systems. If any of our systems are not year 2000
compliant or if our customers or suppliers fail to remedy the year 2000 problem,
we could experience the following adverse consequences:
o our customers may be unable to place orders with us due either to our
system failures or to those of our customers
o we may be unable to bill our customers and maintain adequate production
scheduling, inventory cost accounting and other elements of our
business that are dependent upon computer systems and
o we may be unable to deliver our products on a timely basis.
We cannot control the ability of third parties, including suppliers and
customers, to adequately address their year 2000 problems. For a description of
our year 2000 efforts, you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
You may not be able to rely on forward-looking statements, as our actual
results may be materially different
This prospectus contains forward-looking statements that involve a number
of risks and uncertainties. A number of factors could cause our actual results,
performance, achievements, or industry results to be materially different from
any future results, performance or achievements expressed or implied by
forward-looking statements.
These factors include, but are not limited to:
o the competitive environment in the general decorative surfacing
product market and in our specific market areas;
o changes in prevailing interest rates and the availability of and terms
of financing to fund the anticipated growth of our business;
o inflation;
o changes in costs of goods and services; economic conditions in general
and in our specific market areas;
o changes in or failure to comply with federal, state and/or local
government regulations;
o liability and other claims asserted against us;
19
<PAGE>
o changes in operating strategy or development plans;
o the ability to attract and retain qualified personnel;
o our significant indebtedness;
o labor disturbances;
o changes in our acquisition and capital expenditure plans;
o and other factors referenced herein.
In addition, forward-looking statements depend upon assumptions, estimates
and dates that may not be correct or precise and involve known and unknown
risks, uncertainties and other factors. Accordingly, a forward-looking statement
in this prospectus is not a prediction of future events or circumstances and may
not occur. Given these uncertainties, prospective investors are warned not to
rely on forward-looking statements. Forward-looking statements can be identified
by, among other things, the use of forward-looking terminology, including
"believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates" or "intends" or by discussions of strategy or intentions. We are
not undertaking any obligation to update any factors or to publicly announce the
results of any revisions to any of the forward-looking statements due to future
events or developments.
20
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes
offered hereby. New notes will be exchanged for old notes as described in this
prospectus on our receipt of old notes in like principal amount. We will cancel
all of the old notes surrendered in exchange for the new notes.
Our net proceeds from the sale of the old notes were approximately $208.0
million, after deduction of the initial purchasers' discounts and commissions
and other expenses of the offering. We used the net proceeds to repay in full
the $200 million principal amount outstanding under the bridge notes, together
with accrued interest. The remaining net proceeds were used for general
corporate purposes and initially were temporarily invested in short-term
securities.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999.
This table should be read in conjunction with our consolidated financial
statements, including the notes thereto, included elsewhere herein,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "The Acquisition."
June 30,
1999
------------
Historical
------------
(in millions)
Cash and cash equivalents..................... $ 7.2
Long term debt, including current portion:
New credit facility revolving loans (1). $ 0.0
New credit facility term loan........... 84.5
Senior subordinated notes............... 215.0
Other debt.............................. 42.1
------
Total debt............................. 341.6
Total stockholder's equity.................... 94.9
------
Total capitalization.......................... $436.5
======
- --------------------
(1) We have a total commitment for borrowings of $120.0 million under our new
credit facility. Approximately $26.7 million has been used as of June 30,
1999, to obtain letters of credit to provide credit enhancement for some
assumed indebtedness. See "Description of New Credit Facility."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table includes historical consolidated financial data for
Formica:
o prior to our acquisition by BTR as of and for the year ended December
31, 1994;
o after our acquisition by BTR as of and for the eleven months beginning
January 25, 1995, when we were bought by BTR, and ending December 31,
1995, the years ended December 31, 1996 and 1997 and the four month
period ended April 30, 1998;
o after our acquisition by Laminates for the two months ended June 30,
1998, the eight months ended December 31, 1998 and for the six months
ended June 30, 1999.
The historical financial data for pre-BTR Formica for the year ended
December 31, 1994 have been derived from the audited consolidated financial
statements of pre-BTR Formica. The historical financial data for BTRowned
Formica as of and for the eleven months ended December 31, 1995 and as of and
for the years ended December 31, 1996 and 1997 and the four months ended April
30, 1998 have been derived from the audited consolidated financial statements
of BTR-owned Formica. The historical financial data for the eight months ended
December 31, 1998 have been derived from our audited consolidated financial
statements. The historical financial data for the two months ended June 30,
1998 and the six months ended June 30, 1999 have been derived from our
unaudited consolidated financial statements. You should read the following
data in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Pre-BTR
Formica BTR-owned Formica Formica
------- --------------------------------------------- -----------------------------------
Eleven Four Eight
Year Months Months Two Months
Ended Ended Ended Months Ended Six Months
December December Years Ended April Ended June December Ended June
31 31, December 31, 30, 30, 31, 30,
------- ------- -------------------- ------- ---------- -------- ----------
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- -------------------- ------- ---------- -------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales........... $ 489.2 $ 468.2 $ 521.6 $ 533.4 $ 178.3 $ 98.3 $371.4 $294.6
Cost of products
sold.............. 341.8 324.0 348.3 350.1 131.1 67.6 266.2 209.9
------ ------- ------- ------- ------- ------ ------ ------
Gross profit........ 147.4 144.2 173.3 183.3 47.2 30.7 105.2 84.7
Selling, general
and administrative
expenses.......... 108.5 145.2 186.7 202.2 60.9 28.1 100.5 78.5
Cost of terminated
acquisition....... -- -- -- -- -- -- 3.0 --
Goodwill
impairment
charge(1)......... -- -- -- 484.4 -- -- -- --
------ ------- ------- ------- ------- ------ ------ ------
Operating
income (loss)..... 38.9 (1.0) (13.4) (503.3) (13.7) 2.6 1.7 6.2
Interest expense(2). (46.4) (31.7) (10.6) (3.1) (1.7) (5.5) (25.7) (19.0)
Other income........ 16.2 0.4 1.1 1.8 0.8 0.4 4.5 1.6
------ ------- ------- ------- ------- ------ ------ ------
Income (loss)
before income
taxes............. 8.7 (32.3) (22.9) (504.6) (14.6) (2.5) (19.5) (11.2)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Pre-BTR
Formica BTR-owned Formica Formica
------- --------------------------------------------- -----------------------------------
Eleven Four Eight
Year Months Months Two Months
Ended Ended Ended Months Ended Six Months
December December Years Ended April Ended June December Ended June
31 31, December 31, 30, 30, 31, 30,
------- ------- -------------------- ------- ---------- -------- ----------
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- -------------------- ------- ---------- -------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax
(provision)
benefit........... 7.0 5.8 (5.0) (0.2) -- -- (2.8) (1.9)
------- ------- ------- ------- ------- ------ ------ ------
Net income
(loss)(3).......... $ 15.7 $ (26.5) $ (27.9) $(504.8) $ (14.6) $ (2.5) $(22.3) $(13.1)
======= ======= ======= ======= ======= ====== ====== ======
Other Data:
EBITDA:
Net Income.......... $ 15.7 $(26.5) $ (27.9) $(504.8) $ (14.6) $ (2.5) $(22.3) $(13.1)
Interest expense..... 46.4 31.7 10.6 3.1 1.7 5.5 25.7 19.0
Income tax
expense
(benefit).......... (7.0) (5.8) 5.0 0.2 -- -- 2.8 1.9
Depreciation and
Amortization....... 23.9 37.3 52.1 55.7 11.1 6.8 29.3 22.5
Goodwill
impairment
charge............. -- -- -- 484.4 -- -- -- --
Non-recurring
gain on
license sale....... (7.6) -- -- -- -- -- -- --
EBITDA(4).......... $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ (1.8) $ 9.8 $ 35.5 $ 30.3
1998 Charges........... -- -- -- -- 5.7(5) 7.8(5) 10.8(5) --
Adjusted EBITDA(4)... $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ 3.9 17.6 $ 46.3 $ 30.3
Adjusted
EBITDA Margin.......... 14.6% 7.8% 7.6% 7.2% 2.2% 17.9% 12.5% 10.3%
Net cash provided by
(used in):
Operating
activities.......... $ (5.6) $ (9.9) $ 1.5 $ 5.7 $( 11.7) $(12.8) $ 26.7 $(12.0)
Investing
activities.......... (17.5) (27.5) (44.5) (46.5) (8.3) (9.0) (35.5) (25.6)
Financing
activities.......... 35.2 28.5 56.5 47.1 (0.1) 33.9 33.0 16.4
Depreciation and
amortization........ 23.9 37.3 52.1 55.7 11.1 6.8 29.3 22.5
Capital
expenditures......... 17.5 27.5 44.5 46.5 8.3 9.0 35.5 10.0
Ratio of earnings
to fixed
charges(6)........... 1.20 -- -- -- -- -- -- --
Balance Sheet
Data (End of
Period):
Cash equivalents....... $ 15.1 $ 9.8 $ 26.3 $ 27.2 $ 6.9 $ 22.1 $ 31.6 $ 7.2
Working capital........ 123.2 57.4 64.3 66.6 48.8 68.9 114.5 124.9
Total assets........... 605.5 1,110.0 1,136.8 647.7 612.0 689.3 696.8 707.5
Total debt............. 371.9 441.1 42.2 44.8 83.9 318.6 317.7 341.6
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Pre-BTR
Formica BTR-owned Formica Formica
------- --------------------------------------------- -----------------------------------
Eleven Four Eight
Year Months Months Two Months
Ended Ended Ended Months Ended Six Months
December December Years Ended April Ended June December Ended June
31 31, December 31, 30, 30, 31, 30,
------- ------- -------------------- ------- ---------- -------- ----------
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- -------------------- ------- ---------- -------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITD
Stockholder's equity... 40.3 459.4 870.7 343.4 331.2 116.7 119.8 94.9
</TABLE>
- ----------------------
(1) During 1997, we recorded a goodwill impairment charge of $484.4 which was
determined utilizing the fair value of our assets considering, among other
things, the purchase price for the sale of Formica. The impairment charge
did not result in the reduction of property, plant and equipment.
(2) Interest expense is not net of interest income. See note 2 to "Summary
Historical and Unaudited Pro Forma Financial Data."
(3) Net income for the year ended December 31, 1994 is exclusive of an
extraordinary loss of $9.2.
(4) "EBITDA" is defined as income before extraordinary item and change in
accounting principles plus interest expense (not net of interest
income), income tax expense, depreciation and amortization expenses and
goodwill impairment charge. EBITDA is a key financial measure but should
not be construed as an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles). EBITDA for 1994 excludes a
non-recurring gain of $7.6 on a sale of a license. "Adjusted EBITDA" for
the four months ended April 30, 1998, the two months ended June 30, 1998
and the eight months ended December 31, 1998 represents EBITDA excluding
$5.7, $7.8 and $10.8 of the 1998 Charges, respectively. We believe that
EBITDA and Adjusted EBITDA are useful supplements to net income(loss)
and other consolidated income statement data in understanding cash flows
generated from operations that are available for taxes, debt service and
capital expenditures. Adjusted EBITDA is presented to assist in
comparing normalized EBITDA between periods. However, our method of
computation may or may not be comparable to other similarly titled
measures of other companies.
(5) Includes $5.7, $7.8 and $10.8 of non-cash charges reflecting adjustment of
(1) reserves for inventory obsolescence, doubtful accounts and customer
incentive rebate programs and (2) accruals for customs, property tax
expenses and other items and cost of terminated acquisition. See Notes 12
and 14 to the consolidated financial statements.
(6) For purposes of these computations, earnings consist of income (loss)
before 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). For the eleven months ended December
31, 1995, the years ended December 31, 1996 and 1997, the four months
ended April 30, 1998, the two months ended June 30, 1998, the eight months
ended December 31, 1998 and the six months ended June 30, 1999, earnings
were insufficient to cover fixed charges by $32.3, $23.1, $505.9, $14.6,
$2.5, $19.5 and $11.2, respectively.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are engaged in the design, manufacture and distribution of decorative
laminates, solid surfacing, laminate flooring and other surfacing products.
Formica was founded in 1913 and created the world's first decorative laminate in
1927. In May 1985, a group led by management and Shearson Lehman purchased
Formica from American Cyanamid Company. In 1989, Formica was sold to FM
Acquisition Corporation in a buyout led by Vincent Langone, David Schneider and
Dillon, Read & Company. In January 1995, Formica was acquired by BTR. In May
1998, Laminates, together with Messrs. Langone and Schneider acquired Formica.
In connection with the acquisition, Messrs. Langone and Schneider returned to
Formica to assume senior management positions: Mr. Langone as Chairman,
President and Chief Executive Officer and Mr. Schneider as Chief Financial
Officer.
From 1995 to 1997, our financial results declined. Management believes
that the decline is largely attributable to the following factors:
o a large increase in selling, general and administrative expenses from
21.0% of net sales in 1994 to 31.5% of net sales in 1997, in each case
excluding amortization, which was largely the result of increased
advertising and promotion;
o a significant increase in capital expenditures, which averaged
approximately $39.5 million per year from 1995 to 1997 as compared to
$12.4 million per year from 1985 to 1994, the majority of the
productivity and efficiency benefits of which management believes have
yet to be realized;
o the autonomous operation of Formica's North American, European and
Asian divisions, which prevented integration and hampered Formica's
ability to share improved manufacturing techniques, purchasing, design
and technology on a global basis;
o significant management turnover, particularly in North America,
which led to a loss of strategic direction and to operational
difficulties;
o prior management's emphasis on gross margins and the resulting
elimination of some lower-margin accounts that had low gross-margins
but were profitable and allowed us to spread our fixed costs over more
sales and
o a change in the emphasis of Formica's design program, which began to
focus on consumers rather than on product specifiers, such as
architects and designers.
We have begun to implement a business strategy that we believe will
address the decline in the financial results of the business and significantly
improve our profitability. The principal elements of this strategy include:
o a reduction in operating expenses, which management estimates will
result in net annualized savings of $30.0 million, net of $7.0 million
of incremental standalone costs;
o the realization of significant manufacturing savings as a result of
completion of capital projects initiated under BTR management;
o the increased integration of and communication between Formica's
operating units;
o re-emphasis on quality and service in North America; and
25
<PAGE>
o the pursuit of acquisition opportunities that complement or expand
Formica's decorative surfaces business or that enable Formica to enter
new markets.
Results of Operations
Changes in Accounting Estimates. During the four and eight month periods
ended April 30 and December 31, 1998, Formica made various changes in accounting
estimates totaling $5.7 million and $7.8 million, respectively, due to new
management plans with respect to asset carrying and disposition policies and new
information becoming available regarding customers, products and competitive
conditions in some markets. These changes in accounting estimates resulted in
charges that impacted Formica's results of operations as follows:
Customer Incentive Rebate Program. Due to competitive pressures in certain
markets, many Formica distributors must periodically reduce their resale prices
for Formica products in order to meet prices offered by distributors for
competing manufacturers. In order to provide incentives to distributors to
compete vigorously even when competitive prices would significantly reduce or
eliminate distributor margins, Formica offers percentage rebates to distributors
on specified products based on their actual resale prices to end customers,
within pre-established parameters. During the period that Formica was owned by
BTR, the reserve for customer incentive rebates was estimated based upon
distributor sales to the end customer. Based on analyses performed at that time,
the reserve balance was determined by providing for approximately one month of
the average monthly amount of rebates based on estimates of distributor sales in
inventory.
Based on an analysis of inventories of Formica products held by certain
independent distributors that was performed in connection with the acquisition,
we have estimated that distributors hold, on average, approximately two months
of sales in inventory. Accordingly, in the preparation of the April 30, 1998
financial statements, we have recorded a change in accounting estimates to
reserve an additional $2.7 million for customer incentive rebate programs.
Accounts Receivable Reserve. A long-standing distributor of Formica has
experienced liquidity problems since the early 1990's, is in a negative equity
position and has received "going concern opinions" from its auditors. We have
carried a large receivable balance from this distributor for several years and
have also converted approximately $4 million of the receivable balance into an
8-year interest bearing promissory note. Over the last 5 years, the distributor
has been unable to pay down the trade receivable and note balances, which in the
aggregate, have fluctuated between $4.5 to $5.5 million during this period. The
aggregate balance was $4.6 million at April 30, 1998. Accordingly, we believe
additional reserves of $1.4 million were necessary as of the April 30, 1998
balance sheet date to provide for potential losses due to uncollectibility of
the outstanding receivable and note balances for this distributor.
During the period that Formica was owned by BTR, Formica's parent provided
lender guarantees that enabled certain distributors to obtain more favorable
credit terms than were otherwise obtainable. We have discontinued this guarantee
program subsequent to April 30, 1998 and determined that it would be prudent to
increase the reserve levels for four of our weaker distributors in the event
that the change in policy with respect to the guarantees results in liquidity
problems for the distributors. Accordingly, we have recorded a change in
accounting estimates to increase our provision for doubtful accounts by $2.4
million as of December 31, 1998.
Inventory Obsolescence Reserve. The inventory reserve reflects our new
policies and plans with respect to the frequency of new product introductions
and our desire to sell or dispose of inactive products on a more timely basis.
While the previous management's intentions resulted in a policy of providing a
reserve for 100% of the cost of any products that had not moved for 24 months,
new management believes that providing reserves for 75% of the cost of products
after one year and 100% after two years is consistent with the way we plan to
run Formica's business. Accordingly, we have recorded a change in accounting
estimates to increase our inventory obsolescence reserve by $5.4 million as of
December 31, 1998.
26
<PAGE>
Accruals for Some Exposures. Based upon changes in facts and circumstances
in 1998, accruals of $1.6 million were recorded as a change in accounting
estimates in the preparation of our April 30, 1998 financial statements. The
change in accounting estimates included accruals for property taxes ($500k),
customs ($600k), employee relocation costs ($345k) and vacation reserves
($216k).
Six-Months Ended June 30, 1999 Compared to Six-Months Ended June 30, 1998
Net Sales. For the first six months, net sales have increased to $294.6
million in 1999 from $276.6 million in 1998, an increase of $18.0 million, or
6.5%. The increase was primarily due to additional product sales volume within
the United States.
Gross Profit. Gross profit for the first six months was $84.7 million in
1999, compared to $77.9 million in 1998, an increase of $6.8 million, or 8.7%.
Adjusted for the 1998 charges described above, amounting to $5.7 million, gross
profit was up $1.1 million, or 1.3%. Gross profit as a percentage of net sales
for the first six months, excluding the 1998 nonrecurring charges, decreased to
28.8% in 1999 from 30.2% in 1998. The decrease reflects competitive pricing
pressures in North America and a shift in product mix in Europe.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first six months of 1999 were $78.5 million
compared to $89.0 million for 1998, a decrease of $10.5 million or 11.8%.
Adjusted for the 1998 charges described above, amounting to $7.8 million,
selling, general and administrative expenses were down $2.7 million, or 3.3%.
Year to date selling, general and administrative expenses as a percentage of net
sales decreased to 26.6% for 1999 from 32.2% for 1998. The decrease in selling,
general and administrative expenses was primarily due to lower advertising and
sales promotion expense and lower compensation expense due to restructuring
efforts offset by an increase in amortization expense of $4.2 million.
Operating Income (Loss). Operating income for the first six months was
$6.2 million for 1999 compared to an operating loss of $11.1 million for 1998.
The improvement was primarily due to the selling, general and administrative
cost reductions.
EBITDA. EBITDA increased to $30.3 million for the first six months of 1999
compared to $21.5 million for the first six months of 1998. The increase was the
result of cost reductions in selling, general and administrative expenses and
the favorable impact of higher sales.
Interest Expense. Interest expense, including amortization and
write-off of deferred financing costs amounting to $2.6 million, increased to
$19.0 million for the first six months of 1999 from $7.2 million for the first
six months of 1998. The increase in interest expense was the result of the
change in the structure of ownership and debt.
Income Taxes. Income tax expense increased to $1.9 million for the first
six months of 1999 from zero for the first six months of 1998. The increase is
due to taxable earnings in 1999.
Net Loss. The net loss was $13.1 million for the first six months of 1999
compared with $17.1 million for the first six months of 1998. The decrease in
the net loss is principally due to the impact of the cost reductions in SG&A
offset by the increase in interest expense related to the change in the
structure of ownership and debt.
1998 Compared to 1997
Net Sales. Net sales for 1998 were $549.7 million, compared to net sales
of $533.4 million for 1997, an increase of $16.3 million, or 3.1%. Net sales in
North America increased to $346.6 million in 1998 from $315.0 million in 1997,
an increase of $31.6 million, or 10.0%. This increase is primarily due to
additional volume contributed by the new flooring product line. Net sales in
Europe and Asia decreased to $203.1 million in 1998 from $218.4 million in 1997,
a decrease of $15.3 million, or 7.0%. Lower sales in Europe and Asia were
primarily the result of a decline in value of foreign currencies and the weaker
Asian economy.
27
<PAGE>
Gross Profit. Gross profit for 1998 was $152.4 million, compared to gross
profit of $183.3 million for 1997, a decrease of $30.9 million, or 16.9%.
Adjusted for the 1998 charges described above, amounting to $5.7 million, gross
profit was down $25.2 million, or 13.7%. Gross profit as a percentage of net
sales, excluding the 1998 nonrecurring charges, decreased in 1998 to 28.8% from
34.4% in 1997.
Gross Profit in North America decreased to $95.9 million in 1998 from
$99.9 million in 1997, or 4.0%. Gross profit in North America, adjusted for 1998
charges of $5.9 million, was consistent with 1997. Gross profit as a percentage
of net sales for North America, excluding the 1998 charges, decreased to 29.4%
in 1998 from 31.7% in 1997, principally as a result of increased raw material
prices. Gross profit in Europe and Asia dropped to $56.5 million in 1998 from
$83.4 million in 1997, or 32.3%. Gross profit, in Europe and Asia, adjusted for
1998 charges amounting to $2.2 million, declined 29.6%. As a percentage of net
sales, gross profit in Europe and Asia, excluding 1998 charges, decreased to
28.9% in 1998 from 38.2% in 1997. This decrease is primarily the result of a
larger mix of low margin products in Europe and increased raw material prices
magnified by a decline in purchasing power of Formica's foreign operations due
to currency impact on imported raw materials, the prices of which are often
based upon U.S. dollars.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1998 were $161.4 million compared to $202.2 million
for 1997, a decrease of 20.2%. Selling, general and administrative expenses as a
percentage of net sales decreased to 29.4% in 1998 from 37.9% in 1997. The
decrease in selling, general and administrative expenses was primarily due to
lower advertising and sales promotion expense and lower compensation expense due
to restructuring efforts. Selling, general and administrative expenses, adjusted
for the 1998 charges amounting to $5.4 million, were $156.0 million in 1998
compared to $202.2 million in 1997, a decrease of 22.8%.
Goodwill impairment charge. Formica's prior management recorded a goodwill
impairment charge of $484.4 million in the fourth quarter of 1997. Prior to this
quarter, prior management believed that the value of Formica was consistent with
the value of Formica at the time of its acquisition by BTR in 1995. Upon
consideration of the proposed acquisition, prior management was made aware of
the current value and determined that the goodwill, which was created in the
1995 acquisition, should be written off.
Operating Loss. Operating loss for 1998 was $12.0 million compared to an
operating loss of $503.3 million for 1997. The decrease was primarily due to the
goodwill impairment charge amounting to $484.4 million in 1997.
Adjusted EBITDA. Primarily for the reasons stated above, Adjusted EBITDA
increased to $50.2 million in 1998 compared to $38.6 in 1997.
Interest Expense. Interest expense increased to $27.4 million in 1998
from $3.1 million for 1997. The increase in interest expense was the result of
the funding of the acquisition.
Income Taxes. Income tax expense increased to $2.8 million in 1998 from
$0.2 million in 1997. The effective rates were 8.2% and 0.0% for 1998 and 1997,
respectively. The effective tax rate was higher in 1998 as compared to 1997
primarily due to income taxes being payable in some foreign locations in 1998.
Net Loss. Net loss was $36.9 million in 1998 compared with $504.8 million
in 1997. The decrease is principally due to the goodwill impairment charge of
$484.4 million in 1997 and reduced selling, general and administrative expenses
offset by a decline in profit margin.
1997 compared to 1996
Net Sales. Net sales for 1997 were $533.4 million, compared to net sales
of $521.6 million for 1996, an increase of 2.3%. Net sales in North America
increased to $315.0 million in 1997 from $301.2 million in 1996, or 4.6%,
primarily due to additional volume contributed by the new flooring product line.
Net sales in Europe and
28
<PAGE>
Asia for 1997 were $218.4 million, compared to net sales of $220.4 million for
1996, a decrease of 0.9%, primarily as a result of lower selling prices in
Europe offset by higher sales volume in Asia.
Gross Profit. Gross profit for 1997 was $183.3 million, compared to gross
profit of $173.3 million for 1996, an increase of 5.8%. Gross profit as a
percentage of net sales increased in 1997 to 34.4% from 33.2% in 1996. The
increase in gross profit is primarily due to lower raw material prices and a
lower cost of sales mix in Asia. Gross profit for North America increased to
$99.9 million in 1997 from $98.6 million in 1996, or 1.3%, primarily due to
increased flooring volume, partially offset by higher manufacturing costs. For
North America, gross profit as a percentage of sales decreased in 1997 to 31.7%
from 32.7% in 1996 primarily due to manufacturing inefficiencies and increased
sales of laminate flooring, which has a lower gross margin than Formica's other
principal products. Gross profit in Europe and Asia increased to $83.4 million
in 1997 from $74.7 million in 1996, or 11.6%. For Europe and Asia, gross profit
as a percentage of net sales increased to 38.2% in 1997 from 33.9% in 1996. The
increase in gross profit in Europe and Asia was primarily due to lower raw
material prices in Europe, a lower cost of sales mix in Asia, and lower cost
production in China.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1997 were $202.2 million, compared to $186.7 million
for 1996, an increase of 8.3%. Selling, general and administrative expenses as a
percentage of net sales increased to 37.9% in 1997 from 35.8% in 1996. The
increase in selling, general and administrative expenses was primarily due to
higher spending in North America partially offset by lower spending in Europe
and Asia. Selling, general and administrative expenses for North America
increased to $133.7 million in 1997 from $111.9 million in 1996, or 19.5%. For
North America, selling, general and administrative expenses for North America
sales increased to 42.4% in 1997 from 37.2% in 1996. The increase in selling,
general and administrative expenses for North America was primarily due to
higher advertising and sales promotional costs related to the start-up of the
flooring product line and high-pressure laminate brand revitalization efforts.
selling, general and administrative expense for Europe and Asia declined to
$68.5 million 1997 from $74.8 million in 1996, or 8.4%. For Europe and Asia,
selling, general and administrative expenses percentage of net sales decreased
to 31.4% in 1997 from 33.9% in 1996. The decrease in selling, general and
administrative expenses in Europe and Asia was primarily due to a restructuring
in Europe, which included a reduction in headcount accompanied by tight spending
controls. In connection with those cost reduction efforts, Formica recognized
significant restructuring charges in 1996 as compared to 1997, while the
associated cost reductions were realized in 1997.
Operating Loss. Operating loss for 1997 was $503.3 million compared to
$13.4 million for 1996. The increase was primarily due to a one-time adjustment
of $484.4 million for goodwill impairment resulting from BTR's 1997 decision to
dispose of its building product businesses, including Formica, by offering those
businesses for sale. The amount of the impairment was determined utilizing the
fair value of Formica's assets considering among other things, the purchase
price for the sale of Formica. Excluding the goodwill adjustment, amounting to
$484.4 million, operating loss in 1997 increased $5.5 million to $18.9 million.
Operating loss for North America increased to $33.8 million in 1997 from $13.4
million in 1996 primarily due to higher selling, general and administrative
costs. Operating income for Europe and Asia increased to $14.9 million in 1997
from $0.0 million in 1996 primarily due to the impact of the European
restructuring in 1996 and lower cost of sales and selling, general and
administrative costs.
EBITDA. As a result of the factors described above, EBITDA decreased to
$38.6 million for 1997 from $39.8 million for 1996, or 3.0%.
Interest Expense. Interest expense decreased to $3.1 million for 1997 from
$10.6 million for 1996. The decrease in interest expense was the result of the
capitalization of a loan due to BTR in November 1996 and a change in methodology
relating to the interest calculation on intercompany indebtedness related to
BTR.
Income Taxes. Income tax expense decreased to $0.2 million in 1997 from
$5.0 million in 1996. The effective rates were 0.0% and 21.8% for 1997 and
1996, respectively. The tax rate was higher in 1996 as compared
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to 1997 because in 1996, due to concerns about realizability, a reserve was
established against some tax assets arising from a net operating loss incurred
by a foreign subsidiary.
Net Loss. Net loss was $504.8 million in 1997 compared with $27.9 million
in 1996. The increase is due to a one-time adjustment of $484.4 million for
goodwill impairment and the factors discussed above.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations,
borrowings under the new credit facility and local credit facilities obtained by
our foreign subsidiaries. Formica's principal uses of cash will be debt service
requirements to service the acquisition-related debt described below, capital
expenditures, and acquisitions.
In February 1999, Formica issued $215.0 million of indebtedness to
refinance the $200.0 million bridge notes. The net proceeds from the
refinancing, after deducting expenses of the offering, were utilized to repay
the $200.0 million principal amount outstanding under the bridge notes together
with accrued interest. As of June 30, 1999, Formica had approximately $341.6
million of indebtedness outstanding compared to $317.7 million as of December
31, 1998. Formica's significant debt service obligations could have material
consequences to security holders.
Formica spent approximately $10.0 million on capital expenditures in the
first six months of 1999 and Formica anticipates that it will spend a total of
approximately $25.0 million and $15.0 million in 1999 and 2000, respectively.
With that spending, our primary capital investment programs will be complete.
Formica expects to realize significant manufacturing cost savings, which will be
phased in over the next three years, as a result of those programs. These
savings resulting from our capital expenditure program are in addition to the
cost savings we expect from our reduction of operating expenses as we more fully
describe in "Business--Cost Savings." The new credit facility contains
restrictions on our ability to make capital expenditures. Based on present
estimates, management believes that the amount of capital expenditures permitted
to be made under the new credit facility will be adequate to complete its
investment program and maintain the properties and businesses of our continuing
operations.
Working capital totaled $124.9 million at June 30, 1999 compared to $114.5
million at December 31, 1998. Management believes that Formica will continue to
require working capital consistent with past experience and that current levels
of working capital, together with borrowings available under the new credit
facility, will be sufficient to meet expected liquidity needs in the near term.
In connection with the acquisition in 1998, our parent raised
approximately $137.1 million through the issuance of common and preferred stock
to the DLJMB funds, the institutional investors and Messrs. Langone and
Schneider. The Laminates 8% preferred stock has an 8% cumulative dividend that
is paid in cash when, as and if declared by the Laminates board. The Holdings
15% senior exchangeable preferred stock due 2008 has a 15% cumulative dividend
which is not payable in cash until May 2003 and is exchangeable at Holdings'
option for 15% subordinated debentures of Holdings. Dividends from Formica,
which are restricted by the provisions of the new credit facility and the
indenture, are the primary source of funding for payments with respect to
Holdings and Laminates securities. Formica sold $200.0 million of bridge notes
and, together with its subsidiaries, borrowed $80.0 million of term loans under
the new credit facility. The bridge notes were refinanced in February 1999 with
$215.0 million notes.
Formica is actively considering acquisitions that complements or expands
its decorative surfaces businesses or that will enable it to expand into new
markets. In connection with any future acquisitions, Formica may require
additional funding which may be provided in the form of additional debt, equity
financing or a combination thereof. We cannot assure you that we will be able to
obtain additional financing on acceptable terms.
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The new credit facility also includes a $120.0 million revolving credit
facility. The revolving credit facility may be increased by up to $25.0 million
at the request of Formica, with the consent of the banks providing the increased
commitments, and will terminate on May 1, 2004. The term loans under the new
credit facility consist of $40.0 million, $35.0 million and $10.0 million loans.
Borrowings under the new credit facility generally bear interest based on
a margin over the base rate or, at Formica's option, the reserve-adjusted LIBOR
rate. The applicable margin will vary based upon Formica's ratio of consolidated
debt to EBITDA. Formica's obligations under the new credit facility are
guaranteed by Laminates, Holdings and all existing or future domestic
subsidiaries of Formica and are secured by substantially all of the assets of
Formica and the subsidiary guarantors, including a pledge of capital stock of
all existing and future domestic subsidiaries of Formica, a pledge of no more
than 65% of the voting stock of any foreign subsidiary and a pledge by Holdings
of the stock of Formica and by Laminates of the stock of Holdings. The new
credit facility contains customary covenants and events of default.
The notes mature in 2009. Interest on the notes are payable semiannually
in cash. The notes and related indenture place restrictions on Formica and its
subsidiaries including the ability to pay dividends, issue preferred stock,
repurchase capital stock, incur and pay indebtedness, sell assets and make
restricted investments
Formica maintains various credit facilities in foreign countries,
primarily in Asia, that provide for borrowings in local currencies. As of June
30, 1999 and December 31, 1998, Formica has secured approximately $26.7 million
and $28.2 million in letters of credit under the new credit facility to provide
credit enhancement for some of those credit facilities. Formica may replace some
of the foreign facilities with loan availability, in the relevant local
currency, under the new credit facility and will maintain others to provide
financing for its subsidiaries in those countries. Formica expects that those
facilities, together with the new credit facility and operating cash flow in the
various countries, will be sufficient to fund expected liquidity needs in those
countries.
Formica anticipates that its operating cash flow, together with borrowings
under the new credit facility, will be sufficient to meet its anticipated future
operating expenses, capital expenditures and debt service obligations as they
become due. However, Formica's ability to make scheduled payments of principal
of, to pay interest on or to refinance the indebtedness and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by general economic, financial, competitive, legislative,
regulatory, business and other factors beyond its control.
Formica will continue from time to time to explore additional auxiliary
financing methods and other means to lower its cost of capital which could
include stock issuance or debt financing and the application of the proceeds
therefrom to the payment of bank debt or other indebtedness.
Prior to May 1, 1998, we formulated a plan to restructure some operations
and provided a restructuring provision of $6.6 million, which primarily related
to severance and related fringe benefits. During the first six months of 1999,
Formica spent $0.7 million of the restructuring provision. The restructuring
plan will be substantially completed in 1999.
Cash used in operations was $12.0 million for the first six months of 1999
and $24.5 million for the first six months of 1998. The cash used in operations
is the result of an increase in accounts receivable and inventory. Net cash used
in investing activities was $25.6 million for the first six months of 1999 and
$17.3 million for the first six months of 1998. Net cash provided by financing
activities was $16.4 million for the first six months of 1999 compared to $33.8
million for the first six months of 1998.
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Effect of Inflation; Seasonality
We do not believe that inflation has had a material impact on our
financial position or results of operations.
Our operations are generally not subject to seasonal fluctuations.
Year 2000 Compliance
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus, the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the year 2000 problem.
We are dependent in part on computer- and date-controlled systems for some
internal functions. Similarly, suppliers of components and services on which we
rely, and our customers, may have year 2000 problems, which would affect their
operations and their transactions with us. Other parties with whom we have
commercial relationships, including raw materials suppliers and service
providers, such as banking and financial services, data processing services,
telecommunications services and utilities, are highly reliant on computer-based
technology and may have year 2000 problems.
In 1996, we commenced a systems implementation effort to address the year
2000 problem and other operational issues on a worldwide basis. Our year 2000
compliance efforts are directed primarily towards ensuring that we will be able
to continue to perform three critical functions:
o make and sell our products,
o order and receive raw material and supplies, and
o pay our employees and vendors.
Our effort includes three phases: (1) assessment of each system to
identify any year 2000 problems, (2) renovation, repair or upgrade of any
problematic systems and (3) testing of the improved systems to ensure proper
function. Project costs incurred to assess, remediate and test our systems, and
evaluate and address the risks of our key customers and vendors, totaled
approximately $19.0 and $23.0 million respectively, as of December 31, 1998 and
June 30, 1999. We currently expect the project to be substantially completed by
the fall of 1999 and expect to incur approximately $25.0 million of costs in the
aggregate broken down as follows:
o software - $4.6 million,
o hardware - $7.6 million,
o consulting/training - $7.1 million and
o other - $5.7 million.
All of our year 2000 compliance costs have been or are expected to be
funded from our operating cash flow and will be capitalized or expensed in the
period they are incurred.
Our significant information technology systems include general accounting,
fixed assets, inventory control, manufacturing resource planning, distribution
resource planning, purchasing and receiving, customer billing and payroll. Our
significant non-information technology systems include manufacturing equipment
and transportation and distribution systems.
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The following summarizes the status of our year 2000 efforts by region:
North America Region
We have completed our assessment of year 2000 performance standards for
all of our information technology systems and our non-information technology
systems within our North America operations. We have completed the renovation,
upgrade or replacement of all of our significant information technology systems
for year 2000 performance standards. All of our significant information
technology systems have been tested and are presently operating.
We have completed the renovation, upgrade or replacement of 75% of our
significant non-information technology systems, primarily manufacturing
equipment, that are not compliant with year 2000 performance standards. We are
75% complete with the testing and implementation of the remediated
non-information technology systems. We expect to complete installation and
testing of the remaining non-information technology systems that are not year
2000 compliant during the third quarter of 1999.
Our review of third-party compliance risks from our key vendors and
customers is 90% complete. We intend to complete our review of data from all of
those vendors and customers who respond during the third quarter of 1999.
However, even assuming that all of the non-responding parties suffer
interruptions to their operations due to year 2000 systems failures, our
management does not anticipate any resulting failures our systems, products or
supply chain that would disrupt our operations to a material degree.
Europe and Asia Regions
We have completed our assessment of year 2000 performance standards for
all of our information technology systems and our non-information technology
systems for operations within our European and Asia operations. We have
completed the renovation, upgrade or replacement of all of our significant
information technology and noninformation technology systems for year 2000
performance standards. All of our significant information and non- information
technology systems have been tested and are presently operating.
Our review of third-party compliance risks from our key vendors and
customers is 90% complete. We intend to complete our review of data from all of
those vendors and customers who respond during the third quarter of 1999.
However, even assuming that all of the non-responding parties suffer
interruptions to their operations due to year 2000 systems failures, our
management does not anticipate any resulting failures our systems, products or
supply chain that would disrupt our operations to a material degree.
However, the novelty and complexity of the issues presented, and our
dependence on the technical skills of employees and independent contractors and
on the representations and preparedness of third parties, could cause our
efforts to be less than fully effective. Moreover, year 2000 issues present a
number of risks that are beyond our control, such as the failure of utility
companies to deliver electricity, the failure of telecommunications companies to
provide voice and data services, the failure of financial institutions to
process transactions and transfer funds, the failure of vendors to deliver
materials or perform services required by us and the collateral effects on us of
the effects of year 2000 issues on the economy in general or on our customers in
particular. Additionally, in view of the mixed results achieved by software
vendors in correcting these problems, we cannot assure you that new systems we
obtain to replace noncompliant systems will themselves prove to be fully
compliant. Although we believe that our compliance efforts are designed
appropriately to identify and address those year 2000 issues that are subject to
our reasonable control, we cannot assure you that our efforts will be fully
effective, or that year 2000 issues will not have a material adverse effect on
our business, financial condition or results of operations. In the worst case, a
protracted failure of general business systems among our customers or vendors,
or in our own plant, could cause production delays or canceled orders which
would significantly reduce our revenue for the duration of such a situation. We
have not developed a contingency plan which assumes significant and protracted
year 2000-related failures of major vendors, customers or systems, and do not
plan to do so.
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Common European Currency
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for the
national currencies of the member states of the European Union that adopt the
Euro. In May 1998 the European Council determined
o the 11 member states that met the requirement for the Monetary Union;
and
o the currency exchange rates amongst the currencies for the member
states joining the Monetary Union.
The transitory period for the Monetary Union started on January 1, 1999.
According to council Resolution of July 7, 1997, the introduction of the Euro
will be made in three steps:
(1) a transitory period from January 1, 1999 to December 31, 2001, in
which current accounts may be opened and financial statements may be
drawn in Euros, and local currencies and Euros will coexist;
(2) from January 1, 2002 to June 30, 2002, in which local currencies will
be exchanged for Euros; and
(3) from July 1, 2002 in which local currencies will disappear.
We cannot assure you as to the effect of the adoption of the Euro on our
payment obligations under loan agreements for borrowings in currencies to be
replaced by the Euro or on our commercial agreements in those currencies.
Market Risk
We use financial instruments, including fixed and variable rate debt
securities, to finance operations. We use forward contracts to hedge foreign
currency exposures. Forward contracts are entered into for periods consistent
with underlying exposures and do not constitute positions independent of those
exposures. We do not enter into contracts for speculative purposes and are not a
party to any leverage instruments.
Foreign Currency Exchange Rate Risk
Our operating results are subject to significant fluctuations based upon
changes in the exchange rates of some currencies in relation to the U.S. dollar.
Although, we will continue to monitor our exposure to currency fluctuations and,
when appropriate, use financial hedging techniques in the future to minimize the
effect of these fluctuations, we cannot assure you that exchange rate
fluctuations will not harm our business in the future.
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BUSINESS
Overview
We believe that our company, Formica Corporation, is one of the leading
brand names in the decorative surfacing products market. "Decorative surfaces"
are products that are used to finish a surface, which may be a wall, a
countertop or a floor, and include everything from inexpensive vinyl floor to
marble countertops. We produce high-pressure decorative laminates, our primary
product, solid surfacing and laminate floorings.
We believe that our Formica brand name, which is recognized by many
consumers without prompting, contributes significantly to the sales of our
products. For the year ended December 31, 1998, our net sales and Adjusted
EBITDA, were $549.7 million and $50.2 million, respectively. For the four months
ended April 30, 1998 and the eight months ended December 31, 1998, we had net
losses of $14.6 million and $22.3 million, respectively.
We market our products:
o through over 7,500 domestic and international independent
distributors and dealers as well as our own sales force
o to major distributors, manufacturers of finished products, and to
architects and designers who specify products for commercial and
residential interiors.
Invented in 1913 in Cincinnati by Herbert Faber and Daniel O'Conor,
Formica was originally intended to serve as an electrical insulator. It was
created as a replacement for mica which was then used for that purpose; hence
the name, "for mica." In 1927, we began lithographing images onto sheets of our
product and its decorative potential was discovered. By the 1930s, a resistant
melamine layer was added which gave Formica brand laminates their legendary
durability and ease of maintenance. World-renowned designers and architects
began to recognize the potential uses of decorative laminate and specified it
for Modernist and Art Deco interiors. We also have a long-established presence
in Europe, having entered the market in 1947. Formica has been manufactured in
the United Kingdom and Spain since 1947, and France since 1964. As a result of
its long-standing presence in these markets, the Formica brand name has
exceptional customer recognition. We installed our first high-pressure laminate
press in Taiwan in 1982. With Taiwan as the manufacturing base, geographical
expansion into other markets throughout the years has made us one of the largest
producers of high-pressure laminate in Asia. We began operating in China with a
representative office in 1990, and through a joint venture in 1992, and have
owned our own manufacturing and distribution there since 1996.
Competitive Strengths
We possess a number of competitive strengths, including:
o Global Market Position
We have extensive global manufacturing capabilities and are one of the
largest producers of high-pressure laminate on a worldwide basis. We are the
largest or the second largest seller of high-pressure laminate in major national
markets including the United States, Canada, the United Kingdom, France, Spain,
Taiwan and China, where our principal manufacturing facilities are located. The
location of our manufacturing facilities and design centers and our worldwide
distribution network enable us to respond effectively to our customers' delivery
and design needs.
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o Worldwide Brand Awareness
We have an extremely high level of unprompted brand awareness and are one
of the most specified brands of high-pressure laminate. The Formica brand name,
which represents superior design, quality and value, significantly contributes
to our ability to attract the business of designers, architects, distributors
and direct accounts.
o Established, Effective Distribution Channels
We believe that we have one of the most extensive global distribution
capabilities in the industry. We have approximately:
o 250 sales representatives
o 1,500 distributor sales representatives in 300 locations
o sub-distributors and dealers in another 7,500 locations worldwide.
The efforts of our domestic and international and architectural specification
representatives, when combined with the sales force of our distributor network,
provides us with sales and marketing coverage in over 100 countries throughout
the world.
o Acclaimed Design Leadership
We have a history of technological leadership and innovation in product
design. We maintain extensive design facilities and have consistently won design
and new product development awards, including the 1996 Kitchen & Bath Product
Innovator Award, the 1997 Visual Marketing & Store Design Reader's Choice Poll
and the 1997 Green Product Award. In addition, our floor product was awarded the
1997 Dealer's Choice Award--Best Laminate Flooring Introduction and the 1997
Kitchen & Bath Business Product of the Year Award. We design many of our own
proprietary decorative papers and own exclusive rights to these designs. The
strength of our reputation for innovative design is an important factor in our
success in the commercial segment of the market.
o Diverse and Stable Customer Base
We benefit from a diversified sales base:
o Geographically, we sell our products in over 100 countries and
maintain a strong market position in the major markets of North
America and Europe and are positioned for continued growth in Asia. In
1998, approximately 63% of our net sales were made in North America,
with the balance principally in Europe and Asia.
o We estimate that our net sales in 1998 were balanced, with 33% for
new construction and 67% for remodeling
o We also estimate that our 1998 sales were also balanced between sales
to commercial and residential locations, each of which represented
approximately 50% of total net sales in 1997.
We believe that this diversification helps to mitigate the effect of regional
economic cycles and the changes in market conditions within the commercial and
residential new construction and remodeling markets.
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Recent Developments
In connection with the acquisition, Vincent Langone, our chief executive
officer from 1988 to 1994, and David Schneider, our chief financial officer from
1989 to 1994, have returned to assume senior management roles at Formica. During
their tenure at Formica, they consistently ran the business at significantly
lower selling, general and administrative expense spending levels than those
incurred from 1995 to 1997. Since 1994, although our net sales increased from
$489.2 million in 1994 to $533.4 million in 1997, our EBITDA declined from $71.4
million to $38.6 million.
We believe that our declining profitability and cash flows from 1994
through 1997 is largely attributable to the following factors:
Increased Selling, General and Administrative Expenses Spending
From 1995 to 1997, we significantly increased spending on selling, general
and administrative expenses, particularly with respect to our North America
business. In 1994, when we were managed by Messrs. Langone and Schneider,
selling, general and administrative expenses, excluding amortization, was $102.6
million, or 21.0% of 1994 net sales. By 1997, selling, general and
administrative expenses, excluding amortization, had increased to $168.1
million, or 31.5% of 1997 net sales. Management believes that while a portion of
the increase in spending reinforced the Formica brand, a significant component
was misdirected and unnecessary, particularly with respect to the North American
operations. Management believes that previous management undertook advertising
and promotion strategies more suitable for a product purchased directly by
consumers than a product purchased by architects, designers, fabricators,
manufacturers and builders for use by consumers. For example, we initiated a
system of design centers for consumers and established, primarily in kitchen and
bath retail establishments, over 1,600 authorized Formica Design Centers. Since
1996, we have spent over $8.0 million on the Design Center program. In addition,
in 1997, we spent $14.9 million in connection with the roll-out of our North
America flooring business. Management believes that the aggressive promotion of
the product was premature and unbalanced given that the business generated only
$15.0 million in net sales in 1997.
Significant Capital Investment
Beginning in 1995, we implemented a capital spending program intended to
reduce our cost of production. From 1995 to 1997, we invested a total of
approximately $118.5 million in capital expenditures, an average of
approximately $39.5 million per year, which is significantly higher than the
average annual spending of approximately $12.4 million incurred from 1985 to
1994. Management believes that the majority of the anticipated return on
investment from the investment has not yet been realized due to the timing and
implementation of the capital expenditure program, and expects to realize
substantial annualized manufacturing savings to be phased in over the next three
years. In addition, we will add additional high-pressure laminate manufacturing
capacity as a result of these capital investments, allowing us to expand our
customer base and serve our existing customers more effectively. See "--Capital
Investments."
Management Decentralization/Turnover
Our operations in North America, Europe and Asia have been operated as
separate and autonomous divisions. Management believes that the lack of
integration and communication between our operating units negatively impacted
our profitability. Management believes that savings can be achieved by
integrating operations between regions and adopting consistent policies,
practices and products and by facilitating manufacturing and technology exchange
between regions. In addition, from 1995 to 1997, we had four different Chief
Executive Officers, three North American Division Presidents and three Directors
of Research and Development. The senior management turnover led to a loss of
strategic direction and operational difficulties, particularly in North America.
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Elimination of Lower Margin Businesses
Beginning in 1995, we undertook some steps intended to increase our return
on sales percentage. From 1994 to 1997, our gross margins increased from 30.1%
to 34.4%. Despite the increase in gross margins achieved during this period, our
EBITDA during this period decreased from $71.4 million, excluding a
non-recurring gain, in 1994 to $38.6 million in 1997.
A key aspect of prior management's efforts to increase our gross margins
was our decision to focus our marketing efforts on higher margin business,
primarily distributors, and to de-emphasize or eliminate sales to lower margin
accounts, primarily direct customers, including office furniture makers.
Management believes that a number of the de-emphasized and eliminated accounts
were profitable and allowed us to spread our fixed costs over more sales. Given
our current excess manufacturing capacity, we intend to re-establish a
significant amount of sales to those accounts.
Changed Emphasis on Design
We have a history of innovation and leadership in product design. We
believe that our reputation for innovative design is an important factor in our
success in the commercial segment of the market. Beginning in 1995, however, we
changed the emphasis of our design program by focusing on consumers, including
with the design center program, rather than on those architects, contractors and
designers who actually choose the product. Management believes that
communication with the architectural and design community is essential to our
sales efforts, particularly with respect to new product introductions.
Business Strategy
We have begun to implement a strategy that we believe will return us to
pre-1995 levels of profitability and cash flow. Management expects our operating
performance to benefit from the following factors:
o the return of Vincent Langone and David Schneider, who previously
managed us through two successful leveraged buyouts, as senior
management,
o a targeted reduction in selling, general and administrative expenses,
which increased significantly since 1994,
o an expected increase in unit volume shipments as customer service is
improved through better management of the inventory and distribution
systems,
o the realization of substantial savings due to the manufacturing
efficiencies resulting from the significant capital investments made
since 1994 and
o a reduction in capital spending to historical pre-1995 levels.
Specifically, our business strategy includes the following elements:
Reduce Operating Expenses
Management has begun to implement a program of reducing operating costs,
enhancing operating efficiencies and improving profitability. Management
believes that over the last three years, profitability was depressed by
unnecessarily high operating expenses, including spending on consumer-targeted
advertising and promotion programs that were either ineffective or related to
the launch of our flooring product. Management has identified approximately
$30.0 million in estimated net annualized operating cost savings that it
believes can be realized without affecting our overall sales or brand franchise.
The savings relate primarily to specific areas of advertising
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and promotion spending and other selling and administrative expenses, and also
target other operating expenses, including outside consultant expenses and
transportation and warehousing costs. Implementation of the cost savings began
in early 1998 and, although management does not expect to fully realize the cost
savings until 1999, management believes that approximately $22.0 million of the
total is reflected in our results of operations for year ended December 31,
1998. See "--Cost Savings."
Improve Manufacturing Efficiency
We believe that the $134.8 million investment in new property, plant and
equipment over the last three years, along with the approximately $40.0 million
of capital expenditures planned over the next two years, provides a foundation
for us to realize substantial manufacturing savings to be phased in over the
next three years. Key investments include:
o an expansion of the Taiwan manufacturing and distribution facilities;
o a continuous press line in the facility in Spain; and
o a high efficiency treater and ready-to-use print technology in the
United States facilities.
We expect that these investments will help to more efficiently meet
customer service requirements in these markets. See "--Capital Investments."
Re-establish Strategic Leadership
Management believes that increased integration of and communication
between our operating units will significantly improve our profitability. From
1995-1997, our North American, European and Asian divisions were operated as
separate and autonomous divisions. Management believes that significant cost
benefits will be realized from its recent implementation of a centrally
coordinated global purchasing program. In addition, management has begun to
re-emphasize our design leadership by evaluating our product line on a global
basis, addressing product line weaknesses and coordinating new product launches.
Management believes that worldwide specifications, product line rationalization
and global product launches are all opportunities for improved profits.
Increase North American High-Pressure Laminate Sales by Improving Customer
Service
Management believes that product quality and service including lead time,
availability, fill rates, delivery reliability and consistent quality, are key
criteria that customers consider in selecting a high-pressure laminate vendor.
Management has begun to re-emphasize our quality and service focus in North
America by realigning our inventory stocking strategy to be responsive to
regional demand patterns.
Target Strategic Acquisitions
Management is pursuing opportunities to make acquisitions that complement
or expand our decorative surfaces businesses or that enable us to enter new
markets. We intend to focus on surfacing companies whose products can be
manufactured using our extensive global manufacturing capabilities or brands
whose products may be sold through our distribution channels or that would
benefit from the Formica brand name. The expansion opportunities include
domestic and international manufacturers of laminates, solid surfacing,
flooring, woods, tile, plastics and related surfacing products. We are actively
evaluating potential acquisition targets and will make acquisitions that fit our
acquisition strategy.
We acquired the solid surfacing division of International Paper which is
marketed under the name Fountainhead, in February 1999 to complement our Surell
products. The acquisition significantly increases our
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solid surfacing production capability and has increased our sales of solid
surfacing products. The acquisition, which was funded out of available cash,
will not have a material effect on our results of operations or financial
condition.
Industry Overview
The decorative overlay market consists of high pressure decorative
laminates, wood, veneers, marble, granite, solid surfacing, tile, plastics,
foils, papers, vinyls, acrylics, paint, wallpaper, wall and floor coverings, low
pressure laminates and other surfacing materials. While substitution exists
across product categories, high-pressure laminate remains one of the primary
products used in various horizontal surfacing applications, including kitchen
and bathroom countertops, where durability is a critical consideration.
High-pressure laminate products are used in a wide range of applications, with
other decorative surfacing products competing at the high and low end of the
market. At the high end are decorative surfaces such as our Surell solid
surfacing product, Fountainhead and Corian solid surfacing, granite, marble,
tile and natural wood. Low pressure laminates are a low cost surfacing
alternative for applications requiring lower durability.
We estimate that the worldwide market for high-pressure laminate was
approximately $3 billion in 1997, evenly distributed between (1) North America,
(2) Europe and (3) the rest of the world. The end-users of high-pressure
laminate products generally fall into two market segments, residential and
commercial, each of which has in recent years accounted for approximately 50% of
the market. Demand for high-pressure laminate products is driven by both the
residential and commercial new construction market and the remodeling/renovation
market. The residential market is comprised of independent contractors and
manufacturers of countertops, kitchen and bathroom cabinets and furniture. The
commercial market includes fabricators, contractors and manufacturers whose
primary business is the production of interiors, including store fixtures,
furniture and wall paneling, in airports, prisons, hospitals, schools, retail
stores, hotels and office buildings.
Products
Decorative laminates are used in a wide range of surfacing applications
where durability, design, construction versatility and ease of maintenance are
factors. Our principal products are high pressure decorative laminates, which
accounted for 90% of 1998 net sales, solid surfacing material, which is marketed
under the Surell and Fountainhead brand names, and laminate flooring products,
which we introduced in late 1996 under the Formica brand name. We also
manufacture and sell resins and license our Formica brand name and proprietary
technology and know-how to third parties.
High Pressure Decorative Laminates
High-pressure laminate is principally used in a wide range of commercial
and residential surfacing applications where durability, design, construction
versatility and ease of maintenance are important factors.
Traditional residential applications include:
o kitchen cabinetry,
o countertops and bathroom vanities,
o horizontal and vertical surfaces in living rooms, family rooms and
dining rooms.
The commercial applications include:
o work surfaces,
o cabinetry,
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o furniture,
o fixtures,
o panels,
o counter tops and
o interior walls with end-use applications in offices, computer centers,
airports, hospitals, schools, restaurants, hotels, retail stores,
ships, buses and railroad cars.
Our high-pressure laminate products compete with decorative laminates
manufactured by other producers, as well as with other surfacing materials,
including wood, veneers, marble, tile, plastics and foils. Competition is based
principally on breadth of product line, design and appearance, product quality,
functionality, marketing, technology, price and service. Over the past twenty
years, less-expensive, less-durable low-pressure laminates have replaced
high-pressure laminate for various applications. Nevertheless, the more durable
high-pressure laminate still dominates the market for various surfaces such as
countertops and tables.
Our high-pressure laminate offerings include both general purpose products
and premium products, which generally have higher profit margins.
General Purpose High-Pressure Laminate
Our standard U.S. decorative line consists of 96 solid colors, 126
abstract patterns, 32 woodgrain patterns and 114 other patterns. Surface
textures can range from very high gloss, smooth surfaces to deeply textured
surfaces and surfaces with other special design and performance features. These
products are generally sold in sheet form in standard sizes that correspond to
press sizes and vary from market to market.
There is substantial overlap of these colors and patterns among our three
principal regions, and we have an active new product harmonization program to
conform regional product lines and reduce costs. There will continue to be
regional differences in colors and patterns to meet local style differences.
Premium High-Pressure Laminate Products
Formica premium decorative laminates products have characteristics which
make them particularly suitable for various specialized applications and
generate higher profit margins than the standard line products. Premium
decorative laminates products include our Decometal line, which incorporates
real metal foil on a laminate core giving the solid appearance of a metal plate
or sheet, our Ligna line, a multi-laminar veneer made with phenolic- backed real
wood and which replicates the grains of exotic woods, our Design Concepts and
Formations collections and Colorcore surfacing material, a solid "color-through"
laminate, each of which are marketed for special end-use applications such as
office furniture, store fixtures, restaurant interiors, airports and
custom-built kitchens. Premium high-pressure laminate products also include
laminates for uses requiring fire-retardant materials such as shipbuilding and
office interiors; textured laminates which are designed to look and feel like
leather or slate; and laminates applied to static-free flooring used in computer
centers.
Solid Surfacing Products
Our solid surfacing products accounted for about 6% of our total sales in
1998. These products, which are similar to E.I. DuPont de Nemour's Corian
product and distributed under the Surell and Fountainhead names, are available
in a selection of colors and granite-like patterns, which run throughout the
entire thickness of the product. The products can be fabricated and shaped 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
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other surface applications. One of the advantages of this product is that if it
is scratched or gouged, the damaged exterior can be easily repaired by simply
sanding down the surface to provide a new smooth exterior. Solid surfacing
products are more expensive than laminates but less expensive than comparable
materials such as marble, granite and high-end ceramic tile.
We acquired the solid surfacing division of International Paper which is
marketed under the name Fountainhead, in February 1999 to complement our Surell
products. See "--Business Strategy--Target Strategic Acquisitions."
Laminate Flooring
In late 1996, we introduced the Formica laminate flooring product line in
North America to compete in the rapidly-growing market for laminate flooring.
The product is produced in a variety of colors and patterns and is sold in both
the new construction and renovation markets.
Formica flooring offers a virtually impermeable surface finish which is
resistant to wear, moisture and impact. It is constructed from dual layers of
direct pressure laminate sandwiching a high-density moisture-resistant
fibreboard. Due to its durable surface, it is ideally suited for flooring in
locations such as kitchens, bathrooms and family rooms.
Formica flooring is currently offered in a variety of colors and patterns,
including marble, granite, wood and wood tints. The wood patterns are produced
in planks which are fit together in a tongue and groove assembly system. Formica
flooring is applied as a "floating" floor and can be fitted over any subfloor
with a dry, clean and level surface. The flooring can often be laid directly on
to an existing floor covering such as linoleum or vinyl, which provides
substantial cost savings to the consumer. Formica flooring is manufactured in a
dedicated facility in Seattle, Washington, by Stel Industries, Inc., an
independent manufacturer, under a long-term exclusive "take-or-pay" contract
with us. See Note 15 to our consolidated financial statements included elsewhere
in this prospectus.
Design Development
Design is an important factor in the customer selection of decorative
high-pressure laminate. New laminate designs are introduced periodically by us
and our competitors. We consider ourselves an industry leader worldwide in
decorative laminate design. Our design team works to anticipate market trends by
observing other areas that serve as leading indicators of design trends. We have
consistently won numerous design and product awards worldwide. These awards
include: the 1996 Kitchen & Bath Business' Product Innovator Award, the 1997
Visual Merchandising & Store Design Reader's Choice Poll, the 1997 Green Product
Award, the 1996 Gold Ink Award and the Graphic Arts Recognition Committee Award
of Excellence. Other awards include the Professional Builder's ADQ Award, the
Kitchen & Bath Design News' ADQ Award, the 1997 Kitchen and Bath Business'
Flooring Product of the Year Award and the 1997 Printing Industries of America
Award, among others.
Our efforts to refine the designs of our products have resulted in such
products as the Design Concepts and Formations collections, Deco Metal, Ligna,
Colorcore, a solid "color-through" laminate, and the Stripes and Geometrica
collections featuring silk-screen printed pinstripes and bands in a variety of
colors. During the last several years, we introduced solid opaque laminates,
granite-like solid surfacing materials, and a number of other premium products.
Marketing, Distribution and Customers
We believe our global distribution and dealer network, together with our
extensive sales force and the Formica brand name and Anvil F mark, are major
marketing strengths and key elements to our success. In addition, we believe
that none of our competitors have the brand recognition of the Formica brand
name.
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Our products are sold through distributors of wholesale building
materials, distributors of products for the cabinet industry and directly to
original equipment manufacturers for both residential and commercial uses. In
1998, approximately 60% of our net sales were made through distributors and the
remaining 40% were made directly to users of our products.
Our distribution network includes approximately three hundred independent
distributor locations worldwide. Many distributors have sub-distributorship and
dealer networks. As a result, our brand products are represented in thousands of
locations worldwide. The effort of our domestic and international sales and
architectural specifications representatives, when combined with the sales force
of our distributor network, provide sales and marketing coverage in over 100
countries throughout the world. Our architectural sales force calls directly on
architects, designers and specifiers on a full-time basis. Our sales
representatives market our products directly to end-users and work with
distributors by monitoring distributors' inventories, calling on customers,
architects and designers with the distributor's sales representatives and
assisting distributors in the development of advertising and promotional
campaigns and materials and the introduction of products.
Generally, our distributorship sales are made by distributors that
exclusively carry our brand of high-pressure laminate. The typical distributor
also sells some or all of the following: other surfacing material, adhesives,
cabinetry, flooring material, particleboard, cabinet hardware and other related
architectural and building materials. We consider our distribution network to be
an important vehicle for the introduction of new products we may develop or
distribute in the future.
We estimate that of our net sales for the year ended December 31, 1998,
approximately one-half were derived from products used in commercial
applications and one-half from products used in residential applications. In
addition, we estimate that approximately two-thirds of our net sales in 1998
were derived from products used in remodeling or renovation projects, while
approximately one-third of our net sales in 1998 were derived from products used
in new construction.
Sales in the commercial market are heavily influenced by the
specifications of architects and designers. In addition to our regular
salesforce, a specialized salesforce calls exclusively on architects and
designers.
Our backlog is not significant due to our ability to respond adequately to
customer requests for product shipments. Generally, our products are
manufactured from raw materials in stock and are delivered to our customers
within one to thirty days from receipt of the order, depending on customer
delivery specifications.
We have no significant long-term contracts for the distribution of our
products. For the year ended December 31, 1998, no customer or affiliated group
of customers accounted for as much as 5% of our consolidated net sales.
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
surfaces with other special design and performance features. In addition to
patents, we have proprietary technology and know-how in the design and
manufacture of our 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. We
currently purchase these raw materials from various suppliers at market prices.
We believe that we are one of the largest purchasers of
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these raw materials on a worldwide basis in the high pressure laminate industry.
We may, from time to time, enter into one-year or longer-term contracts with
suppliers when advantageous to us. We also acquire chemicals under exclusive
arrangements from producers in connection with licensing technology from those
producers.
Manufacturing and Locations
We manufacture and distribute products on a global basis with eleven
manufacturing facilities located in the United States, Canada, the United
Kingdom, France, Spain, Taiwan and China and a 50% interest in a joint venture
manufacturing plant in Germany that produces specialized metallic surfaced
laminate products. These multiple manufacturing locations around the world
enable us to reduce delivery times, freight costs and duties that we would
otherwise encounter.
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
our standard product lines and economies of scale in the production of our
premium products. In addition, some of our specialty products have been
developed in response to regional design preferences.
Our manufacturing facilities normally operate either on a five, six or
seven day a week schedule. Periodically, we operate on an overtime basis to
satisfy customer requirements during periods of peak demand. Generally, each
facility is shut down from one to four weeks annually for maintenance,
refurbishment and traditional vacation periods. Management believes that our
existing manufacturing facilities are satisfactory for our projected
requirements, and has no current plans to expand capacity significantly.
Our North American operations are headquartered in Evendale, Ohio, which
is also the site of a high-pressure laminate manufacturing plant. We also
manufacture high-pressure laminate in Rocklin, California and St. Jean,
Quebec, Canada. Surell solid surfacing is manufactured in Mt. Bethel,
Pennsylvania. Fountainhead solid surfacing is manufactured in Odenton,
Maryland. High-pressure laminate samples, which are produced in large
quantities for marketing purposes, are produced at a facility in Indianapolis,
Indiana. Some products, including Ligna and laminate flooring, are
manufactured by third parties and sold under our brand name through our
distribution system. We have distribution centers in Evendale, Ohio; Rocklin,
California; Dallas, Texas; Ft. Lauderdale, Florida; Mt. Bethel, Pennsylvania;
Atlanta, Georgia; St. Jean, Quebec, Canada; Vancouver, British Columbia,
Canada; San Juan, Puerto Rico; and Mexico City, Mexico.
Our European headquarters and United Kingdom operations are based in North
Shields, United Kingdom, which is also the site of an high-pressure laminate
manufacturing plant. The Spanish subsidiary is headquartered at its production
facilities in Bilbao, Spain. The French subsidiary is based in Lognes, France,
and we have an high-pressure laminate plant in Quillan, France. Distribution
centers are located in North Shields, United Kingdom; Bilbao, Spain; Paris,
France; Cologne, Germany; Milan, Italy; Rumlang, Switzerland; and Eugendorf,
Austria. Our Homapal joint venture, which manufactures metallic laminates, is
based in Herzberg Am Harg, Germany. We also manufacture our own steel press
plates in La Plaine, France.
Our operations in Asia are headquartered in Taipei, Taiwan. Our largest
plant in Asia is located in Hsinfeng, which is near Taipei. We also have a
manufacturing plant in Shanghai, China and a separate marketing joint venture in
Shanghai. We have distribution centers in Taiwan, Singapore and Hong Kong and
four distribution centers and six sales offices in China.
Manufacturing Process
The high-pressure laminate manufacturing process involves several major
steps: resin manufacturing, treating, collation, pressing, trimming, sanding,
packaging and shipping.
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The resins are manufactured to exact formulations and procedures. Samples
are taken during resin manufacturing to identify any necessary production
modifications and ensure that the resin is being made to the correct
specifications.
The "webs" of untreated kraft paper or decorative paper are threaded into
the treaters. The web is then dipped into the liquid resin and floated on air
currents through an oven to dry it. As the product emerges from the machines, it
either gets cut and stacked automatically or rewound on a core and moved into
work-in-process inventory.
Orders are entered into computers and then given to workers who pull the
appropriate goods from the work-in-process inventory and transfer them to the
collation line. The barrier, core and overlay sheets are then stacked in the
order in which they will be sent to the multi-opening presses. These stacks of
unfinished laminate are placed between plates and moved into the press itself.
The stainless steel plates can create surface textures ranging from very high
gloss, metallic finishes to deeply textured surfaces with special designs.
Press size varies from 10 to 24 openings. Depending on the thickness of
the product, one to 16 sheets of unfinished laminate can be placed between press
plates. Once the plates and the unfinished laminate are placed in the press, the
press applies 1400 pounds per square inch of pressure and 300o F of heat. This
process takes approximately 40 to 80 minutes. The laminates and plates are then
removed from the press and the laminates are removed from between the plates.
After the sheets are separated, they are sent through the trimming and sanding
lines where the edges are removed and the backs are sanded. The laminate is
visually inspected at this point and moved into finished goods inventory. The
product is specifically packaged and then shipped to a warehouse until it is
delivered to the distributor or fabricator.
Cost Savings
We have begun to implement a cost savings program intended to reduce
operating expenses. We devised this program after a detailed review of our
financial and operation results from 1995 to 1997, based on our management's
expertise in successfully operating the business at significantly lower selling,
general and administrative spending levels than were incurred between 1995 and
1997, yet with stronger EBITDA results.
The majority of the savings relate to reductions in advertising and sales
promotion spending as well as other selling and administrative spending.
Implementation of the cost savings began early in 1998, but we do not expect the
full savings to be realized until 1999.
We also expect to realize savings and efficiencies from the substantial
capital improvements made since 1994 over the next three years, but have not
reflected them below. See "Business--Capital Investments."
The following is management's estimate of:
o the amount of cost savings reflected in our results of operations for
the year ended December 31, 1998 and
o the annual cost savings expected to be reflected in our results of
operations for 1999 and thereafter based on our 1999 budget compared
to management's estimate of total spending on each category in 1997,
and including cost savings already realized in 1998:
Estimated
Annual Cost
Year ended Savings
December Compared
31, 1998 to 1997
---------- -----------
($ in millions)
Excess Advertising & Sales Promotion/Other
Selling & Administrative Expenses......... $ 10.5 $ 18.0
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Estimated
Annual Cost
Year ended Savings
December Compared
31, 1998 to 1997
---------- -----------
($ in millions)
Flooring....................................... 5.5 6.0
Operating Expenses............................. 2.0 4.0
Staff Reductions............................... 3.0 5.0
Consultants/Legal/Other........................ 4.0 4.0
------- ------
Total Estimated Cost Savings.................. $ 25.0 $ 37.0
Additional Standalone Costs................. (3.0) (7.0)
------- ------
Total Estimated Net Cost Savings.............. $ 22.0 $ 30.0
======= ======
The $37.0 million in estimated cost savings is expected to be partly
offset by approximately $7.0 million in incremental costs associated with us
being independent from BTR.
While we believe that the advertising and promotional spending that
constituted a large part of the increased selling, general and administrative
expenses was unnecessary and often ineffective, as described in more detail
below, we cannot assure you that a reduction in advertising and promotional
spending will not reduce net sales. See "Risk Factors--You may not be able to
rely on forward-looking statements" and "Risk Factors--Our cost cutting
strategy may not be successful and may reduce our sales."
Excess Advertising & Sales Promotion/Other Selling & Administrative Expenses
We plan to reduce non-flooring advertising and sales promotion spending
and other selling and administrative expenses by approximately $18.0 million in
North America. A portion of the reduction reflects management's belief that much
of our advertising and promotion spending during the 1995 to 1997 period was
ineffective. In addition, we completed the launch of the Formica Design Center
program in 1997. Management believes that while the program has been effective
in establishing a stronger dealer base, the program has generated only nominal
incremental sales volumes. Other selling expenses include literature and
wallboard placements, sampling and regional sales expenses. Future spending on
literature and wallboards will maintain exposure after previously higher
spending levels in conjunction with the design center program and significant
product introductions. Similarly, sampling will be reduced to support a more
targeted product launch strategy, the use of scrap versus virgin material as
well as a printed sampling alternative which cuts unit sample costs by 50% from
laminate sample chains. Regional sales expenses will also be reduced to levels
more in line with ongoing market needs.
For the year ended December 31, 1998, we have realized $10.5 million in
savings from reduced advertising and sales promotion spending and other selling
expenses. A total of $18.0 million in those savings is estimated for the fiscal
year ended December 31, 1999.
Flooring
We completed the launch of the Formica laminate flooring product in 1997,
which included over $4.0 million in non-recurring television advertising.
Promotional spending for the launch included the one-time cost of placing over
6,500 displays at retailers, including the majority of the higher volume
laminate flooring dealers. Although management expects that we will benefit from
the significant investment in the displays, future promotional spending will
focus on incremental display placement and add-on displays for future flooring
product introductions.
For the year ended December 31, 1998, we estimate that we realized
approximately $5.5 million in savings due to the completion of the flooring
product launch. A total reduction of approximately $6.0 million in those
savings is estimated for the fiscal year ended December 31, 1999.
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Operating Expenses
We plan to reduce operating expenses, including claims expense and scrap,
warehousing and transportation costs, by approximately $4.0 million. For the
year ended December 31, 1998, we believe that we have realized $2.0 million of
these savings from reduced operating expenses. A total of approximately $4.0
million in those savings is estimated for the fiscal year ended December 31,
1999.
Staff Reductions
Management intends to realize net annualized cost savings of approximately
$5.0 million as a result of a variety of staff reductions. For the year ended
December 31, 1998, we estimate that we have realized $3.0 million of these
savings from already implemented staff reductions throughout the organization. A
total of approximately $5.0 million in those savings is estimated for the fiscal
year ended December 31, 1999. The 1999 staff reductions primarily relate to
additional head count reductions in the Asian and European operations.
Consultants/Legal/Other
Management has reduced the costs of outside consultants, legal advisors
and other services by approximately $4.0 million for the year ended December 31,
1998. Management believes that there was no discernible benefit from much of the
consulting services provided to us from 1995 to 1997. In addition, we have hired
an in-house general counsel, the cost of which is reflected in our additional
standalone costs, and intend to reduce our dependence on outside legal services.
Additional Standalone Costs
Additional standalone costs relate to the establishment of corporate
functions previously provided by BTR as well as additional insurance, pension
and related costs required following our separation from BTR. Our additional
standalone costs are estimated at $7.0 million per year, $3.0 million of which
is reflected in the financial results for the year ended December 31, 1998. A
total of approximately $7.0 million in those costs is estimated for the fiscal
year ended December 31, 1999.
Capital Investments
In the last several years, we have implemented a major capital investment
program that management believes will increase capacity, yield substantial
manufacturing savings and improve competitiveness. That investment included
$134.8 million in capital expenditures from 1996 through 1998, the majority of
which was related to specific projects expected to provide manufacturing cost
savings or capacity enhancement. With capital expenditures of $45.0 million and
$15.0 million in 1999 and 2000 in aggregate, we will have largely completed our
major capital spending program.
Ready-to-Use Print
We are investing in new technology called ready-to-use print. The
ready-to-use print process, also referred to as dry print, eliminates the need
to treat the decorative paper with resin. Cost savings result as the total resin
content is reduced and the basis weight of the overlay paper is reduced. This
new system also improves decorative paper yield as it provides the ability to
produce more optimal quantities. Labor savings should also result from
eliminating the treating step for the decorative paper and reducing the labor
associated with collating.
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Taiwan Plant Expansion
We have expanded our Taiwan manufacturing plant with the addition of a new
large size press which became operational in 1998. This additional capacity will
eliminate the need to import substantial quantities of finished laminate from
North America and Europe to service the southeast Asia market and will also
provide capacity for future growth. In addition, we have built a new finished
goods warehouse next to the Taiwan manufacturing plant, thereby eliminating the
need for the previous warehouse, which was located 30 miles away from the
factory. This has eliminated the double handling of products, cut down lead
time, and saved warehouse rental expenses.
Continuous Press
We are in the final stages of commissioning a continuous press line in
our facility in Spain. The continuous press will
o simplify production flow;
o improve labor productivity;
o reduce press plate costs;
o lower in-process scrap; and
o permit the production of custom sheet lengths.
Phenolic Treater
Prior to the acquisition of our company by Laminates, we purchased a new
high efficiency phenolic treater for our Evendale plant, which is expected to be
operational in 1999. Expected savings are primarily due to
o reduced treating labor;
o reduced utilities costs;
o improved control/reduced material loss and resin usage; and
o implementation of "Algenated Release Coating" technology. The
introduction of the "Algenated Release Coating" system, which
eliminates the need for a wax separator between sheets of
high-pressure laminate during pressing, will reduce materials costs,
labor costs and yield losses.
Other
We expect to realize manufacturing cost savings and/or capacity benefits
from the following projects:
o the introduction of a new, less expensive process to produce
high-pressure laminate with a "sparkle" finish;
o a new boiler house at the North Shields, United Kingdom facility,
which was substantially finished in March 1998 and is yielding savings
from efficiency, labor and fuel;
o a modified high-pressure laminate manufacturing process in North
America which provides comparable finished goods quality from the
usage of a reduced cost resin; and
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o the purchase of our minority partner's interest in the Shanghai, China
manufacturing plant and business.
Competition
Our products compete around the world with high pressure decorative
laminates manufactured by other producers, as well as with wood, veneers,
marble, granite, solid surfacing, tile, plastics, foils, papers, vinyls,
acrylics, paint, wallpaper, wall and floor coverings, low pressure laminates and
other surfacing materials. In recent years, there has been substitution of other
products for high-pressure laminate, with increasing substitution of solid
surfacing at the high end and increasing substitution, particularly among North
American manufacturers of cabinets, inexpensive furniture and store fixtures, of
low pressure laminates at the low end. Competition is based principally on
breadth of product line, product quality, marketing, technology, price and
service. We compete in a number of geographic markets and our success in each of
these markets is influenced by those factors. We believe that we are one of the
largest producers of high-pressure laminate on a worldwide basis. We also
believe that we are the largest or second largest producer of high-pressure
laminate in various national markets, including the United States, Canada, the
United Kingdom, France, Spain and Taiwan. In many other national markets, we
enjoy a smaller but nonetheless significant market position. In the North
American high-pressure laminate market, our principal competitor is Wilsonart, a
subsidiary of Premark International, and in Europe the principal competitor is
Perstorp. In the solid surfacing market, DuPont is the strongest competitor, and
Perstorp is dominant in the laminate flooring market. Many of our competitors
are owned by larger enterprises and may have greater assets or resources than
us.
Research and Development
Technical support to our business is organized on a worldwide basis. The
major part of our 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. Technical groups located at each plant also participate in the overall
program and work on smaller projects under the direction of our research
director.
International Operations
Our net sales from international operations to third parties accounted for
approximately 49%, 48% and 44% of total net sales of our products for the years
ended December 31, 1996, 1997 and 1998, respectively, and international
operations contributed $0.0, $14.9 and $12.6 of our operating income for the
years ended December 31, 1996, 1997 and 1998, respectively. We have
manufacturing subsidiaries located in the United Kingdom, France, Spain, Canada,
Taiwan and China and a 50% interest in a German joint venture. Our principal
international markets are located in Europe, Asia, Canada and Mexico. Our
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
Financial Condition and Results of Operations" and Note 12 to our consolidated
financial statements included elsewhere in this prospectus for information
concerning our business by geographic area and "Risk Factors--Our international
operations expose us to additional risks."
Environmental Matters
Our operations are subject to various foreign and United States
environmental laws and regulations. We have conducted environmental assessments,
which generally include a physical inspection, but not soil or groundwater
analyses, on a limited number of properties. The estimated range of costs and
liabilities associated with potential on-site soil and groundwater contamination
and compliance with existing and potential environmental laws and regulations,
exclusive of costs and liabilities associated with off-site contamination at
Superfund sites discussed below, is approximately $1.6 million to $7.1 million
in the aggregate over the next several years. In addition, we estimate that we
will have additional capital expenditures of approximately $0.8 million relating
to air emissions
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equipment upgrades at our Rocklin, California facility. We cannot assure you,
however, that we will be required to incur these estimated costs and liabilities
or that the actual costs and liabilities will not be significantly higher.
Unforeseen expenditures or liabilities relating to contamination or compliance
with environmental laws could have a material adverse effect on our financial
condition or results of operation. The acquisition agreement we signed upon the
acquisition of Formica in May 1998 provides that we will be indemnified for some
limited environmental claims generally relating to soil and groundwater
contamination at currently and previously owned and leased sites and at sites to
which we sent wastes prior to a specified date. This indemnification, however,
is subject to various limitations, including a cap, threshold, survival period,
and restrictions on the scope of claims that may be indemnifiable.
We have been, from time to time, the subject of administrative
proceedings, litigation and investigations relating to environmental matters.
Currently, we have been named as a potentially responsible party at several
Superfund sites and have reserved approximately $4.0 million for liabilities
with respect to two Superfund sites. We believe, based on various factors,
including, without limitation, specified indemnification rights that we have
with respect to some of the Superfund sites, that the liabilities associated
with the Superfund sites should not have a material adverse effect on our
financial condition or results of operations. In addition, in September 1998, we
received a Citation and Notification of Penalty from the Occupational Safety &
Health Administration relating to safety violations at our Evendale, Ohio
facility, with total penalties of $275,500 being sought. This penalty has been
reduced to $150,000, payable in three installments over six months once the
settlement agreement is finalized.
There can be no assurances that we will not become involved in future
proceedings, litigation or investigations, that our Superfund or other
environmental liabilities will not be material or that indemnification under
these indemnification rights will otherwise be available. See Note 15 to our
consolidated financial statements included elsewhere in this prospectus.
Patents, Trademarks and Licenses
We own patents and possess proprietary information which relates to our
products and processes. We believe that the loss of any of our patents would not
have a material adverse effect on our business.
Trademarks are important to our business and licensing activities. We have
a vigorous program of trademark enforcement to prevent the unauthorized use of
our trademarks, to strengthen the value of our trademarks and to improve our
image and customer goodwill. We believe that the Formica trademark and the Anvil
F mark are our most significant trademarks. In addition to registration in the
United States, those trademarks are registered in over 100 countries. We have
granted a perpetual, royalty-free license to the Formica tradename or trademark
to CSR Limited in Australia and New Zealand and to laminate producers in India,
South Africa and much of South America. The Colorcore and Surell trademarks are
registered in the United States and several other countries. Additionally, we
have numerous other registered trademarks, trade names and logos, both in the
United States and abroad. We believe that our material trademarks are well
protected in all of the major markets in which we do business. However,
effective trademark protection may not be available in every country in which
our products are available.
Historically, we have had a limited copyright portfolio of patterns and
designs, because the designs used in our laminates were typically owned by the
decorative paper manufacturer. In more recent years, we have increasingly
created our own proprietary designs, some of which are protected by copyright.
We believe that numerous opportunities exist to license our
internationally recognized Formica trademark and the Anvil F mark and our
proprietary technology and know-how. We have existing licensing arrangements for
our trademarks and, in some cases, our proprietary technology, with
manufacturers of adhesives.
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Properties
The location and general description of the principal properties owned or
leased by us or by our German joint venture are set forth in the table below:
<TABLE>
Location Principal Function Square Feed
-------- ------------------ -----------
<S> <C> <C>
Atlanta, Georgia Distribution Center 60,000 Leased
Dallas, Texas Distribution Center 82,000 Leased
Evendale, Ohio Manufacturing Plant and United States Operations 1,000,000 Owned
Headquarters
Ft. Lauderdale, Florida Distribution Center 64,000 Leased
Indianapolis, Indiana Samples Facility 54,000 Leased
Mt. Bethel, Pennsylvania Manufacturing Plant and Distribution Center 150,000 Owned
Rocklin, California Manufacturing Plant 350,000 Owned
Odenton, Maryland Manufacturing Plant 360,000 Owned
St. Jean, Quebec, Canada Manufacturing Plant 360,000 Owned
Shanghai, China Manufacturing Plant 340,000 Owned
North Shields, England Manufacturing Plant and Subsidiary Headquarters 560,000 Owned
LaPlaine, France Manufacturing Plant 25,000 Owned
Lognes, France Distribution Center and Subsidiary Headquarters 69,000 Leased
Quillan, France Manufacturing Plant 240,000 Owned
Herzberg Am Harz, Germany Manufacturing Plant and Joint Venture Headquarters 110,000 Leased
Bilbao, Spain Manufacturing Plant and Subsidiary Headquarters 360,000 Owned
Hsinfeng, Taiwan Manufacturing Plant 150,000 Owned
</TABLE>
We believe that our properties are suitable and adequate for our present
needs. We also believe that we have sufficient manufacturing and distribution
capacity for our present and foreseeable needs. The Rocklin, California and
Evendale, Ohio facilities are subject to liens as security for our obligations
under our credit facility. One of the Mt. Bethel, Pennsylvania properties is
subject to a lien related to an installment sale arrangement for the facility
with a local development authority and the Hsingfeng, Taiwan facility is subject
to a lien securing a credit agreement in Taiwan.
The leases for our leased properties will expire from 1999 through 2003,
and the German joint venture has an annual lease that expires each December 31,
unless renewed.
Employees
As of December 31, 1998, we had approximately 3,800 employees. In the
United States, approximately 1,000 of our employees are covered by collective
bargaining agreements that expire in the years 2000 and 2002. Of the
approximately 2,000 employees in our international operations, a majority are
represented by a variety of local unions. We consider our employee relations to
be satisfactory.
Litigation
On April 6, 1999, we received a subpoena from a federal grand jury
investigating possible antitrust violations in the high-pressure decorative
laminates industry. The subpoena period is from January 1, 1994 until April 1,
1999. The investigation is in its early stages and we are complying with the
subpoena.
See Note 15 to our consolidated financial statements for additional
discussion of litigation and environmental matters.
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<PAGE>
MANAGEMENT
The following table includes information concerning the directors,
executive officers and key management of Formica. Each director of Formica also
serves as a director of Holdings and Laminates.
<TABLE>
Name Age Office
---- --- ------
<S> <C> <C>
Vincent P. Langone........................... 56 Director, Chairman, President and Chief Executive Officer
David T. Schneider........................... 49 Vice President, Chief Financial Officer and Secretary
William Adams................................ 47 President, European Operations
Steve Kuo.................................... 43 President, Asian Operations
Thompson Dean................................ 40 Director
Peter T. Grauer.............................. 53 Director
David Y. Howe................................ 34 Director
Alexander Donald Mackenzie................... 41 Director
</TABLE>
Vincent P. Langone has been Chairman, President and Chief Executive
Officer since May 1998. From 1995 until 1997, Mr. Langone was a principal of
Interbuild International, Inc. Mr. Langone was previously named President and
Chief Operating Officer of Formica Corporation in 1985 when Formica became
independent and privately held through a management-led leveraged buyout in
which he was a principal participant and investor. After taking Formica public
in 1987, Mr. Langone was appointed Chief Executive Officer in 1988. In 1989,
Mr. Langone organized a group of investors led by Dillon, Read & Co. and
Formica was again taken private. Under the new structure he assumed the
additional role of Chairman. Mr. Langone currently serves as a director of
Summit Bank, United Retail Group and Brand Scaffolding Services.
David T. Schneider has been Vice President, Chief Financial Officer and
Secretary since May 1998. From 1995 until 1997, Mr. Schneider was a principal of
Interbuild International, Inc. Mr. Schneider previously joined Formica
Corporation in 1986 as North American Controller following a management-led
leveraged buyout from American Cyanamid Company in 1985. He was appointed
Corporate Controller in 1987 and named Vice President and Chief Financial
Officer of Formica in 1989.
William Adams is President of Formica's International operations and
General Manager of Formica-U.K. He joined Formica Corporation in 1968. He has
held various positions in Formica involving the following functions: research
and development, yield improvement, warehousing, distribution, planning and
production.
Steve Kuo is President of Formica's Asian operations. He joined Formica
Corporation in March 1985 in sales and marketing and later served as General
Manager of North and East China. He was promoted to his present position in
December 1997.
Thompson Dean has been a director of Formica since May 1998. Mr. Dean has
been the Managing Partner of DLJ Merchant Banking, Inc., since November 1996.
Previously, Mr. Dean was a Managing Director of DLJ Merchant Banking Inc. and
its predecessor since January 1992. Mr. Dean serves as a director of Commvault
Inc., Von Hoffman Corporation, Manufacturer's Services Limited, Phase Metrics,
Inc., Arcade Holding Corporation, DeCrane Aircraft Holdings Inc. and Insilco
Holding Co.
Peter T. Grauer has been a director of Formica since May 1998 and a
Managing Director of DLJ Merchant Banking Inc. and its predecessor since
September 1992. Mr. Grauer serves as a director of Doane Pet Care Company,
Co., Total Renal Care Holdings, Inc., DecisionOne Holdings Corp., Nebco Evans
Holding Company, Ameriserve Food Distribution, Inc., Bloomberg, Inc. and
Thermadyne Holdings Corporation.
David Y. Howe has been a director of Formica since May 1998 and a Vice
President of Citicorp Venture Capital, Ltd. since 1993. Mr. Howe serves as a
director of Aetna Industries, Inc., American Italian Pasta Company, Insilco
Holding Co., IPC Information Systems, Inc., Pen-Tab Industries, Inc. and
several private companies.
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<PAGE>
A. Donald Mackenzie has been a director of Formica since May 1998 and a
Managing Director of CVC Capital Partners Limited since 1993. Previously, he was
a director of Citicorp Venture Capital Ltd. Mr. Mackenzie serves as a director
of Hamleys Plc and Hozelock Group Plc.
In accordance with the terms of the Investors' Agreement among the DLJ
Merchant Banking funds, the institutional investors and management shareholders
of Laminates, Formica intends to elect two additional directors who are
unaffiliated with Formica or any of DLJ Merchant Banking or the institutional
investors.
Executive Compensation
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ------------------------- ------------
Restricted Securities
Other Annual Stock Underlying All other
Salary Bonus Compensation Award(s) Options/SARs LTIP Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($)(3) (#) ($) ($)
- --------------------------- ---- ------ ----- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent P. Langone 1998 $400,000 -- -- -- -- -- $428,649(1)
Director, Chairman,
Director, Chairman,
Director, Chairman,
David T. Schneider 1998 $200,000 -- -- -- -- -- $134,153(1)
Vice-President, Chief
Vice-President, Chief
Vice-President, Chief
William Adams
President, Europe 1998 $198,020 $198,020 -- -- -- -- --
Steve Kuo
President, Asia 1998 $106,750 $34,747 -- -- -- -- --
Albert F. Young 1998 $91,668 $325,000 -- -- -- -- $199,757(2)
Former President
</TABLE>
- --------------------
(1) Amounts principally represent payment for transaction fees--see
"Employment Agreements."
(2) Amount principally represents severance payments.
(3) Messrs. Langone and Schneider purchased 104,769 and 15,715 shares of
restricted stock respectively, at $1.00 per share on April 30, 1998. The
purchase price of those shares reflects the fair market value of those
shares, as of that date and therefore those shares are not reported as
"compensation."
Employee Retirement Plan
We maintain the Formica Corporation Employee Retirement Plan, a
non-contributory defined benefit plan for United States employees. The
retirement plan was amended and restated as of January 1, 1996, and amended
again in February 1998. 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, which
is age 65 after five years of service, is an amount equal to the sum of:
(A) (1) 1.5 percent of earnings for each year of service, plus (2) 1.5
percent of earnings for each partial year of service to date of
termination, if termination is effective other than at year end; plus
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<PAGE>
(B) the accrued benefit as of June 30, 1992 determined as being the
greater of (1) the benefit accrued under the retirement plan then in effect
or (2) 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.
The Internal Revenue Code of 1986, as amended, limits the annual amount
payable to an individual under a tax qualified pension plan to $130,000, as
adjusted for cost of living increases, and places limitations upon amounts
payable to some individuals. The Code also limits the amount of annual
compensation that may be taken into account by a plan to $160,000, as adjusted
for cost of living increases.
Messrs. Langone and Schneider are the only two named executive officers
who participate in our retirement plan. Estimated annual benefits payable upon
retirement under the retirement plan to Messrs. Langone and Schneider are
$77,900 and $70,500 assuming current Code limitations, no change in present
salary and continued retirement at age 65. For each of Messrs. Langone and
Schneider, the amount of that benefit attributable to employment with Formica
prior to or during 1997 would be $54,500 and $31,700, respectively, and the
amount of that benefit attributable to employment with Formica after 1997 would
be $23,400 and $38,800. As discussed below, the amount of that benefit
attributable to employment with Formica after 1997 will be applied to offset
benefits to which Messrs. Langone and Schneider would be entitled under our
supplemental retirement plan. Mr. Langone was previously employed by American
Cyanamid, Formica's former parent, and, therefore, his benefits would be reduced
by any amounts payable under the American Cyanamid retirement plan.
Supplemental Executive Retirement Plan
The following table shows the estimated annual benefits payable upon
retirement to participants in our Supplemental Executive Retirement Plan.
Estimated Annual Retirement Benefits
---------------------------------------------
Final Average Compensation Years of Service
- ---------------------------- ---------------------------------------------
5 10 15 20
$200,000 $ 75,000 $150,000 $225,000 $300,000
225,000 84,375 168,750 253,125 337,500
250,000 93,750 187,500 281,250 375,000
300,000 112,500 225,000 337,500 450,000
400,000 150,000 300,000 450,000 500,000
450,000 168,750 337,500 500,000 500,000
500,000 187,500 375,000 500,000 500,000
600,000 225,000 450,000 500,000 500,000
700,000 362,500 500,000 500,000 500,000
800,000 300,000 500,000 500,000 500,000
900,000 337,500 500,000 500,000 500,000
1,000,000 375,000 500,000 500,000 500,000
The unfunded Supplemental Executive Retirement Plan provides additional
annual retirement benefits equal to, for a participant who has completed less
than 25 years of service with Formica, the product of
(1) 7.5% of the highest amount obtained by averaging a participant's
total cash compensation paid for the lesser of
(A) any 3, or
(B) all, calendar years of employment with Formica after 1997
54
<PAGE>
multiplied by
(2) the participant's years of service with Formica after 1997.
The supplemental plan provides additional annual retirement benefits equal
to, for a participant who has completed at least 25 years of service with
Formica, 60% of his average earnings as determined above. The maximum annual
retirement benefit payable under the supplemental plan, prior to any offset,
shall be $500,000.
No separate accounts are maintained under the supplemental plan.
The benefit amounts set forth in the table above are subject to reduction
for social security benefits, pension benefits payable under our employee
retirement plan for which accrual is attributable to employment with Formica
after 1997 and the value of benefits under our employee savings plan.
The benefit amounts set forth in the table above are contingent upon a
participant's retirement on or after age 65, or if a participant's combined age
and service with Formica total 65, a participant's retirement on or after age
62. Notwithstanding the foregoing, a participant may be eligible for benefits
under the plan if the participant retires early on or after age 60 and has
completed 5 years of service with Formica. In that case, a participant shall be
entitled to receive the retirement benefits calculated as described above
reduced by 1/4 of 1% for each month by which the participant's early retirement
date precedes his normal retirement date.
During the year ended December 31, 1998, Messrs. Langone and Schneider
were the only two participants in the supplemental plan. Each of Messrs. Langone
and Schneider currently is credited with 1 year of service for purposes of
benefit accrual under the supplemental plan. Under their employment agreements,
upon a termination without cause, for good reason including a change of control
of Formica, or upon disability, each of Messrs. Langone and Schneider will be
entitled to fully vested benefits under the supplemental plan paid in lump sum,
adding two years to their credited years of service for purposes of computing
benefits.
Formica Limited 1998 Pension Scheme
The following table shows the estimated annual benefits payable upon
retirement to participants in the Formica Limited 1998 Pension Scheme.
Estimated Annual Retirement Benefits
--------------------------------------------
Final Average Compensation Years of Service
- ---------------------------- --------------------------------------------
15 20 25 30
$150,000 $ 37,508 $ 50,010 $ 62,513 $ 75,015
175,000 43,759 58,450 72,931 87,518
200,000 50,010 66,680 83,350 100,020
250,000 62,513 83,350 104,188 125,025
300,000 75,015 100,020 125,025 150,030
400,000 100,020 133,360 166,700 200,040
450,000 112,523 150,300 187,538 225,045
500,000 125,025 166,700 208,375 250,050
600,000 150,030 200,040 250,050 300,060
Mr. Adams is the only named executive officer who participates in the U.K.
pension plan which is a final salary defined benefit scheme. The amount of the
pension to which any participant may be entitled under the scheme is based upon
final pensionable earnings, which is a participant's highest annual earnings
from the last five years prior to termination. For purposes of determining
pension, earnings includes basic pay, shift premium and overtime pay (excluding
bonus).
55
<PAGE>
The U.K. pension plan provides annual retirement benefits equal to the
product of the retirement percentage and final pensionable earnings. The
retirement percentage equals 1.667% multiplied by years of service up to a
maximum of 66.67%.
Participants may be eligible to elect to receive a portion of their
pension in a lump sum upon retirement subject to limitations by the United
Kingdom Inland Revenue. Employees are required to contribute to the funding of
the pension scheme at a rate of 5% of earnings, less a deduction of
(pound)3,328.
The benefit amounts set forth in the table above are contingent upon a
participant's retirement after age 60. If a participant retires before age 60
but no earlier than age 50, the participant shall be eligible to receive the
retirements calculated as described above reduced by 5% for every year
participant retires earlier than age 60. If a participant retires earlier than
age 50, the participant shall not receive benefits under the U.K. scheme.
Employee Retirement Plan of Formica Taiwan Corporation
Mr. Kuo is the only named executive officer who participates in the
retirement plan covering Taiwanese employees. Under the Taiwanese plan, for
service following 1984, employees are entitled to lump sum retirement benefits
equal to the sum of (1) two months' average pay for each year of service up to
fifteen years of service and (2) one month's average pay for each year of
service thereafter, up to a total maximum of 45 months, subject to 20% increase
if retirement is due to disability caused in performance of duties to Formica.
Average pay shall be calculated at retirement in accordance with the Taiwanese
Labor Standards law.
A participant is eligible for those retirement benefits upon voluntary or
mandatory retirement. A person is eligible for voluntary retirement if (1) he or
she has worked with Formica Taiwan for a period of not less than fifteen years
and has reached the age of fifty-five for a male employee or fifty for a female
employee or (2) he or she has worked with Formica Taiwan for a period of not
less than twenty-five years. Formica Taiwan may require an employee to
mandatorily retire if he or she has reached the age of sixty or he or she is
mentally or physically disabled and thus incompetent to perform his or her job.
Employment Agreements
Vincent Langone and David Schneider. Messrs. Langone and Schneider have
entered into employment agreements with Laminates on the following terms,
effective as of April 30, 1998. The employment agreements have a duration of
three years from their effectiveness subject to automatic extensions for one
year periods on their second and each subsequent anniversary, absent notice of
non-renewal by either party. The employment agreements provide for initial
annual base salaries of $600,000 and $300,000, respectively, for Messrs. Langone
and Schneider, and, contingent upon Laminate's achievement of EBITDA targets,
payment of cash bonuses.
Mr. Langone was paid a $375,000 transaction fee in connection with the
acquisition and will be paid an advisory fee in connection with future
acquisitions and/or divestitures during the term of his employment. Mr.
Schneider was paid a $125,000 transaction fee in connection with the
acquisition.
Each of Messrs. Langone and Schneider is entitled to participate in any
benefit and incentive compensation programs, plans and practices which Laminates
makes available generally to its senior executive officers.
Upon a termination without cause, for good reason or due to non-renewal of
the employment agreement, each of Messrs. Langone and Schneider is entitled
under the agreements to the following severance benefits:
(1) unpaid accrued base salary and vacation and earned bonus;
(2) two times the sum of executive's then-current annual base salary and
bonus, as calculated according to the agreement;
56
<PAGE>
(3) 36 months continued benefits coverage;
(4) a fully vested supplemental retirement benefit under the Formica
Corporation Supplemental Executive Retirement Plan and
(5) accelerated vesting with respect to any time-based options and
time-vested equity based awards granted to or purchased by executive.
Laminates has agreed that it will "gross-up" executives for any excise taxes to
which they are subject as a result of any severance payments being considered
"golden parachute" payments by the Internal Revenue Service.
The employment agreements provide that each of Messrs. Langone and
Schneider will, during his term of employment with Formica and for a period of
two years following a termination for which he is entitled to severance, be
bound by a covenant (1) not to compete in the high-pressure laminates business
or other line of business significant to Laminates and any of its subsidiaries
as a whole and (2) not to solicit any employees of Laminates or its
subsidiaries.
For purposes of the employment agreements, good reason includes any of
these events without the express prior written consent of the executive:
o the assignment to the executive of duties materially inconsistent with
the executive's positions, duties, responsibilities, titles or offices
described above or any material reduction of those duties or
responsibilities, or other than for cause or due to disability, the
removal of the executive from or any failure to elect or reelect the
executive to his position;
o a reduction in base salary, bonus opportunity or benefits;
o our failure to obtain the specific assumption of the employment
agreement by any successor or assign or any person acquiring
substantially all of our assets;
o our failure to perform in any material respect our stated duties under
the employment agreement, which is not remedied within 30 days of
notice to us by the the executive;
o movement of our principal offices to a location more than 35 miles
from Newark, New Jersey;
o our failure to keep in effect the policy of directors' and officers'
liability insurance or
o a change of control.
For purposes of the foregoing, change of control means such time as (1)
the DLJ Merchant Banking funds, the CVC entities and MMI Products, LLC and their
permitted transferees own less than 10% of the outstanding shares of our common
stock on a fully diluted basis, (2) the transfer of substantially all of our
assets has occurred, (3) we shall have been liquidated or (4) any person, other
than an institutional shareholder or permitted transferee, shall own more of our
equity securities than the institutional shareholder and its permitted
transferee own, in the aggregate, the greatest amount of our equity securities.
For purposes of the employment agreements, cause means (1) the executive's
conviction by a court of competent jurisdiction or entry of a plea of nolo
contendere for an act on the executive's part constituting a felony which
conviction or plea causes damage to our reputation or financial position or
which undermines the executive's authority or (2) a willful and gross breach of
a substantial and material obligation of the executive under the employment
agreement; provided, that no action shall give rise to cause if undertaken in
the good faith belief that the action was in our best interest.
57
<PAGE>
William Adams. Mr. Adams is party to an employment agreement with Formica
Limited, an indirect subsidiary of Formica, dated March 14, 1990, as amended in
October 1997. Under his employment agreement, Mr. Adams is paid an annual salary
and may participate in applicable incentive compensation schemes. The agreement
entitles Mr. Adams to participation in various benefits of Formica Limited,
including a group health plan, a pension plan and company sick pay, and subjects
Mr. Adams to a confidentiality covenant which survives his termination of
employment. Under the terms of his agreement, Mr. Adams is entitled to twelve
months notice of termination of employment, for which Formica Limited may
substitute payment. Mr. Adams is required to give three months notice of his
voluntary termination of employment.
Steve Kuo. Mr. Kuo is party to a service contract with Cyanamid Taiwan
Corporation and Formica Taiwan Corporation, an indirect subsidiary of Formica,
dated March 18, 1986. That agreement was executed following the sale of the
Formica business by American Cyanamid Corporation in 1985, and provides for the
transfer of Mr. Kuo's employment from Cyanamid Taiwan Corporation to Formica
Taiwan Corporation. Under the terms of the agreement, Mr. Kuo's employment with
Formica Taiwan Corporation is on the same terms as his employment with Cyanamid
Taiwan Corporation, with acknowledgment of Mr. Kuo's years of service at
Cyanamid Taiwan Corporation for the purpose of calculating Mr. Kuo's retirement
payments at Formica Taiwan Corporation.
Albert F. Young. Mr. Young previously served as President of Formica -
North America and terminated employment with Formica on May 4, 1998. Mr. Young
was party to a severance agreement with Formica dated September 20, 1997.
Under that agreement, in connection with his termination of employment, Mr.
Young is receiving severance benefits equal to 18 months base salary and
various other benefits. Additionally, Mr. Young was party to an agreement with
BTR dated September 29, 1997 under which he was paid a completion bonus of one
year base salary upon the closing of the acquisition of Formica by Laminates.
The 1998 Restricted Stock Plan
On April 30, 1998, the board of directors and shareholders of Laminates
approved and adopted the Laminates Management Restricted Stock Program. The plan
authorizes purchases by eligible employees of Laminates and its subsidiaries,
selected in the discretion of the committee referred to below, of restricted
shares of common stock of Laminates. Any shares of restricted stock purchased
under the plan are subject to forfeiture upon the participating employee's
termination of employment with Laminates or any of its subsidiaries until those
shares have vested in accordance with the terms described below. The only
employees who have participated in the plan to date are Messrs. Langone and
Schneider.
Administration. The plan is administered by a committee of our board of
directors established by the board in a manner which complies with Rule 16b-3
under the Exchange Act and Section 162(m) of the Code, to the extent compliance
is necessary, or if no committee has been established, by the board.
Number of Authorized Shares. Shares issuable under the plan may include
shares of authorized but unissued or reacquired common stock.
The number of shares which may be issued under the plan is 157,153,
subject to adjustments upon the occurrence of various events and as follows. To
date, 120,484 shares have been allocated to and purchased by Messrs. Langone and
Schneider, 23,500 shares have been allocated to and purchased by other
management employees under the 1999 stock plan, and 13,169 shares are available
under the plan for future purchase. Subject to various exceptions, upon the
issuance by Laminates of additional equity following the effectiveness of the
acquisition, additional shares will be available under the plan equal to from
12.5% to 5.5% of the additional common stock issued, depending upon the amount
and timing of the issuance.
Purchase Price. Unless otherwise determined by the committee, the price at
which each share of restricted stock may be purchased under the plan shall be
the fair market value of a share of common stock on the date of purchase.
58
<PAGE>
Vesting. Each restricted share will vest in accordance with the terms of
the applicable purchase agreement between Laminates and the participating
employee. 60% of the shares currently issued under the plan will be subject to
time-based vesting and 40% of the shares issued under the plan are subject to
performance-based vesting. The time based shares vest on a five year schedule,
20% on each anniversary of purchase, and the performance based shares vest on a
five year schedule provided that EBITDA targets are met. The issued time based
shares vest upon termination of a participating employee's employment due to
death, disability, without cause or for good reason and upon a change of control
of Laminates and the issued performance based shares vest upon a change of
control of Laminates occurring within 20 months of the effectiveness of the
acquisition, and thereafter only if investment return targets are met.
Puts and Calls. The restricted stock is subject to repurchase by Laminates
upon any termination of employment by the employee and of sale by the employee
upon termination of employment other than for cause or by the employee without
good reason. The applicable purchase price is set forth in the purchase
agreement with respect to the shares.
Amendment and Termination. The board may amend, alter, suspend,
discontinue or terminate the plan or any portion thereof at any time, provided
however, that the shareholders of Laminates shall be required to approve any
amendment if the approval is necessary to comply with any tax or regulatory
requirements.
The 1999 Stock Plan
On March 18, 1999, the board of directors of Laminates approved and
adopted the Laminates 1999 Stock Plan. The plan authorizes purchases by eligible
employees of Laminates and its subsidiaries, selected in the discretion of the
committee referred to below, of shares of preferred stock, shares of common
stock, and restricted shares of common stock of Laminates. Any shares of
restricted stock purchased under the plan are subject to forfeiture upon the
participating employee's termination of employment with Laminates or any of its
subsidiaries until those shares have vested in accordance with the terms
described below.
Administration. The plan is administered by a committee of our board of
directors established by the board in a manner which complies with Rule 16b-3
under the Exchange Act and Section 162(m) of the Code, to the extent compliance
is necessary, or if no committee has been established, by the board.
Number of Authorized Shares. Shares issuable under the plan may include
shares of authorized but unissued or reacquired common stock.
The number of preferred shares which may be issued under the plan is
15,401 and the number of common shares is 55,004, including 36,669 shares of
restricted stock available for future purchase under the 1998 Restricted Stock
Plan. To date, 9,870 preferred shares and 35,250 common shares, including 23,500
restricted shares, have been purchased by management employees other than
Messrs. Langone and Schneider.
Purchase Price. Unless otherwise determined by the committee, the price at
which each share of preferred and common stock may be purchased under the plan
shall be the fair market value of a share of stock on the date of purchase.
Vesting. Each restricted share will vest in accordance with the terms of
the applicable purchase agreement between Laminates and the participating
employee. 50% of the shares currently issued under the plan will be subject to
time-based vesting and 50% of the shares issued under the plan are subject to
performance-based vesting. The time based shares vest on a five year schedule,
20% on each anniversary of purchase, and the performance based shares vest on a
five year schedule provided that EBITDA targets are met.
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<PAGE>
Puts and Calls. The preferred and common stock is subject to repurchase by
Laminates upon any termination of employment by the employee. The applicable
purchase price is set forth in the purchase agreement with respect to the
shares.
Amendment and Termination. The board may amend, alter, suspend,
discontinue or terminate the plan or any portion thereof at any time, provided
however, that the share holders of Laminates shall be required to approve any
amendment if the approval is necessary to comply with any tax or regulatory
requirements.
Compensation of Directors
Currently, directors are not paid fees. Formica has not yet determined
whether the independent directors to be elected in accordance with our
investors' agreement will be paid any fees.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LAMINATES STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Formica's voting securities as of May 1, 1998 by (1) each person or
group known to Formica who beneficially owns more than five percent of voting
securities of Formica, (2) each of Formica's directors, (3) each executive
officer of Formica and (4) all directors and executive officers of Formica as a
group:
Name of Beneficial Owner Percentage of Class
----------------------- -------------------
Laminates Acquisition Co. (2)......................
277 Park Avenue
New York, New York 10072 100.0%
FM Holdings Corp...................................
15 Independence Boulevard
Warren, New Jersey 07059 100.0%
Thompson Dean...................................... --
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10072
Peter Grauer....................................... --
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10072
David Y. Howe..................................... --
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, New York 10043
Alexander Donald Mackenzie......................... --
CVC Capital Partners Limited
Hudson House
8-10 Tavistock Street
London WC2E 7PP
Vincent Langone.................................... --
David Schneider.................................... --
Albert F. Young.................................... --
William Adams...................................... --
Steve Kuo..........................................
All directors and officers as a group (9 persons).. --
- --------------------
(1) Under the applicable rules of the Securities and Exchange Commission, each
person or entity is deemed to be a beneficial owner with the power to vote
and direct the disposition of these shares. Shares of common stock
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<PAGE>
subject to warrants are deemed outstanding for computing the percentage of
the person holding the options, but are not deemed outstanding for
computing the percentage of any other person.
(2) Includes securities held by FM Holdings, which is a wholly-owned subsidiary
of Laminates.
------------------------
The following table sets forth information with respect to the beneficial
ownership of Laminate's voting securities as of May 1, 1998 by (1) each person
or group known to Formica who beneficially owns more than five percent of voting
securities of Laminates, (2) each of Formica's directors, (3) each executive
officer of Formica and (4) all directors and executive officers of Formica as a
group:
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares (1) Percentage of Class
----------------------- --------------------- -------------------
<S> <C> <C>
DLJ Merchant Banking funds (2)................................ 538,236(3) 45.1%
CVC European Equity Partners, L.P.
Hudson House
8-10 Tavistock Street
London WC2E 7PP.............................................. 240,198(4) 20.6%
CVC European Equity Partners (Jersey) L. P.
Hudson House
8-10 Tavistock Street
London WC2E 7PP.............................................. 28,920(5) 2.5%
MMI Products, L.L.C
399 Park Avenue
New York, New York 10043. ................................... 269,118(6) 23.0%
Thompson Dean................................................. -- --
Peter Grauer.................................................. -- --
David Y. Howe................................................ -- --
Alexander Donald Mackenzie.................................... -- --
Vincent Langone............................................... 140,061(7) 12.2%
David Schneider............................................... 27,479(8) 2.4%
Albert F. Young............................................... -- --
William Adams................................................. 3,600(9) --
Steve Kuo..................................................... 525(10) --
All directors and officers as a group (8 persons)(7)(8)(9)(10) 171,665 14.6%
</TABLE>
- --------------------
(1) Under the applicable rules of the Securities and Exchange Commission, each
person or entity is deemed to be a beneficial owner with the power to vote
and direct the disposition of these shares. Shares of common stock subject
to warrants are deemed outstanding for computing the percentage of the
person holding the options, but are not deemed outstanding for computing
the percentage of any other person.
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<PAGE>
(2) Consists of shares held directly by DLJ Merchant Banking Partners II, L.P.
and the following related investors: DLJ Merchant Banking Partners II-A,
L.P.; DLJ Offshore Partners II, C.V.; DLJ Diversified Partners, L.P.;
DLJ Diversified Partners-A, L.P.; DLJ Millennium Partners, L.P.; DLJ
Millennium Partners-A, L.P.; DLJ Merchant Banking Funding II, Inc.; DLJ
First ESC L.P.; UK Investment Plan 1997 Partners, Inc.; DLJ EAB
Partners, L.P. and DLJ ESC II L.P. See "Certain Relationships and
Related Transactions" and "Plan of Distribution." The address of each is
277 Park Avenue, New York, New York 10172, except (1) the address of
Offshore is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands
Antilles and (2) the address of UK Partners is 2121 Avenue of the Stars,
Fox Plaza, Suite 3000, Los Angeles, California 90067.
(3) Includes 50,000 shares that may be acquired upon exercise of warrants.
See "The Acquisition."
(4) Includes 22,313 shares that may be acquired upon exercise of warrants.
(5) Includes 2,687 shares that may be acquired upon exercise of warrants.
(6) Includes 25,000 shares that may be acquired upon exercise of warrants.
(7) Includes 104,769 shares of restricted stock, of which 62,861 are time based
shares and 41,908 are performance based shares. See "Management--The 1998
Restricted Stock Plan."
(8) Includes 15,715 shares of restricted stock, of which 9,429 are time based
shares and 6,286 are performance based shares. See "Management--The 1998
Restricted Stock Plan."
(9) Includes 2,400 shares of restricted stock, of which 1,200 are time based
shares and 1,200 are performance based shares. See "Management--The 1999
Stock Plan."
(10) Includes 350 shares of restricted stock, of which 175 are time based shares
and 175 are performance based shares. See "Management --The 1999 Stock
Plan."
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Our shareholders are party to an agreement that determines many important
voting and other matters.
In connection with the acquisition, an Investors' Agreement was entered
into at the effective time among Laminates, the DLJ Merchant Banking funds, the
other institutional investors and the members of management who own shares of
Laminates common stock. The terms of the Investors' Agreement restrict transfers
of the shares of Laminates common stock by DLJ Merchant Banking, the
institutional investors and the management shareholders, and provide that in
various situations a selling shareholder provides Laminates and the other
shareholders with a right of first refusal prior to selling any shares. The
agreement permits the other shareholders to participate in various sales of
shares of Laminates capital stock by the DLJ Merchant Banking funds or
institutional investors, permits the DLJ Merchant Banking funds and the
institutional investors to require the management shareholders to sell shares of
Laminates capital stock in various circumstances should the DLJ Merchant Banking
funds and the institutional investors choose to sell any shares owned by them,
permits the shareholders to purchase equity securities proposed to be issued by
Formica on a preemptive basis, and provides for specified registration rights.
Similar provisions are made with respect to Holdings preferred stock that is
held by the shareholders. The Investors' Agreement also provides that the DLJ
Merchant Banking funds have the right to appoint two of the seven members of the
Board of Directors of Laminates, Holdings and Formica, each of CVC, MMI and the
management shareholders have the right to appoint one director, and two other
directors will be independent directors mutually satisfactory to DLJ Merchant
Banking and the institutional investors, and provides that specified actions may
not be taken unless approved by each of the DLJ Merchant Banking funds, CVC and
MMI. The two independent directors have not yet been selected.
Fees we have paid to our affiliates
In the subscription agreement under which shares of Laminates capital
stock were sold, Laminates agreed to reimburse the DLJ Merchant Banking funds,
the institutional investors and the management shareholders for all costs and
expenses incurred by them in connection with their subscription for stock of
Laminates. Laminates also agreed to reimburse up to $2.0 million to the DLJ
Merchant Banking funds as reimbursement for amounts previously paid by the DLJ
Merchant Banking funds to Messrs. Langone and Schneider in connection with
consulting services provided to the DLJ Merchant Banking funds with respect to
our acquisition by Laminates.
In connection with the acquisition, Laminates paid advisory fees of $1.0
million to each of Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the DLJ Merchant Banking funds, and MMI, $2.0 million to CVC and
$375,000 to Mr. Langone and $125,000 to Mr. Schneider for services rendered in
connection with the acquisition.
DLJ Capital Funding, an affiliate of DLJ Merchant Banking, has and will
receive customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the new credit facility and as a lender
thereunder. Laminates Funding, Inc., an affiliate of DLJ Merchant Banking, was a
purchaser of a portion of the bridge notes and received customary fees and
expenses in connection therewith, which notes are being repaid with the proceeds
of the issuance and sale of the notes. Donaldson, Lufkin & Jenrette Securities
Corporation, also an affiliate of DLJ Merchant Banking, acted as the initial
purchaser of the old notes. The aggregate amount of all fees paid to the various
DLJ entities in connection with the acquisition and the offering of the old
notes is approximately $8.5 million.
Expected future transactions with Donaldson, Lufkin & Jenrette Securities
Corporation
Formica and its subsidiaries may from time to time enter into financial
advisory or other investment banking relationships with Donaldson, Lufkin &
Jenrette Securities Corporation or one of its affiliates whereby Donaldson,
Lufkin & Jenrette Securities Corporation or its affiliates will receive
customary fees and will be entitled to reimbursement for all related reasonable
disbursements and out-of-pocket expenses. Formica expects that any arrangement
will include provisions for the indemnification of Donaldson, Lufkin & Jenrette
Securities Corporation against a variety of liabilities, including liabilities
under the federal securities laws.
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<PAGE>
THE ACQUISITION
In this prospectus, we refer to our "acquisition" in May 1998 to include:
(1) the purchase by Laminates of Holdings, our parent company, the various
mergers described below, and the contribution of the foreign affiliates' stock
to us and
(2) the issuance and sale of the bridge notes, the initial borrowings
under the new credit facility, net of the repayment made immediately after the
effective time of the acquisition, the sale by LMS I, a predecessor of Holdings,
of senior preferred stock and warrants and the sale by Laminates of preferred
stock and common stock,
The following table sets forth the estimated cash sources and uses of
funds for the acquisition and related fees and expenses:
<TABLE>
<CAPTION>
(in millions)
------------
<S> <C>
Sources
Bridge notes................................................................................... $200.0
New credit facility............................................................................ 80.0
Assumed net debt............................................................................... 28.8
LMS I senior preferred stock and warrants...................................................... 50.0
Laminates preferred stock...................................................................... 86.0
Laminates common stock......................................................................... 1.1
------
Total Sources................................................................................. $445.9
======
Uses
Cash consideration for acquisition, including repayment of affiliate debt...................... $376.6
Assumed net debt............................................................................... 28.8
Excess cash.................................................................................... 10.5
Estimated transaction fees and expenses, including estimated fees and expenses
incurred in connection with the offering of the old notes...................................... 30.0
------
Total Uses.................................................................................... $445.9
======
</TABLE>
Laminates, our indirect parent, was organized by the DLJ Merchant Banking
funds, several institutional investors and Messrs. Langone and Schneider in
order to acquire our company. For the same purpose, Laminates formed:
o LMS I, a Delaware corporation wholly owned by it,
o LMS II, wholly owned by LMS I,
o LMS III, wholly owned by LMS II,
o and Formica Holdco (UK) Limited, wholly owned by LMS III.
Our investors formed Laminates to act as the holding company for all
of our assets, and formed the various other new entities to act as empty shell
acquisition vehicles that, other than Holdco (UK), would then be merged into
existing Formica entities. The investors wanted to set up a capital structure
with debt and equity issued at different levels and, since most of the funding
for these debt and equity issuances was to occur immediately prior to the
effective time of the acquisition, the investors needed a shell company at each
relevant level in order to permit debt and equity issuances at that level.
Holdco (UK) was set up in order to permit a debt issuance in the United Kingdom.
65
<PAGE>
Laminates and BTR entered into an acquisition agreement dated as of March
16, 1998. In accordance with the acquisition agreement, on May 1, 1998 Laminates
acquired from BTR, for consideration of approximately $405.4 million, all of the
outstanding shares of Holdings and some of our foreign affiliates. The
consideration included $376.6 million of cash, which included repayment of all
indebtedness due to BTR and its affiliates, and $28.8 million of estimated
assumed net debt, net of estimated cash and cash equivalents.
In order to finance the acquisition:
o LMS II issued and sold $200.0 million aggregate principal amount of
the bridge notes, which were repaid with the proceeds of the old
notes.
o LMS II, together with Holdco UK and Formica Limited, our indirect
subsidiary, entered into a new credit facility, which initially
provided for term loan borrowings in the aggregate principal amount of
$80.0 million and revolving loan borrowings in the aggregate principal
amount of $125.0 million. At the effective time, LMS II borrowed $40.0
million of term loans available thereunder and $40.0 million of
revolving loans, which were repaid as described below, and Holdco UK
borrowed the pounds sterling equivalent of $40.0 million of term
loans. In addition, LMS II obtained approximately $30.0 million
aggregate amount of letters of credit to provide credit enhancement
for assumed indebtedness.
o The proceeds of LMS II's borrowings under the new credit facility and
from its issuance of the bridge notes were loaned by LMS II to LMS I.
o LMS I raised an additional $50.0 million from the sale of its senior
preferred stock and warrants to purchase common stock of Laminates and
loaned the proceeds, along with the proceeds of the loan received from
LMS II, to Laminates.
o Laminates used the proceeds of the loan, together with $87.1 million
in proceeds from the sale of preferred stock and common stock, to fund
the payment of the purchase price of the shares of Holdings and the
foreign affiliates.
Concurrently with the effectiveness of the acquisition:
o LMS II merged with and into Formica, and we succeeded to all of LMS
II's obligations in respect of the bridge notes and the new credit
facility,
o LMS I merged into Holdings,
o LMS III merged into Formica International, our wholly owned
subsidiary, and
o Laminates contributed to Holdings, which contributed to us, the shares
of stock of the foreign affiliates, which became our subsidiaries.
As a result of the acquisition, we are a wholly owned subsidiary of
Holdings, which in turn is a wholly owned subsidiary of Laminates.
Immediately after the effective time, Holdco UK converted the proceeds of
its borrowing of term loans under the new credit facility into U.S. dollars and
used this to purchase the stock of Formica Limited from Formica International.
Formica International then dividended the $40.0 million purchase price proceeds
to us. We then repaid the $40.0 million of revolving loan borrowings made under
the new credit facility at the effective time with the proceeds of the dividend.
66
<PAGE>
[GRAPHIC OMITTED]
The following chart shows our corporate structure, but omitting most of
our subsidiaries, immediately before and immediately after the acquisition:
67
<PAGE>
DESCRIPTION OF OUR CREDIT FACILITY
Our credit facility is provided by a syndicate of financial institutions
led by Donaldson, Lufkin & Jenrette Securities Corporation, as arranger, and DLJ
Capital Funding, as syndication agent. The new credit facility includes:
o an $85.0 million term loan facility, which provides for
o a pound sterling-denominated facility in an amount equal to the
pound sterling equivalent, determined as of the date the loans
under that facility are made, of US$40.0 million,
o a $35.0 million U.S. dollar-denominated facility
o a Canadian dollar-denominated facility in an amount equal to the
Canadian dollar equivalent, determined as of the date the loans
under that facility are made, of US$10.0 million, and
o a $120.0 million revolving credit facility, which provides for loans
and under which up to $75.0 million in letters of credit may be
issued.
The term loan and revolving facilities each mature on May 1, 2004. A substantial
portion of the revolving credit facility may be made available to our foreign
subsidiaries in local currencies.
Loans under the new credit facility bear interest, at Formica's option, at
the alternate base rate or the reserve adjusted LIBOR rate plus, in each case,
an applicable margin. Formica pays commitment fees on the daily average unused
portion of the revolving credit facility. These fees are payable quarterly in
arrears and upon the maturity or termination of the revolving credit facility.
The applicable margins and commitment fees are determined based on the ratio of
consolidated total debt to consolidated EBITDA of Formica and its subsidiaries,
in each case as defined in the new credit facility.
Formica pays a letter of credit fee on the outstanding undrawn amounts of
letters of credit issued under the new credit facility at a rate per annum equal
(1) in the case of standby letters of credit, the then applicable margin for
Euro-Dollar loans and (2) in the case of documentary letters of credit, 1.25%,
which shall be shared by all lender participating in the Letter of Credit, and
an additional 0.125% per annum fee to issuers of each letter of credit.
The term loan is subject to the following amortization schedule:
Term Loan
Year Amoritization (%)
---- ----------------
1 0.0
2 2.5
3 10.0
4 20.0
5 25.0
6 42.5
The new credit facility is subject to mandatory prepayment:
o with the net cash proceeds of the sale or other disposition of any
property or assets of, or receipt of casualty proceeds by, Formica,
subject to various exceptions, including an exception for reinvestment
in the business of Formica and its subsidiaries,
68
<PAGE>
o with 50% of the net cash proceeds received from the issuance of equity
securities of Formica to the extent that the leverage ratio exceeds
3.5:1,
o with the net cash proceeds received from issuances of debt securities
by Formica or any of its restricted subsidiaries, as defined in the
new credit facility, subject to various exceptions and
o with 50% of excess cash flow, as defined in the new credit facility,
for each fiscal year to the extent that the leverage ratio exceeds
3.5:1.
All mandatory prepayment amounts shall be applied first to the prepayment
of the term loan facility and thereafter to the prepayment of the revolving
credit facility.
Laminates, Holdings, and all existing or future domestic subsidiaries of
Formica are or will be guarantors of the new credit facility. Formica's
obligations under the new credit facility will be secured by
o all existing and after-acquired personal property of Formica and the
subsidiary guarantors, including a pledge of all of the stock of all
existing or future domestic subsidiaries of Formica and a pledge of no
more than 65% of the voting stock of any foreign subsidiary,
o first-priority perfected liens on all material existing and
after-acquired real property fee and leasehold interests of Formica
and the subsidiary guarantors, subject to customary permitted liens
specified in the new credit facility,
o a pledge by Holdings of the stock of Formica and a pledge by Laminates
of the stock of Holdings, and
o a negative pledge on all assets of Formica and its subsidiaries.
The new credit facility contains customary covenants and restrictions on
Formica's ability to engage in various activities, including, but not limited
to:
o limitations on engaging in businesses outside the building products
industry
o limitations in indebtedness
o limitations on liens
o limitations on investments
o limitations on dividends, stock redemptions and prepayments of
subordinated indebtedness
o limitations on capital expenditures
o limitations on modifications of subordinated debt instruments and
other material documents
o restrictions on our ability to enter into agreements prohibiting
o the creation of liens on our assets
o our subsidiaries' ability to make payments to us
o restrictions on mergers and acquisitions, sales of assets and leases
69
<PAGE>
o limitations on sales of stock in our restricted subsidiaries
o limitations on sale and leaseback transactions
The new credit facility also contains financial covenants requiring
Formica to maintain:
o a minimum EBITDA
o a minimum ratio of EBITDA to cash interest expense
o a minimum ratio of EBITDA to fixed charges, including capital
expenditures, cash interest expense, scheduled debt amortization, cash
taxes and restricted payments
o a maximum leverage ratio.
The covenants described above are subject to significant limitations and
exceptions. In addition, many of the terms used in the covenants have specific
definitions in the credit facility which also include significant limitations
and exceptions. We have filed a copy of the credit facility with the SEC as an
exhibit to the registration statement of which this prospectus forms a part. You
should read the entire credit facility for information that may be important to
you.
Borrowings under the new credit facility are subject to significant
conditions, including the absence of any material adverse change. See "Risk
Factors--We have substantial debt, which could limit our cash available for
other uses."
70
<PAGE>
DESCRIPTION OF NOTES
The old notes were issued, and the new notes will be issued, under an
indenture dated as of February 22, 1999 between Formica and Summit Bank as
trustee. The following summary highlights material terms of the indenture.
Because this is a summary, it does not contain all of the information that is
included in the indenture. You should read the entire indenture, including the
definitions of many terms used below. The indenture is by its terms subject to
and governed by the Trust Indenture Act of 1939, as amended. We have filed a
copy of the indenture as an exhibit to the registration statement of which this
prospectus forms a part. In this description of notes, "Formica" refers only to
Formica Corporation and not any of its subsidiaries.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except for the transfer restrictions and registration
rights relating to the old notes. If we do not complete the exchange offer by
, 1999, holders of old notes that have complied with their obligations
under the registration rights agreement will be entitled, subject to various
exceptions, to liquidated damages in an amount equal to $0.05 per week per
$1,000 principal amount of notes until , 1999 and increasing every 90 days
thereafter up to a maximum amount equal to $0.25 per week per $1,000 principal
amount of notes until the registration statement is declared effective. The new
notes and the old notes are treated as a single class for all purposes under the
indenture.
Many of the restrictive covenants described below apply only to Formica
and its "Restricted" Subsidiaries. As described below in the definition of
"Unrestricted Subsidiary," we may designate any of our subsidiaries as
unrestricted, and therefore not subject to the restrictive covenants, so long as
we satisfy the conditions described in that definition. As of the date of the
indenture, all of our subsidiaries are Restricted Subsidiaries.
Principal, Maturity and Interest
The notes:
o are our general obligations
o are subordinated to all our Senior Indebtedness
o are not guaranteed by any of our subsidiaries
o are initially limited in aggregate principal amount to $215.0 million
o mature on March 1, 2009
o bear interest at a rate of 10 7/8% per year
o are issued in denominations of $1,000 and in higher integral multiples
of $1,000.
We will pay interest on the notes in arrears every March 1 and September
1, beginning September 1, 1999, to holders of record on the immediately
preceding February 15 and August 15. Interest on the new notes will accrue from
the most recent date on which we paid interest on the old notes or the new notes
or, if no interest has been paid, from the date when we originally issued the
old notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
We will make all payments of principal, premium, interest and liquidated
damages on the notes:
o at our office or agency that we have for that purpose within the City
and State of New York
71
<PAGE>
o or, at our option, we can pay interest and liquidated damages by check
that we may mail to you at your address listed in the register of note
holders
o but, for global notes, all payments will be paid by wire transfer of
immediately available funds to the account of the Depository Trust
Company or any successor.
Until we choose another office or agency, the office of the trustee in New York
will be our office for that purpose.
So long as we satisfy the covenants, we can issue additional notes in an
unlimited amount
So long as the issuance of notes does not violate any of the covenants
described below, we may issue additional notes, without limit, under the
indenture having the same terms in all respects as the notes, or in all respects
except for the payment of interest on the notes
(1) scheduled and paid prior to the date of issuance of those notes;
or
(2) payable on the first Interest Payment Date following the date of
issuance.
The notes offered hereby and any additional notes would be treated as a single
class for all purposes under the indenture.
Subordination
The notes rank junior to all of our Senior Indebtedness. Under the
circumstances described below, you will not be entitled to receive any payments
on your notes until Senior Indebtedness of Formica has been paid in full in
cash. As a result, you may recover less of the amounts that we owe to you than
creditors who are holders of Senior Indebtedness.
Subordination in bankruptcy, insolvency or other similar circumstances
Upon
o any distribution to creditors of Formica in a:
o liquidation or dissolution of Formica
o bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Formica or its property
o an assignment for the benefit of creditors
o any marshalling of Formica's assets and liabilities
(1) holders of Senior Indebtedness will be entitled to receive payment in full
in cash or cash equivalents of all Obligations due in respect of Senior
Indebtedness, including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness, before the holders
of notes will be entitled to receive any payment with respect to the
Subordinated Note Obligations, and
(2) until all Obligations with respect to Senior Indebtedness are paid in full
in cash or cash equivalents, any distribution to which the holders of notes
would be entitled shall be made to the holders of Senior Indebtedness.
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<PAGE>
However, you may receive and retain Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance".
Subordination upon default of Designated Senior Indebtedness
Formica also may not make any payment upon or in respect of the
Subordinated Note Obligations except in Permitted Junior Securities or from the
trust described under "--Legal Defeasance and Covenant Defeasance" if:
(1) a default in the payment of the principal of, premium, if any, or
interest on or commitment fees relating to, Designated Senior Indebtedness
occurs and is continuing beyond any applicable period of grace; or
(2) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which that default relates to accelerate its maturity
and the trustee receives a notice of that default (a "Payment Blockage
Notice") from Formica or the holders of any Designated Senior
Indebtedness.
Payments on the notes may and shall be resumed:
(A) in the case of a payment default, upon the date on which that default
is cured or waived; and
(B) in case of a nonpayment default, the earlier of:
the date on which that nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated.
o No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice.
o No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless that
default shall have been waived or cured for a period of not less than 90
days.
We must promptly notify holders of Senior Indebtedness if payment of the
notes is accelerated because of an Event of Default.
Optional Redemption
Except as provided below, we may not redeem the notes prior to March 1,
2004. Thereafter, we may redeem the notes, in whole or in part, upon not less
than 30 nor more than 60 days' notice, in cash at the redemption prices,
expressed as percentages of principal amount, set forth below, plus accrued and
unpaid interest and liquidated damages to the redemption date, if redeemed
during the twelve-month period beginning on March 1 of the years indicated
below:
Year Percentage
- ----- ----------
2004......................................................... 105.438%
2005......................................................... 103.625%
2006......................................................... 101.813%
2007 and thereafter.......................................... 100.000%
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<PAGE>
In addition, on or before March 1, 2002, we may redeem up to 35% of the
aggregate principal amount of notes ever issued under the indenture in cash at a
redemption price of 110.875% of their principal amount, plus accrued and unpaid
interest and liquidated damages to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings; provided that
o at least 65% of the aggregate principal amount of notes ever issued
under the indenture remains outstanding immediately after the
occurrence of any redemption under this provision and
o the redemption shall occur within 90 days of the date of the closing
of any Public Equity Offering.
Selection of notes when only a portion of the notes are being redeemed
If we are redeeming less than all of the notes at any time, the trustee
will select the notes for redemption
o if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange
o if the notes are not so listed
o on a pro rata basis
o by lot or
o by any other method as the trustee shall deem fair and a
ppropriate
provided that no notes of $1,000 or less shall be redeemed in part. If we intend
to redeem any note in part, the notice of redemption that we send to you will
state the portion of the principal amount to be redeemed, and we will issue to
you a new note in principal amount equal to the unredeemed portion when we
cancel the original note.
We will send registered holders a notice of any redemption
We will mail notice of any redemption by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
Once we have called a note for redemption, it becomes due on the
redemption date. On and after the redemption date, interest will no longer
accrue on notes or portions of them called for redemption.
Mandatory Redemption
We are not required to make mandatory redemption of, or sinking fund
payments with respect to, the notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of notes will have
the right to require Formica to repurchase all or any part equal to $1,000 or an
integral multiple thereof of each holder's notes under the offer described below
(the "Change of Control Offer"). The Change of Control Offer will be made at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and liquidated damages to the date of
repurchase (the "Change of Control Payment").
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Within 60 days following any Change of Control, Formica will, or will
cause the trustee to, mail a notice to each holder
o describing the transaction or transactions that constitute the Change
of Control
o offering to repurchase notes on the date specified in that notice,
which date shall be no earlier than 30 days and no later than 60 days
from the date that notice is mailed (the "Change of Control Payment
Date"), under the procedures required by the indenture and described
in that notice.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of the indenture
relating to that Change of Control Offer, we will comply with the applicable
securities laws and regulations and shall not be deemed to have breached our
obligations described in the indenture by virtue thereof.
On the Change of Control Payment Date, Formica will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Formica.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for those notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book-entry, to each holder
a New note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, we will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Senior Indebtedness to permit the
repurchase of notes required by this covenant.
Formica will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above, the indenture does not contain provisions that permit the
holders of the notes to require that we repurchase or redeem the notes in the
event of a takeover, recapitalization or similar transaction.
Our credit facility prohibits us from purchasing any notes and also
provides that specified change of control events, which may include events not
otherwise constituting a Change of Control under the indenture, with respect to
Formica would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Indebtedness to which we become a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when we are prohibited from purchasing notes, we could seek the
consent of our lenders to the purchase of notes or could attempt to refinance
the borrowings that contain that prohibition. If we do not obtain such a consent
or repay those borrowings, we will remain prohibited from purchasing notes. In
that case, our failure to purchase tendered notes would constitute an Event of
Default under the indenture, which would,
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in turn, constitute a default under our credit facility. In those circumstances,
the subordination provisions in the indenture would likely restrict payments to
the holders of notes.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Formica and purchases
all notes validly tendered and not withdrawn under that Change of Control Offer.
Asset Sales
Formica will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) Formica or that Restricted Subsidiary, as the case may be, receives
consideration at the time of that Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(2) Formica delivers a resolution of its board of directors and an
Officers' Certificate to the trustee stating that the consideration
received was at least equal to fair market value; and
(3) at least 75% of the consideration therefor received by Formica or that
Restricted Subsidiary is in the form of:
(a) cash or Cash Equivalents; or
(b) property or assets that are used or useful in a
Permitted Business, or the Capital Stock of any Person engaged in a
Permitted Business if, as a result of the acquisition by Formica or
any Restricted Subsidiary thereof, that Person becomes a Restricted
Subsidiary.
In determining whether the consideration received is in the form of cash
or Cash Equivalents, the following will be considered cash:
o the amount of any liabilities, as shown on Formica's or that
Restricted Subsidiary's most recent balance sheet, of Formica or
any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or
any guarantee thereof) that are assumed by the transferee of any
such assets under a customary novation agreement that releases
Formica or such Restricted Subsidiary from further liability
o any securities, notes or other obligations received by Formica or
any such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods,
converted by Formica or that Restricted Subsidiary into cash or
Cash Equivalents, but only to the extent of the cash or Cash
Equivalents received
o any Designated Noncash Consideration received by Formica or any
of its Restricted Subsidiaries in that Asset Sale having an
aggregate fair market value, taken together with all other
Designated Noncash Consideration received under this clause that
is at that time outstanding, not to exceed 15% of Total Assets at
the time of the receipt of that Designated Noncash Consideration,
with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without
giving effect to subsequent changes in value
In addition, the 75% limitation referred to in clause (3) above will not
apply to any Asset Sale in which the cash or Cash Equivalents portion of the
consideration received, including any amounts deemed cash as stated
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above, is equal to or greater than what the after-tax proceeds would have been
had that Asset Sale complied with the 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Formica or any such Restricted Subsidiary shall apply the Net Proceeds, at its
option, or to the extent Formica is required to apply the Net Proceeds according
to the terms of the New Credit Facility, to either:
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of
Formica or any Indebtedness of any Restricted Subsidiary. However, if
Formica's repays or purchases Pari Passu Indebtedness of Formica, it must
(a) if the notes are then redeemable, equally and ratably reduce
Indebtedness under the notes or
(b) if the notes may not then be redeemed, Formica shall make an
offer in accordance with the procedures set forth below for
an Asset Sale Offer to all holders of notes to purchase the
notes that would otherwise be redeemed; or
(2) an
o investment in property
o the making of a capital expenditure
o the acquisition of assets that are used or useful in a Permitted
Business or
o the acquisition of Capital Stock of any Person primarily engaged in
a Permitted Business if:
(a) as a result of the acquisition by Formica or any
Restricted Subsidiary of that Capital Stock, the Person becomes a
Restricted Subsidiary; or
(b) the Investment in the Capital Stock is permitted by
clause (f) of the definition of Permitted Investments.
Pending the final application of any such Net Proceeds, Formica may temporarily
reduce Indebtedness or otherwise invest those Net Proceeds in any manner that is
not prohibited by the indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0 million,
Formica will be required to make an offer to all holders of notes (an "Asset
Sale Offer") to purchase the maximum principal amount of notes that may be
purchased out of the Excess Proceeds. The Asset Sale Offer will be made at an
offer price in cash in an amount equal to 100% of the principal amount, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in the indenture.
To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, Formica may use the Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes surrendered by holders thereof in connection with an Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee shall select the notes to be
purchased as set forth under "--Selection of notes when only a portion of the
notes are to be redeemed." Upon completion of the offer to purchase, the amount
of Excess Proceeds shall be reset at zero.
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Formica will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes under an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the indenture
relating to that Asset Sale Offer, Formica will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the indenture by virtue thereof.
Certain Covenants
Restricted Payments
Formica will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Formica's or any of its Restricted Subsidiaries' Equity
Interests, other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Formica or dividends or
distributions payable to Formica or any Wholly Owned Restricted Subsidiary
of Formica;
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Formica, any of its Restricted Subsidiaries or any other
Affiliate of Formica, other than any such Equity Interests owned by
Formica or any Restricted Subsidiary of Formica;
(3) make any principal payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness of
Formica that is subordinated in right of payment to the notes, except in
accordance with the mandatory redemption or repayment provisions set forth
in the original documentation governing that Indebtedness but not under
any mandatory offer to repurchase upon the occurrence of any event; or
(4) make any Restricted Investment
We refer to all payments and other actions described in clauses (1) through (4)
above as "Restricted Payments"
However, we may make a Restricted Payment if, at the time of and after giving
effect to that Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and
(b) Formica would, immediately after giving pro forma
effect thereto as if that Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness under the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) that Restricted Payment, together with
o the aggregate amount of all other Restricted Payments made
by Formica and its Restricted Subsidiaries after the date of
the indenture but
o excluding Restricted Payments permitted by the following
clauses of the next paragraph:
o (1) to the extent that the declaration of any dividend
referred to therein reduces amounts available for
Restricted Payments under this clause (c)
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o (2) through (9)
o (11)
o (12)
o (14)
o (16)
o (17)
o (19)
is less than the sum, without duplication, of:
(A) 50% of the Consolidated Net Income of Formica for
the period, taken as one accounting period, commencing April 1,
1999 to the end of Formica's most recently ended fiscal quarter
for which internal financial statements are available at the
time of that Restricted Payment or
if Consolidated Net Income for that period is a deficit, less
100% of that deficit
plus
(B) 100% of the Qualified Proceeds received by Formica
on or after the date of the indenture from contributions to
Formica's capital or from the issue or sale on or after the date
of the indenture of Equity Interests of Formica or of
Disqualified Stock or convertible debt securities of Formica to
the extent that they have been converted into such Equity
Interests other than:
o Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of Formica
o Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock
plus
(C) the amount equal to the net reduction in Investments
in Persons after the date of the indenture who are not
Restricted Subsidiaries other than Permitted Investments
resulting from:
(x) Qualified Proceeds received as a dividend, repayment
of a loan or advance or other transfer of assets, valued at
the fair market value thereof, to Formica or any Restricted
Subsidiary from those Persons;
(y) Qualified Proceeds received upon the sale or
liquidation of that Investment; and
(z) the redesignation of Unrestricted Subsidiaries
(excluding any increase in the amount available for
Restricted Payments under clause (10) or (15) below arising
from the redesignation of that Unrestricted Subsidiary)
whose assets are used or useful in, or which is engaged in,
one or more Permitted Business as Restricted Subsidiaries
(valued, proportionate to Formica's equity interest in that
Subsidiary, at the fair market value of the net assets of
that Subsidiary at the time of that redesignation); plus
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(D) cash payments received by Formica on the
Intercompany Note.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if on that date of declaration, that payment would
have complied with the provisions of the indenture;
(2) (a) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
Formica in exchange for, or out of the net cash proceeds of the
substantially concurrent sale, other than to a Subsidiary of Formica, of
other Equity Interests of Formica other than any Disqualified Stock,
provided that the amount of any net cash proceeds that are utilized for
any redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c)(B) of the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of Formica with the net cash
proceeds from an incurrence of, or in exchange for, Permitted Refinancing
Indebtedness;
(4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Formica, Laminates or Holdings held by
any member of Laminates', Holdings', Formica's or any of its Restricted
Subsidiaries')management under any management equity subscription
agreement or stock option agreement and any dividend to Laminates or
Holdings to fund any repurchase, redemption, acquisition or retirement,
provided that:
(a) the aggregate price paid for all those repurchased,
redeemed, acquired or retired Equity Interests shall not exceed:
(x) $7.5 million in any calendar year, with unused
amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum, without giving effect to
the following clause (y), of $15.0 million in any calendar year;
plus
(y) the aggregate cash proceeds received by Formica
during that calendar year from any reissuance of Equity
Interests by Formica, Laminates or Holdings to members of
management of Formica and its Restricted Subsidiaries; and
(b) no Default or Event of Default shall have occurred and be
continuing immediately after that transaction;
(5) payments and transactions in connection with the Acquisition,
including any purchase price adjustment, the Acquisition Financing, the
offering, the New Credit Facility, including commitment, syndication and
arrangement fees payable thereunder, and the application of the proceeds
thereof, and the payment of fees and expenses with respect thereto;
(6) the payment of dividends or the making of loans or advances by
Formica to Holdings not to exceed $5.0 million in any fiscal year for
costs and expenses incurred by Holdings or Laminates in its capacity as a
holding company or for services rendered by Holdings or Laminates on
behalf of Formica;
(7) payments or distributions to Holdings or Laminates under any Tax
Sharing Agreement;
(8) the payment of dividends by a Restricted Subsidiary on any class
of common stock of that Restricted Subsidiary if:
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(a) that dividend is paid pro rata to all holders of that class
of common stock; and
(b) at least 51% of that class of common stock is held by
Formica or one or more of its Restricted Subsidiaries;
(9) the repurchase of any class of common stock of a Restricted
Subsidiary if
(a) that repurchase is made pro rata with respect to that class
of common stock and
(b) at least 51% of that class of common stock is held by
Formica or one or more of its Restricted Subsidiaries;
(10) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made under this
clause (10) since the date of the indenture, does not exceed $25.0
million, in each case, after giving effect to all subsequent reductions in
the amount of any Restricted Investment made under this clause (10),
either as a result of
(a) the repayment or disposition thereof for cash or
(b) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, valued, proportionate to Formica's
equity interest in that Subsidiary at the time of that
redesignation, at the fair market value of the net assets
of that Subsidiary at the time of that redesignation,
with any subsequent reduction under clause (a) or (b) not to exceed the
amount of that Restricted Investment previously made under this clause
(10); provided that no Default or Event of Default shall have occurred and
be continuing immediately after making that Restricted Investment;
(11) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of Formica or any Restricted Subsidiary
issued on or after the date of the indenture in accordance with the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided that no Default or Event of Default
shall have occurred and be continuing immediately after making that
Restricted Payment;
(12) repurchases of Equity Interests deemed to occur upon exercise of
stock options if that Equity Interests represent a portion of the exercise
price of those options;
(13) the payment of dividends or distributions on Formica's common
stock, following the first public offering of Formica's common stock or
Holdings' or Laminates' common stock after the date of the indenture, of
up to 6.0% per annum of (a) the net proceeds received by Formica from that
public offering of its common stock or (b) the net proceeds received by
Formica from that public offering of Holdings' or Laminates' common stock
as common equity or preferred equity, other than Disqualified Stock) other
than, in each case, with respect to public offerings with respect to
Formica's common stock or Holdings' or Laminates' common stock registered
on Form S-8; provided that no Default or Event of Default shall have
occurred and be continuing immediately after any such payment of dividends
or distributions;
(14) the cancellation or forgiveness, in whole or in part, or any
amendment to or refinancing of the Intercompany Note;
(15) any other Restricted Payment which, together with all other
Restricted Payments made under this clause (15) since the date of the
indenture, does not exceed $25.0 million, in each case, after giving
effect to
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all subsequent reductions in the amount of any Restricted Investment made
under this clause (15) either as a result of
(a) the repayment or disposition thereof for cash or
(b) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, valued, proportionate to Formica's
equity interest in that Subsidiary at the time of that
redesignation, at the fair market value of the net assets
of that Subsidiary at the time of that redesignation
with any subsequent reduction under clause (a) or (b) not to exceed the
amount of that Restricted Investment previously made under this clause
(15); provided that no Default or Event of Default shall have occurred and
be continuing immediately after making that Restricted Payment;
(16) the pledge by Formica of the Capital Stock of an Unrestricted
Subsidiary of Formica to secure Non-Recourse Debt of that Unrestricted
Subsidiary;
(17) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary issued after
the date of the indenture, provided that the aggregate price paid for any
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the sum of
(a) the amount of cash and Cash Equivalents received by that
Restricted Subsidiary from the issue or sale thereof and
(b) any accrued dividends thereon the payment of which would be
permitted under clause (11) above;
(18) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by Formica on or after the date of the
indenture from contributions to Formica's capital or from the issue and
sale on or after the date of the indenture of Equity Interests of Formica
or of Disqualified Stock or convertible debt securities to the extent they
have been converted into those Equity Interests other than:
-- Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of Formica and
-- Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock
in an amount, measured at the time that Investment is made and without
giving effect to subsequent changes in value, that does not exceed the
amount of those Qualified Proceeds; and
(19) distributions or payments of Receivables Fees.
The board of directors of Formica may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not cause a Default.
For purposes of making that designation, all outstanding Investments by Formica
and its Restricted Subsidiaries, except to the extent repaid in cash, in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
that designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Restricted Investments in an amount equal to the
greater of:
(a) the net book value of those Investments at the time of that
designation; and
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(b) the fair market value of those Investments at the
time of that designation. That designation will only be permitted if
that Restricted Investment would be permitted at that time and if
that Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of:
(a) all non-cash Restricted Payments shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Formica or that
Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment; and
(b) non-cash Qualified Proceeds shall be the fair market
value on the date of receipt thereof by Formica of those Qualified
Proceeds. The fair market value of any non-cash Restricted Payment
shall be determined by the board of directors of Formica whose
resolution with respect thereto shall be delivered to the trustee.
Not later than the date of making any Restricted Payment, Formica shall
deliver to the trustee an Officers' Certificate stating that that Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
o Formica will not, and will not permit any of its Restricted
Subsidiaries to incur any Indebtedness, including Acquired
Indebtedness
o Formica will not, and will not permit any of its Restricted
Subsidiaries to, issue any shares of Disqualified Stock
o Formica will not permit any of its Restricted Subsidiaries to issue
any shares of preferred stock
However, Formica or any Restricted Subsidiary may
o incur Indebtedness, including Acquired Indebtedness or
o issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for Formica's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which that additional Indebtedness is incurred
or that Disqualified Stock is issued would have been at least 2.0 to 1,
determined on a consolidated pro forma basis, including a pro forma application
of the net proceeds therefrom, as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of that four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(a) the incurrence by Formica and its Restricted
Subsidiaries of Indebtedness under the New Credit Facility and the
Foreign Credit Facilities; provided that the aggregate principal
amount of all Indebtedness (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of
Formica and those Restricted Subsidiaries thereunder) then classified
as having been incurred in reliance upon this clause (a) that remains
outstanding under the New Credit Facility and the Foreign Credit
Facilities after giving effect to those incurrence does not exceed an
amount equal to $280.0 million;
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(b) the incurrence by Formica and its Restricted
Subsidiaries of Existing Indebtedness;
(c) the incurrence by Formica of Indebtedness
represented by the notes and the indenture;
(d) the incurrence by Formica and its Restricted
Subsidiaries of Indebtedness denominated in Spanish pesetas, or a
European common currency as a result of the implementation of
European Monetary Union and the cessation of use of Spanish pesetas
as the lawful currency of the Republic of Spain, in an aggregate
principal amount or accreted value, as applicable not to exceed $10.0
million outstanding after giving effect to that incurrence;
(e) the incurrence by Formica or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or purchase money
obligations, in each case, incurred for the purpose of financing all
or any part of the purchase price or cost of construction or
improvement of
-- property, plant or equipment or
-- Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the
property, plant or equipment so acquired
used in the business of Formica or that Restricted Subsidiary, in an
aggregate principal amount or accreted value, as applicable, not to
exceed $30.0 million outstanding after giving effect to those
incurrence;
(f) Indebtedness arising from agreements of Formica or
any Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or
a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of that business, assets or
Restricted Subsidiary for the purpose of financing that acquisition;
provided that
(A) those Indebtedness is not reflected on the balance sheet of
Formica or any Restricted Subsidiary and
(B) the maximum assumable liability in respect of that
Indebtedness shall at no time exceed the gross proceeds
including non-cash proceeds actually received by Formica
and/or that Restricted Subsidiary in connection with those
disposition;
For purposes of clause (A), contingent obligations referred to in a
footnote or footnotes to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on
those balance sheet. For purposes of clause (B), the fair market value
of non-cash proceeds will be measured at the time received and without
giving effect to any subsequent changes in value.
(g) the incurrence by Formica or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to refund, refinance or replace
Indebtedness, other than intercompany Indebtedness, that was
permitted by the indenture to be incurred;
(h) the incurrence by Formica or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Formica
and/or any of its Restricted Subsidiaries; provided that
(1) if Formica is the obligor on those Indebtedness, that
Indebtedness is expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the notes
and
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(2) (A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being
held by a Person other than Formica or a Restricted
Subsidiary thereof and
(B) any sale or other transfer of any such Indebtedness
to a Person that is not either Formica or a Restricted
Subsidiary thereof
shall be deemed, in each case, to constitute an
incurrence of that Indebtedness by Formica or that
Restricted Subsidiary, as the case may be, that was not
permitted by this clause (h);
(i) the incurrence by Formica or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging
(A) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this indenture to
be outstanding and
(B) exchange rate risk with respect to agreements or Indebtedness
of that Person payable denominated in a currency other than U.S.
dollars,
provided that the agreements do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or interest rates or by reason of
fees, indemnities and compensation payable thereunder;
(j) the guarantee by Formica or any of its Restricted
Subsidiaries of Indebtedness of Formica or a Restricted Subsidiary of
Formica that was permitted to be incurred by another provision of
this covenant;
(k) the incurrence by Formica or any of its Restricted
Subsidiaries of Indebtedness in connection with an acquisition in an
aggregate principal amount or accreted value, as applicable, not to
exceed $50.0 million outstanding after giving effect to that
incurrence;
(l) obligations in respect of performance and surety
bonds and completion guarantees provided by Formica or any Restricted
Subsidiary in the ordinary course of business; and
(m) the incurrence by Formica or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount or accreted value, as applicable, outstanding after giving
effect to that incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred under this clause (m), not to exceed $40.0
million.
For purposes of determining compliance with this covenant:
o in the event that an item of Indebtedness meets the criteria of more
than one of the categories of Permitted Indebtedness described in
clauses (a) through (m) above or is entitled to be incurred under the
first paragraph of this covenant, Formica shall, in its sole
discretion, classify that item of Indebtedness in any manner that
complies with this covenant and that item of Indebtedness will be
treated as having been incurred under only one of those clauses or
under the first paragraph hereof.
o Formica may, at any time, change the classification of an item of
Indebtedness or any portion thereof to any other clause or to the
first paragraph hereof provided that Formica would be permitted to
incur that item of Indebtedness or that portion thereof under such
other clause or the first paragraph hereof, as the case may be, at
that time of reclassification.
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o Accrual of interest, accretion or amortization of original issue
discount will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
All Indebtedness under the New Credit Facility and the Foreign Credit
Facilities outstanding on the date on which notes were first issued and
authenticated under the indenture shall be deemed to have been incurred on that
date in reliance on the first paragraph of the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." As a result, Formica will be permitted to incur significant
additional secured indebtedness under clause (a) of the definition of "Permitted
Indebtedness." See "Risk Factors."
Liens
Formica will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien,
other than a Permitted Lien, that secures obligations under any Pari Passu
Indebtedness or subordinated Indebtedness of Formica on:
o any asset or property now owned or hereafter acquired by Formica or
any of its Restricted Subsidiaries,
or
o any income or profits therefrom or
o assign or convey any right to receive income therefrom,
unless the notes are equally and ratably secured with the obligations so secured
until that time as those obligations are no longer secured by a Lien.
In any case involving a Lien securing subordinated Indebtedness of
Formica, that Lien must be subordinated to the Lien securing the notes to the
same extent that the subordinated Indebtedness is subordinated to the notes.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Formica will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to
(a)(1) pay dividends or make any other distributions to Formica or any of
its Restricted Subsidiaries
(A) on its Capital Stock or
(B) with respect to any other interest or participation in, or
measured by, its profits, or
(2) pay any Indebtedness owed to Formica or any of its Restricted
Subsidiaries,
(b) make loans or advances to Formica or any of its Restricted
Subsidiaries or
(c) transfer any of its properties or assets to Formica or any of its
Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(a)Existing Indebtedness as in effect on the date of the
indenture;
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(b) the New Credit Facility as in effect as of the date
of the indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof;
(c) the indenture and the notes;
(d) applicable law and any applicable rule, regulation
or order;
(e) any agreement or instrument of a Person acquired by
Formica or any of its Restricted Subsidiaries as in effect at the
time of such acquisition, except to the extent created in
contemplation of such acquisition, which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, that
Indebtedness was permitted by the terms of the indenture to be
incurred;
(f) customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(g) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the
nature described in clause (e) above on the property so acquired;
(h) contracts for the sale of assets, including, without
limitation, customary restrictions with respect to a Subsidiary under
an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of that
Subsidiary;
(i) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing that Permitted
Refinancing Indebtedness are, in the good faith judgment of Formica's
board of directors, not materially less favorable, taken as a whole,
to the holders of the notes than those contained in the agreements
governing the Indebtedness being refinanced;
(j) secured Indebtedness otherwise permitted to be
incurred under the covenants described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Liens" that
limit the right of the debtor to dispose of the assets securing that
Indebtedness;
(k) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary
course of business;
(l) other Indebtedness or Disqualified Stock of
Restricted Subsidiaries permitted to be incurred subsequent to the
Issuance Date under the provisions of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(m) customary provisions in joint venture agreements and
other similar agreements entered into in the ordinary course of
business; and
(n) restrictions created in connection with any
Receivables Facility that, in the good faith determination of the
board of directors of Formica, are necessary or advisable to effect
that Receivables Facility.
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Merger, Consolidation, or Sale of Assets
Formica may not
o consolidate or merge with or into another Person, whether or not
Formica is the surviving corporation, or
o sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person
unless:
(a) Formica is the surviving corporation or
the Person formed by or surviving any such
consolidation or merger, if other than Formica, or
to which that sale, assignment, transfer,
conveyance or other disposition shall have been
made is a corporation organized or existing under
the laws of the United States, any state thereof
or the District of Columbia;
(b) the Person formed by or surviving any such
consolidation or merger, if other than Formica, or the Person to
which that sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of
Formica under the Registration Rights Agreement, the notes and the
indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee;
(c) immediately after that transaction no Default or
Event of Default exists; and
(d) Formica or the Person formed by or surviving any
such consolidation or merger, if other than Formica, or to which that
sale, assignment, transfer, conveyance or other disposition shall
have been made
(1) will, at the time of that transaction and after giving pro
forma effect thereto as if that transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness under the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or
(2) would, together with its Restricted Subsidiaries, have a
higher Fixed Charge Coverage Ratio immediately after that
transaction, after giving pro forma effect thereto as if that
transaction had occurred at the beginning of the applicable
four-quarter period, than the Fixed Charge Coverage Ratio of
Formica and its Restricted Subsidiaries immediately prior to that
transaction.
The foregoing clause (d) will not prohibit
o a merger between Formica and a Wholly Owned Subsidiary of Holdings
created for the purpose of holding the Capital Stock of Formica
o a merger between Formica and a Wholly Owned Restricted Subsidiary
o a merger between Formica and an Affiliate incorporated solely for the
purpose of reincorporating Formica in another State of the United
States
so long as, in each case, the amount of Indebtedness of Formica and its
Restricted Subsidiaries is not increased thereby.
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Formica will not lease all or substantially all of its assets to any
Person.
Transactions with Affiliates
Formica will not, and will not permit any of its Restricted Subsidiaries
to
o make any payment to, or
o sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or
o or purchase any property or assets from, or
o enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of,
any Affiliate of Formica (each of the foregoing, an "Affiliate Transaction"),
unless:
(a) that Affiliate Transaction is on terms that are no
less favorable to Formica or that Restricted Subsidiary than those
that would have been obtained in a comparable transaction by Formica
or that Restricted Subsidiary with an unrelated Person; and
(b) Formica delivers to the trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $7.5 million, either
(1) a resolution of the board of directors set forth in an
Officers' Certificate certifying that the Affiliate Transaction
complies with clause (a) above and that that Affiliate
Transaction has been approved by a majority of the disinterested
members of the board of directors or
(2) an opinion as to the fairness to the holders of that
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(a) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other
compensation plan or arrangement entered into by Formica or any of
its Restricted Subsidiaries in the ordinary course of business,
including ordinary course loans to employees not to exceed (1) $5.0
million outstanding in the aggregate at any time and (2) $2.0 million
to any one employee) and consistent with the past practice of Formica
or that Restricted Subsidiary;
(b) transactions between or among Formica and/or its
Restricted Subsidiaries;
(c) payments of customary fees by Formica or any of its
Restricted Subsidiaries to DLJ Merchant Banking and its Affiliates
made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or
divestitures which are approved by a majority of the board of
directors in good faith;
(d) any agreement as in effect on the date of the
indenture or any amendment thereto, so long as that amendment is not
disadvantageous to the holders of the notes in any material respect,
or any transaction contemplated thereby;
(e) payments and transactions in connection with
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o the Acquisition and the Acquisition Financing
o the New Credit Facility, including commitment,
syndication and arrangement fees payable thereunder,
and
o the offering, including underwriting discounts and
commissions in connection therewith,
o and the application of the proceeds thereof, and the
payment of the fees and expenses with respect thereto;
(f) Restricted Payments that are permitted by the
provisions of the indenture described under the caption "--Restricted
Payments" and any Permitted Investments;
(g) sales of accounts receivable, or participations
therein, in connection with any Receivables Facility; and
(h) transactions under the Intercompany Note, and any
amendment or refinancing thereof.
Sale and Leaseback Transactions
Formica will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that Formica or any
Restricted Subsidiary may enter into a sale and leaseback transaction if:
(a) Formica or that Restricted Subsidiary, as the case
may be, could have
(1) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to that sale and
leaseback transaction under the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant
described under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock" and
(2) incurred a Lien to secure that Indebtedness under the
covenant described under the caption "--Liens";
(b) the gross cash proceeds of that sale and leaseback
transaction are at least equal to the fair market value, as
determined in good faith by the board of directors and set forth in
an Officers' Certificate delivered to the trustee, of the property
that is the subject of that sale and leaseback transaction; and
(c) the transfer of assets in that sale and leaseback
transaction is permitted by, and Formica applies the proceeds of that
transaction in compliance with, the covenant described under the
caption "Repurchase at the Option of Holders--Asset Sales."
No Senior Subordinated Indebtedness
Formica will not Incur any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness and senior in right of payment to
the notes.
Reports
Whether or not required by the rules and regulations of the SEC, so long
as any notes are outstanding, Formica will furnish to the holders of notes:
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(a) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms
10-Q and 10-K if Formica were required to file those Forms, including
a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report thereon by Formica's certified independent
accountants; and
(b) all current reports that would be required to be
filed with the SEC on Form 8-K if Formica were required to file those
reports, in each case, within the time periods specified in the SEC's
rules and regulations.
However, Formica may deliver financial information with respect to its direct or
indirect parent if Formica delivers to the trustee an Officer's Certificate
certifying that the financial information is substantially equivalent to the
financial information with respect to Formica)
In addition:
o following the completion of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules
and regulations of the SEC, Formica will file a copy of all that
information and reports with the SEC for public availability within
the time periods specified in the SEC's rules and regulations, unless
the SEC will not accept such a filing, and make that information
available to securities analysts and prospective investors upon
request
o for so long as any notes remain outstanding, it will furnish to the
holders and to securities analysts and prospective investors, upon
their request, the information required to be delivered under Rule
144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following constitutes an Event of Default:
(a) default for 30 days in the payment when due of
interest on, or liquidated damages with respect to, the notes,
whether or not prohibited by the subordination provisions of the
indenture;
(b) default in payment when due of the principal of or
premium, if any, on the notes, whether or not prohibited by the
subordination provisions of the indenture;
(c) failure by Formica or any of its Restricted
Subsidiaries for 30 days after receipt of notice from the trustee or
holders of at least 25% in principal amount of the notes then
outstanding to comply with the provisions described under the
captions "Repurchase at the Option of Holders--Change of Control,"
"--Asset Sales," "Certain Covenants--Restricted Payments,"
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or
"Merger, Consolidation or Sale of Assets";
(d) failure by Formica for 60 days after notice from the
trustee or the holders of at least 25% in principal amount of the
notes then outstanding to comply with any of its other agreements in
the indenture or the notes;
(e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by Formica or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
Formica or any of its Restricted Subsidiaries), whether that
Indebtedness or guarantee now exists, or is created after the date of
the indenture, which default
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(1) is caused by a failure to pay Indebtedness at its stated
final maturity, after giving effect to any applicable grace
period provided in that Indebtedness (a "Payment Default")
or
(2) results in the acceleration of that Indebtedness prior to
its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(f) failure by Formica or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0
million, net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing,
which judgments are not paid, discharged or stayed for a period of 60
days; and
(g) specified events of bankruptcy or insolvency with
respect to Formica or any of its Restricted Subsidiaries that is a
Significant Subsidiary.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. However, so long as any
Indebtedness permitted to be incurred under the New Credit Facility shall be
outstanding, that acceleration shall not be effective until the earlier of:
(a) an acceleration of any such Indebtedness under the
New Credit Facility; or
(b) five business days after receipt by Formica and the
administrative agent under the New Credit Facility of written notice
of that acceleration.
Notwithstanding the preceding paragraph, in the case of an Event of Default
arising from specified events of bankruptcy or insolvency with respect to
Formica or any Significant Subsidiary, all outstanding notes will become due and
payable without further action or notice. Holders of the notes may not enforce
the indenture or the notes except as provided in the indenture.
In the event of a declaration of acceleration of the notes because an
Event of Default has occurred and is continuing as a result of the acceleration
of any Indebtedness described in clause (e), the declaration of acceleration of
the notes shall be automatically annulled if the holders of any Indebtedness
described in clause (e) have rescinded the declaration of acceleration in
respect of that Indebtedness within 30 days of the date of that declaration and
if
(1) the annulment of the acceleration of the notes would not conflict
with any judgment or decree of a court of competent jurisdiction and
(2) all existing Events of Default, except non-payment of principal or
interest on the notes that became due solely because of the
acceleration of the notes, have been cured or waived.
The following is a brief summary of the provisions of the indenture
relating to enforcement of the indenture:
o Formica is required to deliver to the trustee annually a statement
regarding compliance with the indenture.
o Formica is also required upon becoming aware of any Default or Event
of Default to deliver to the trustee a statement specifying that
Default or Event of Default.
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o The trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default, except a Default or Event of
Default relating to the payment of principal or interest, if it
determines that withholding notice is in their interest.
o Subject to specified limitations described in the indenture, holders
of a majority in principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power.
o The holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the trustee may on behalf of the holders
of all of the notes waive any existing Default or Event of Default and
its consequences under the indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of,
the notes.
No Personal Liability of Member, Directors, Officers, Employees and Stockholders
No member, director, officer, employee, incorporator or stockholder of
Formica, as such, shall have any liability for any obligations of Formica under
the notes or the indenture or for any claim based on, in respect of, or by
reason of, those obligations or their creation. Each holder of notes by
accepting a note waives and releases all that liability. The waiver and release
are part of the consideration for issuance of the notes. That waiver may not be
effective to waive liabilities under the federal securities laws. It is the view
of the SEC that the waiver is against public policy.
Legal Defeasance and Covenant Defeasance
Formica may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes, and the indenture
("Legal Defeasance") except for:
(a) the rights of holders of outstanding notes to
receive payments in respect of the principal of, premium, if any, and
interest and liquidated damages, if any, on those notes when those
payments are due from the trust referred to below;
(b) Formica's obligations with respect to the notes
concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of
the trustee, and Formica's obligations in connection therewith; and
(d) the Legal Defeasance provisions of the indenture.
In addition, Formica may, at its option and at any time, elect to have its
obligations released with respect to specified covenants that are described in
the indenture ("Covenant Defeasance") and thereafter any omission to comply with
those obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, some events
described under "Events of Default and Remedies" will no longer constitute an
Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) Formica must irrevocably deposit with the trustee,
in trust, for the benefit of the holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination
thereof, in those amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest and liquidated
damages, if any, on the
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outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Formica must specify whether
the notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of Legal Defeasance, Formica shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that
(1) Formica has received from, or there has been published by,
the Internal Revenue Service a ruling or
(2) since the date of the indenture, there has been a change in
the applicable federal income tax law,
in either case to the effect that, and based thereon that opinion of
counsel shall confirm that, subject to customary assumptions and
exclusions, the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of
that Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if that Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, Formica shall
have delivered to the trustee an opinion of counsel in the United
States reasonably acceptable to the trustee confirming that, subject
to customary assumptions and exclusions, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of that Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if that
Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred
and be continuing on the date of that deposit, other than a Default
or Event of Default resulting from the borrowing of funds to be
applied to that deposit, or, insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 123rd day after the date of deposit;
(e) that Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a default
under, any material agreement or instrument, other than the
indenture, to which Formica or any of its Subsidiaries is a party or
by which Formica or any of its Subsidiaries is bound;
(f) Formica must have delivered to the trustee an
opinion of counsel to the effect that, subject to customary
assumptions and exclusions, after the 123rd day following the
deposit, the trust funds will not be subject to the effect of Section
547 of the United States Bankruptcy Code or any analogous New York
State law provision or any other applicable federal or New York
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) Formica must deliver to the trustee an Officers'
Certificate stating that the deposit was not made by Formica with the
intent of preferring the holders of notes over the other creditors of
Formica with the intent of defeating, hindering, delaying or
defrauding creditors of Formica or others; and
(h) Formica must deliver to the trustee an Officers'
Certificate and an opinion of counsel, which opinion may be subject
to customary assumptions and exclusions, each stating that all
conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
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Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents. Formica may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
Formica is not required to transfer or exchange any note selected for
redemption. Also, Formica is not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed. The registered
holder of a note will be treated as the owner of it for all purposes.
Amendment, Supplement and Waiver
Generally, the indenture and the notes may be amended or supplemented
with majority consent
Except as provided in the next two paragraphs,
o the indenture and the notes may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of
the notes then outstanding and
o any
o existing default or
o compliance with any provision of the indenture or the notes
may be waived with the consent of the holders of a majority in
principal amount of the then outstanding notes.
Consents include those obtained in connection with a purchase of, or tender
offer or exchange offer for, notes.
The following provisions of the indenture and the notes may not be
amended, with respect to notes held by a non-consenting holder, without
unanimous consent
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(a) reduce the principal amount of notes whose holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity
of any note or alter the provisions with respect to the redemption of
the notes, other than the provisions described under the caption
"--Repurchase at the Option of Holders";
(c) reduce the rate of or extend the time for payment
of interest on any note;
(d) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest or liquidated damages
on the notes, except a rescission of acceleration of the notes by the
holders of at least a majority in aggregate principal amount of the
notes and a waiver of the payment default that resulted from that
acceleration;
(e) make any note payable in money other than that
stated in the notes;
(f) make any change in the provisions of the indenture
relating to waivers of past Defaults;
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(g) waive a redemption payment with respect to any note,
other than the provisions described under the caption "--Repurchase
at the Option of Holders"; or
(h) make any change in the foregoing amendment and
waiver provisions.
The following provisions of the indenture and the notes may be amended or
supplemented with two-thirds consent
Notwithstanding the preceding paragraphs, any
(1) amendment to or waiver of the covenant described under the
caption "--Repurchase at the Option of Holders--Change of
Control," and
(2) amendment to the provisions of article in the indenture which
relates to subordination
will require the consent of the holders of at least two-thirds in aggregate
principal amount of the notes then outstanding if that amendment would
materially adversely affect the rights of holders of notes.
Notwithstanding the preceding paragraphs, without the consent of any
holder of notes, Formica and the trustee may amend or supplement the indenture
or the notes:
o to cure any ambiguity, defect or inconsistency
o to provide for uncertificated notes in addition to or in place of
certificated notes
o to provide for the assumption of Formica's obligations to holders of
notes in the case of a merger or consolidation or sale of all or
substantially all of Formica's assets
o to make any change that would provide any additional rights or
benefits to the holders of notes or that does not materially adversely
affect the legal rights under the indenture of any such holder
o to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust indenture Act
o to provide for guarantees of the notes.
Governing Law
The indenture and the notes are governed by, and constructed in accordance
with, the laws of the State of New York, without regard to its conflict of law
principles.
Concerning the Trustee
The indenture contains limitations on the rights of the trustee, should it
become a creditor of any Company, to obtain payment of claims in some cases, or
to realize on some property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions.
However, if it acquires any conflicting interest it must eliminate that conflict
within 90 days, apply to the SEC for permission to continue or resign. Summit
Bank, which is acting as the trustee, purchased old notes in the initial
offering.
The holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
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specified exceptions. The indenture provides that in case an Event of Default
shall occur which shall not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to those provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless that holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Mr. Langone, the Chief Executive Officer of Formica, is a member of the
board of directors of Summit Bank.
Book-Entry, Delivery and Form
The certificates representing the new notes will be issued in fully
registered form, without coupons. Except as described below, the new notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York, and registered in the name of Cede & Co. as DTC's nominee, in the form of
a registered global note.
The Global Note. Formica expects that under procedures established by DTC
(a) upon deposit of the global note, DTC or its custodian will credit on its
internal system interests in the global notes to the accounts of participants
who have accounts with DTC and (b) ownership of the global note will be shown
on, and the transfer of ownership thereof will be effected only through
o records maintained by DTC or its nominee with respect to interests of
participants and
o the records of participants with respect to interests of persons other
than participants.
Ownership of beneficial interests in the global note will be limited to
participants or persons who hold interests through participants.
So long as DTC or its nominee is the registered owner or holder of the new
notes, DTC or that nominee will be considered the sole owner or holder of the
new notes represented by the global note for all purposes under the indenture.
No beneficial owner of an interest in the global note will be able to transfer
that interest except in accordance with DTC's procedures, in addition to those
provided for under the indenture with respect to the new notes.
Payments of the principal of or premium and interest on the global note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. None of Formica, the trustee or any paying agent under the indenture
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
note or for maintaining, supervising or reviewing any records relating to that
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of the
principal of or premium and interest on the global note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of that global note as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the global note held through
those participants will be governed by standing instructions and customary
practice as is now the case with securities held for the accounts of customers
registered in the names of nominees for those customers. Those payments will be
the responsibility of those participants.
Transfers between participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated exchange note for any reason,
including to sell new notes to persons in states which require physical delivery
of the new notes or to pledge those securities, that holder must transfer its
interest in the global note in accordance with the normal procedures of DTC and
with the procedures set forth in the indenture.
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DTC has advised us that DTC will take any action permitted to be taken by
a holder of new notes, including the presentation of new notes for exchange as
described below, only at the direction of one or more Participants to whose
account at DTC interests in the global note are credited and only in respect of
that portion of the aggregate principal amount of new notes as to which that
participant or participants has or have given that direction. However, if there
is an event of default under the indenture, DTC will exchange the global note
for certificated new notes, which it will distribute to its participants.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered under the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and various other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the global notes among Participants, it is under no
obligation to perform those procedures, and those procedures may be discontinued
at any time. Neither Formica nor the trustee will have any responsibility for
the performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Certificated Notes. Interests in the global notes will be exchangeable
or transferable, as the case may be, for certificated notes if
(1) DTC
(a) notifies us that it is unwilling or unable to continue as
depositary for the global registered notes and we fail to
appoint a successor depositary or
(b) has ceased to be a clearing agency registered under the
Exchange Act,
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of the notes in certificated form or
(3) a default or an event of default with respect to the notes has occurred
and is continuing.
In addition, you may exchange beneficial interests in the notes for
certificated notes upon request but only upon at least 20 days' prior written
notice given to the trustee by or on behalf of DTC in accordance with customary
procedures.
In all cases, certificated notes delivered in exchange for any global
notes or beneficial interest therein will be registered in the names, and issued
in any approved denominations, requested by or on behalf of the depositary in
accordance with its customary procedures.
Certain Definitions
Set forth below are many defined terms used in the indenture. You should
read the indenture for the definition of any other capitalized terms used in
this description of the notes for which no definition is provided.
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"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of
Formica to which Formica or any of its Restricted Subsidiaries sells any of its
accounts receivable under a Receivables Facility.
"Acquired Indebtedness" means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the
time that other Person is merged with or into or became a Subsidiary
of that specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, that other
Person merging with or into or becoming a Subsidiary of that
specified Person; and
(b) Indebtedness secured by a Lien encumbering an asset
acquired by that specified Person at the time that asset is acquired
by that specified Person.
"Acquisition" means the acquisition of Holdings and some affiliates of
Holdings by Laminates for consideration of $405.4 million plus or minus any
subsequent purchase price adjustment, the merger of LMS I, a subsidiary of
Laminates, into Holdings, the merger of LMS II, a subsidiary of LMS I, into
Formica, the merger of LMS III, a subsidiary of LMS II, into Formica
International and the contribution by Laminates to Formica of the stock of those
affiliates of Holdings.
"Acquisition Financing" means:
(a) the issuance and sale by Formica or its predecessor,
LMS II of senior subordinated increasing rate notes;
(b) the execution and delivery by Formica or its
predecessor and some of its subsidiaries of the New Credit Facility
and the borrowing of loans thereunder;
(c) the issuance and sale by Laminates of common stock
and preferred stock for consideration;
(d) the issuance and sale by LMS I of its preferred
stock and warrants to purchase Laminates common stock, the proceeds
of each of which were used to fund the purchase price for the
Acquisition and related fees and expenses; and
(e) the issuance and sale by Formica of the notes and
repayment of all amounts owed in connection with the senior
subordinated increasing rate notes.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, that specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of that 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 Sale" means;
(a) the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights,
including, without limitation, by way of a sale and leaseback; and
(b) the issuance, sale or transfer by Formica or any of
its Restricted Subsidiaries of Equity Interests of any of Formica's
Restricted Subsidiaries,
in the case of either clause (a) or (b), whether in a single
transaction or a series of related transactions
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(1) that have a fair market value in excess of $5.0 million or
(2) for net proceeds in excess of $5.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales:
o dispositions in the ordinary course of business;
o a disposition of assets by Formica to a Restricted
Subsidiary or by a Restricted Subsidiary to Formica or
to another Restricted Subsidiary;
o a disposition of Equity Interests by a Restricted
Subsidiary to Formica or to another Restricted
Subsidiary;
o the sale and leaseback of any assets within 90 days of
the acquisition thereof;
o foreclosures on assets;
o any exchange of like property under Section 1031 of
the Internal Revenue Code of 1986, as amended, for use
in a Permitted Business;
o any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary;
o a Permitted Investment or a Restricted Payment that is
permitted by the covenant described under the caption
"--Restricted Payments"; and
o sales of accounts receivable, or participations
therein, in connection with any Receivables Facility.
In addition, the sale, lease, conveyance or other disposition of all or
substantially all of the assets of Formica and its Subsidiaries taken as a whole
will be governed by the provisions of the indenture described under the caption
"--Change of Control" and/or the provisions described under the caption
"--Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant.
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value, discounted at the rate
of interest implicit in that transaction, determined in accordance with GAAP, of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in that sale and leaseback transaction, including any
period for which that lease has been extended or may, at the option of the
lessor, be extended.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by that Person which have a useful life or more than one
year so long as:
(a) the purchase or construction price for that property
or assets is included in "addition to property, plant or equipment"
in accordance with GAAP;
(b) the acquisition or construction of that property or
assets is not part of any acquisition of a Person or line of
business; and
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(c) that Indebtedness is incurred within 90 days of the
acquisition or completion of construction of that property or assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity,
any and all shares, interests, participations, rights or other
equivalents, however designated, of corporate stock;
(c) in the case of a partnership or limited liability
company, partnership or membership interests, whether general or
limited; and
(d) any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(a) Government Securities;
(b) any certificate of deposit maturing not more than
365 days after the date of acquisition issued by, or demand deposit
or time deposit of, an Eligible Institution or any lender under the
New Credit Facility;
(c) commercial paper maturing not more than 365 days
after the date of acquisition of an issuer (other than an Affiliate
of Formica) with a rating, at the time as of which any investment
therein is made, of "A-3" or higher according to S&P or "P-2" or
higher according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating
agencies cease publishing ratings of investments;
(d) any bankers acceptances of money market deposit
accounts issued by an Eligible Institution; and
(e) any fund investing exclusively in investments of the
types described in clauses (a) through (d) above; and
(f) in the case of any Subsidiary organized or having
its principal place of business outside the United States,
investments denominated in the currency of the jurisdiction in which
that Subsidiary is organized or has its principal place of business
which are similar to the items specified in clauses (a) through (e)
above, including without limitation any deposit with a bank that is a
lender to any Restricted Subsidiary.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition other than
by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Formica and its
Subsidiaries, taken as a whole, to any "person" or "group" (as those terms
are used in Section 13(d) of the Exchange Act), other than the Principals
and their Related Parties;
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(2) the adoption of a plan for the liquidation or dissolution of Formica;
(3) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any "person" or
"group" (as those terms are used in Section 13(d) of the Exchange Act),
other than the Principals and their Related Parties, becomes the
"beneficial owner" (as that term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of 50% or more of the voting power of the outstanding
voting stock of Formica; or
(4) the first day on which a majority of the members of the board of
directors of Formica are not Continuing Members.
Please note that although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require Formica to repurchase those notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Formica and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of that Person and its Restricted Subsidiaries for
that period plus, to the extent deducted in computing Consolidated Net Income:
(a) an amount equal to any extraordinary or
non-recurring loss plus any net loss realized in connection with an
Asset Sale;
(b) provision for taxes based on income or profits of
that Person and its Restricted Subsidiaries for that period;
(c) Fixed Charges of that Person for that period;
(d) depreciation
amortization, including amortization of goodwill
and other intangibles, and
all other non-cash charges, excluding any such
non-cash charge, other than the 1998 Charges, to
the extent that it represents an accrual of or
reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was
paid in a prior period,
of that Person and its Restricted Subsidiaries for that period;
(e) net periodic post-retirement benefits;
(f) other income or expense net as set forth on the face
of that Person's statement of operations;
(g) expenses and charges of Formica related to the
Acquisition and Acquisition Financing, the New Credit Facility and
the application of the proceeds thereof which are paid, taken or
otherwise accounted for within 180 days of the completion of the
Acquisition and the Acquisition Financing; and
(h) any non-capitalized transaction costs incurred in
connection with actual, proposed or abandoned financings,
acquisitions or divestitures, including, but not limited to,
financing and refinancing fees and costs incurred in connection with
the Acquisition and Acquisition Financing,
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in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent and
in the same proportion that Net Income of that Restricted Subsidiary was
included in calculating the Consolidated Net Income of that Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(a) the interest expense of that Person and its
Restricted Subsidiaries for that period, on a consolidated basis,
determined in accordance with GAAP including:
amortization of original issue discount,
non-cash interest payments,
the interest component of all payments associated with Capital
Lease Obligations,
imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings,
and
net payments, if any, under Hedging Obligations.
However, in no event shall any amortization of deferred financing
costs be included in Consolidated Interest Expense); and
(b) the consolidated capitalized interest of that Person and its
Restricted Subsidiaries for that period, whether paid or accrued; and
(c) Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense.
Notwithstanding the preceding, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent and in the same proportion that
the net income of that Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of that Person and its Restricted
Subsidiaries for that period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(a) the Net Income or loss of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof;
(b) the Net Income or loss of any Restricted Subsidiary
other than a Subsidiary organized or having its principal place of
business outside the United States shall be excluded to the extent
that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income or loss is not at
the date of determination permitted without any prior governmental
approval that has not been obtained or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary;
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(c) the Net Income or loss of any Person acquired in a
pooling of interests transaction for any period prior to the date of
that acquisition shall be excluded; and
(d) the cumulative effect of a change in accounting
principles shall be excluded.
"Continuing Members" means, as of any date of determination, any member of
the board of directors of Formica who:
(1) was a member of that board of directors immediately after completion
of the Acquisition and the Acquisition Financing; or
(2) was nominated for election or elected to that board of directors with
the approval of, or whose election to the board of directors was ratified
by, at least a majority of the Continuing Members who were members of that
board of directors at the time of that nomination or election.
"CVC" means CVC European Equity Partners, L.P. and CVC European Equity
Partners (Jersey) L.P., and their respective Affiliates.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of non-cash
consideration received by Formica or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
that valuation, executed by the principal executive officer and the principal
financial officer of Formica, less the amount of cash or Cash Equivalents
received in connection with a sale of that Designated Noncash Consideration.
"Designated Senior Indebtedness" means
(1) any Indebtedness outstanding under the New Credit Facility; and
(2) any other Senior Indebtedness permitted under the indenture the
principal amount of which is $25.0 million or more and that has been
designated by Formica in writing to the trustee as "Designated Senior
Indebtedness."
"Disqualified Stock" means any Capital Stock that
(1) by its terms or by the terms of any security into which it is
convertible, or for which it is exchangeable, or
(2) upon the happening of any event other than any event solely
within the control of Formica,
matures or is mandatorily redeemable, under a sinking fund obligation or
otherwise, is exchangeable for Indebtedness (except to the extent exchangeable
at the option of that Person subject to the terms of any debt instrument to
which that Person is a party) or redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the notes mature. However,
(1) any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Formica to
repurchase that Capital Stock upon the occurrence of a Change of
Control or an Asset Sale shall not constitute Disqualified Stock
if the terms of that Capital Stock provide that Formica may not
repurchase or redeem any such Capital Stock under those
provisions
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unless that repurchase or redemption complies with the covenant
described under the caption "--Certain Covenants--Restricted
Payments" and
(2) if that Capital Stock is issued to any plan for the benefit of
employees of Formica or its Subsidiaries or by any such plan to
those employees, that Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be
repurchased by Formica in order to satisfy applicable statutory
or regulatory obligations.
"DLJ Merchant Banking" means DLJ Merchant Banking Partners II, L.P. and
its Affiliates.
"Domestic Subsidiary" means a Subsidiary that is organized under the laws
of the United States or any State, district or territory thereof.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Existing Indebtedness" means Indebtedness of Formica and its Restricted
Subsidiaries, other than Indebtedness under the New Credit Facility, in
existence on the date of the indenture, until those amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(a) the Consolidated Interest Expense of that Person for
that period; and
(b) all dividend payments on any series of preferred
stock of that Person, other than dividends payable solely in Equity
Interests that are not Disqualified Stock,
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of:
the Consolidated Cash Flow of that Person for that period, exclusive
of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior
to the Calculation Date
to
the Fixed Charges of that Person for that period, exclusive of amounts
attributable to discontinued operations, as determined in accordance
with GAAP, or operations and businesses disposed of prior to the
Calculation Date.
In the event that the referent Person or any of its Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness other than revolving credit
borrowings or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to that incurrence,
assumption,
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guarantee or redemption of Indebtedness, or that issuance or redemption of
preferred stock and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, the
Acquisition and acquisitions that have been made by Formica or any of its
Subsidiaries, including all mergers or consolidations and any related financing
transactions, during the four-quarter reference period or subsequent to that
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for that reference period shall be calculated to include the
Consolidated Cash Flow of the acquired entities on a pro forma basis after
giving effect to cost savings reasonably expected to be realized in connection
with that acquisition, as determined in good faith by an officer of Formica
(regardless of whether that cost savings could then be reflected in pro forma
financial statements under GAAP, Regulation S-X promulgated by the SEC or any
other regulation or policy of the SEC) and without giving effect to clause (c)
of the proviso set forth in the definition of Consolidated Net Income.
"Foreign Credit Facilities" means any Indebtedness of a Restricted
Subsidiary organized or having its principal place of business outside the
United States. Indebtedness under the Foreign Credit Facilities outstanding on
the date on which the notes were first issued and authenticated under the
indenture shall be deemed to have been incurred on that date in reliance on the
first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of that Person under:
(a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements;
and
(b) other agreements or arrangements designed to protect
that Person against fluctuations in interest rates.
"holder" means the registered holder of any note.
"Holdings" means FM Holdings, Inc., a Delaware corporation, the corporate
parent of Formica, or its successors.
"incur" means to directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise
"Indebtedness" means, with respect to any Person, any indebtedness of that
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any that balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of that
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Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of that Person (whether or not that Indebtedness
is assumed by that Person) and, to the extent not otherwise included, the
guarantee by that Person of any Indebtedness of any other Person, provided that
Indebtedness shall not include the pledge by Formica of the Capital Stock of an
Unrestricted Subsidiary of Formica to secure Non-Recourse Debt of that
Unrestricted Subsidiary. The amount of any Indebtedness outstanding as of any
date shall be:
(a) the accreted value thereof, together with any
interest thereon that is more than 30 days past due, in the case of
any Indebtedness that does not require current payments of interest;
and
(b) the principal amount thereof, in the case of any
other Indebtedness provided that the principal amount of any
Indebtedness that is denominated in any currency other than United
States dollars shall be the amount thereof, as determined under the
foregoing provision, converted into United States dollars at the Spot
Rate in effect on the date that Indebtedness was incurred or, if that
indebtedness was incurred prior to the date of the indenture, the
Spot Rate in effect on the date of the indenture.
"Intercompany Note" means the note, and all obligations, including
interest, with respect thereto, issued by Holdings to Formica on the date of the
completion of the Acquisition to evidence the loan by Formica to Holdings of
some proceeds of the offering of bridge notes and borrowings under the New
Credit Facility, which proceeds partially funded the merger consideration and
costs and expenses in connection therewith.
"Investments" means, with respect to any Person, all investments by that
Person in other Persons in the forms of direct or indirect loans (including
guarantees by the referent Person of, and Liens on any assets of the referent
Person securing, Indebtedness or other obligations of other Persons), advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP, provided that
an investment by Formica for consideration consisting of common equity
securities of Formica shall not be deemed to be an Investment. If Formica or any
Restricted Subsidiary of Formica sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of Formica such that,
after giving effect to any such sale or disposition, that Person is no longer a
Subsidiary of Formica, Formica shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of that Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
under the caption "--Restricted Payments."
"Laminates" means Laminates Acquisition Co., a Delaware corporation, the
corporate parent of Holdings, or its successors.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of that asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Loans" means one or more loans by Formica, Laminates or
Holdings to officers and/or directors of Formica and any of its Restricted
Subsidiaries to finance the purchase by those officers and directors of common
stock of Holdings or Laminates; provided, however, that the aggregate principal
amount of all those Management Loans outstanding at any time shall not exceed
$5.0 million.
"MMI" means MMI Products, L.L.C. and its Affiliates.
"Net Income" means, with respect to any Person, the net income (loss) of
that Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
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(a) any gain or loss, together with any related
provision for taxes on that gain or loss, realized in connection with
(1) any Asset Sale, including, without limitation,
dispositions in sale and leaseback transactions or
(2) the extinguishment of any Indebtedness of that Person or
any of its Restricted Subsidiaries; and
(b) any extraordinary or nonrecurring gain or loss,
together with any related provision for taxes on that extraordinary
or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by Formica or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of, without duplication,
(1) the direct costs relating to that Asset Sale
(including, without limitation, legal, accounting and
investment banking fees, and sales commissions,
recording fees, title transfer fees and appraiser fees
and cost of preparation of assets for sale) and any
relocation expenses incurred as a result thereof,
(2) taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions
and any tax sharing arrangements)
(3) amounts required to be applied to the repayment of
Indebtedness (other than revolving credit Indebtedness
incurred under the New Credit Facility) secured by a
Lien on the asset or assets that were the subject of
that Asset Sale and
(4) any reserve established in accordance with GAAP or any
amount placed in escrow, in either case for adjustment
in respect of the sale price of that asset or assets
until that time as that reserve is reversed or that
escrow arrangement is terminated, in which case Net
Proceeds shall include only the amount of the reserve
so reversed or the amount returned to Formica or its
Restricted Subsidiaries from that escrow arrangement,
as the case may be.
"New Credit Facility" means that certain Credit Agreement, dated as of May
1, 1998 among Formica (formerly LMS II, Co.), some of its foreign subsidiaries,
various financial institutions party thereto, DLJ Capital Funding, Inc., as
syndication agent, Bankers Trust Company as administrative agent and Credit
Suisse First Boston, as documentation agent, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and, in each case, as amended, modified, renewed,
refunded, replaced or refinanced from time to time, including any agreement:
(a) extending or shortening the maturity of any
Indebtedness incurred thereunder or contemplated thereby;
(b) adding or deleting borrowers or guarantors
thereunder;
(c) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, provided that on
the date that Indebtedness is incurred it would not be prohibited by
clause (i) of "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; or
(d) otherwise altering the terms and conditions thereof.
Indebtedness under the New Credit Facility outstanding on the date on
which notes are first issued and authenticated under the indenture
shall be
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deemed to have been incurred on that date in reliance on the first
paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
"1998 Charges" means the $13.5 million of charges resulting from changes
in accounting estimates and the cost of terminated acquisition in the four
months ended April 30, 1998 and the five months ended September, 1998.
"Non-Recourse Debt" means Indebtedness:
(a) no default with respect to, which (including any
rights that the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit, upon notice, lapse
of time or both, any holder of any other Indebtedness of Formica or
any of its Restricted Subsidiaries to declare a default on that other
Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
(b) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than
the stock of an Unrestricted Subsidiary pledged by Formica to secure
debt of that Unrestricted Subsidiary) or assets of Formica or any of
its Restricted Subsidiaries;
provided that in no event shall Indebtedness of any Unrestricted Subsidiary fail
to be Non-Recourse Debt solely as a result of any default provisions contained
in a guarantee thereof by Formica or any of its Restricted Subsidiaries if
Formica or that Restricted Subsidiary was otherwise permitted to incur that
guarantee under the indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the notes by Formica.
"Pari Passu Indebtedness" means Indebtedness of Formica that ranks pari
passu in right of payment to the notes.
"Permitted Business" means the building products and furnishings industry
and any business in which Formica and its Restricted Subsidiaries are engaged on
the date of the indenture or any business reasonably related, incidental or
ancillary thereto.
"Permitted Investments" means:
(a) any Investment in Formica or in a Restricted
Subsidiary of Formica;
(b) any Investment in cash or Cash Equivalents;
(c) any Investment by Formica or any Restricted
Subsidiary of Formica in a Person, if as a result of that Investment
(1) that Person becomes a Restricted Subsidiary of Formica
or
(2) that Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Formica or a Wholly Owned
Restricted Subsidiary of Formica;
(d) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made under and in
compliance with the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales";
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(e) any Investment acquired solely in exchange for
Equity Interests (other than Disqualified Stock) of Formica;
(f) any Investment in a Person engaged in a Permitted
Business (other than an Investment in an Unrestricted Subsidiary)
having an aggregate fair market value, taken together with all other
Investments made under this clause (f) that are at that time
outstanding, not to exceed 15% of Total Assets at the time of that
Investment, with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent
changes in value;
(g) Investments relating to any special purpose Wholly
Owned Subsidiary of Formica organized in connection with a
Receivables Facility that, in the good faith determination of the
board of directors of Formica, are necessary or advisable to effect
that Receivables Facility; and
(h) the Management Loans.
"Permitted Junior Securities" means Equity Interests in Formica or debt
securities of Formica that are subordinated to all Senior Indebtedness (and any
debt securities issued in exchange for Senior Indebtedness) to substantially the
same extent as, or to a greater extent than, the notes are subordinated to
Senior Indebtedness.
"Permitted Liens" means:
(a) Liens on property of a Person existing at the time
that Person is merged into or consolidated with Formica or any
Restricted Subsidiary, provided that those Liens were not incurred in
contemplation of that merger or consolidation and do not secure any
property or assets of Formica or any Restricted Subsidiary other than
the property or assets subject to the Liens prior to that merger or
consolidation;
(b) Liens existing on the date of the indenture;
(c) Liens securing Indebtedness consisting of
Capitalized Lease Obligations, purchase money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations,
in each case incurred solely for the purpose of financing all or any
part of the purchase price or cost of construction or installation of
assets used in the business of Formica or its Restricted
Subsidiaries, or repairs, additions or improvements to those assets,
provided that
(1) those Liens secure Indebtedness in an amount not in
excess of the original purchase price or the original
cost of any such assets or repair, additional or
improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the
incurrence of that Indebtedness),
(2) those Liens do not extend to any other assets of
Formica or its Restricted Subsidiaries (and, in the
case of repair, addition or improvements to any such
assets, that Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or
improved),
(3) the Incurrence of that Indebtedness is permitted by
"--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" and
(4) those Liens attach within 365 days of that purchase,
construction, installation, repair, addition or
improvement;
(d) Liens to secure any refinancings, renewals,
extensions, modification or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of
any Indebtedness secured
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by Liens referred to in the clauses above so long as that Lien does
not extend to any other property (other than improvements thereto);
(e) Liens securing letters of credit entered into in the
ordinary course of business and consistent with past business
practice;
(f) Liens on and pledges of the capital stock of any
Unrestricted Subsidiary securing Non-Recourse Debt of that
Unrestricted Subsidiary;
(g) Liens securing Indebtedness (including all
Obligations) under the New Credit Facility or any Foreign Credit
Facility; and
(h) other Liens securing Indebtedness that is permitted
by the terms of the indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $75.0
million.
"Permitted Refinancing Indebtedness" means any Indebtedness of Formica or
any of its Restricted Subsidiaries issued within 60 days after repayment of, in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of Formica or any of its
Restricted Subsidiaries; provided that:
(a) the principal amount or accreted value, if
applicable, of that Permitted Refinancing Indebtedness does not
exceed the principal amount of or accreted value, if applicable, plus
premium, if any, and accrued interest on the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus
the amount of reasonable expenses incurred in connection therewith);
(b) that Permitted Refinancing Indebtedness has a final
maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(c) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of
payment to the notes, that Permitted Refinancing Indebtedness is
subordinated in right of payment to, the notes on terms at least as
favorable, taken as a whole, to the holders of notes as those
contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means DLJ Merchant Banking, CVC and MMI.
"Public Equity Offering" means any issuance of common stock by Formica
(other than to Holdings and other than Disqualified Stock) or common stock or
preferred stock by Holdings or Laminates (other than Disqualified Stock) that is
registered under the Securities Act, other than issuances registered on Form S-8
and issuances registered on Form S-4, excluding issuances of common stock under
employee benefit plans of Laminates, Holdings or Formica or otherwise as
compensation to employees of Formica, Laminates or Holdings.
"Qualified Proceeds" means any of the following or any combination of the
following:
(a) cash;
(b) Cash Equivalents;
(c) assets that are used or useful in a Permitted
Business; and
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(d) the Capital Stock of any Person engaged in a
Permitted Business if, in connection with the receipt by Formica or
any Restricted Subsidiary of Formica of that Capital Stock,
(A) that Person becomes a Restricted Subsidiary of Formica
or any Restricted Subsidiary of Formica or
(B) that Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Formica or any Restricted
Subsidiary of Formica.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, under which Formica or any of its Restricted
Subsidiaries sells its accounts receivable to an Accounts Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal:
(a) any controlling stockholder or partner of that
Principal on the date of the indenture; or
(b) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons
beneficially holding (directly or through one or more Subsidiaries) a
51% or more controlling interest of which consist of the Principals
and/or such other Persons referred to in the immediately preceding
clauses (a) or (b).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means, with respect to any Person
(1) all Obligations of that Person outstanding under the New Credit
Facility and all Hedging
Obligations payable to a lender or an Affiliate thereof or to a Person
that was a lender or an Affiliate thereof at the time the contract was
entered into under the New Credit Facility or any of its Affiliates,
including, without limitation, interest accruing subsequent to the filing
of, or which would have accrued but for the filing of, a petition for
bankruptcy, whether or not that interest is an allowable claim in that
bankruptcy proceeding;
(2) any other Indebtedness, unless the instrument under which that
Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any other Senior Indebtedness of that Person and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include:
(a) any liability for federal, state, local or other
taxes;
(b) any Indebtedness of that Person (other than under the
New Credit Facility) to any of its Subsidiaries or other Affiliates;
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(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the
indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as that Regulation is in effect on the date hereof.
"Spot Rate" means, for any currency, the spot rate at which that currency
is offered for sale against United States dollars as determined by reference to
the New York foreign exchange selling rates, as published in The Wall Street
Journal on that date of determination for the immediately preceding business day
or, if that rate is not available, as determined in any publicly available
source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which that payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any that interest or principal prior to the date
originally scheduled for the payment thereof."Subsidiary" means, with respect to
any Person:
(a) any corporation, association or other business
entity of which more than 50% of the total voting power of shares of
Capital Stock entitled, without regard to the occurrence of any
contingency, to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries
of that Person (or a combination thereof); and
(b) any partnership or limited liability company (1) the
sole general partner or the managing general partner or managing
member of which is that Person or a Subsidiary of that Person or (2)
the only general partners or managing members of which are that
Person or of one or more Subsidiaries of that Person (or any
combination thereof).
"Subordinated Note Obligations" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
liquidated damages, if any, payable under the terms of the notes (including upon
the acceleration or redemption thereof), together with and including any amounts
received or receivable upon the exercise of rights of rescission or other rights
of action (including claims for damages) or otherwise.
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between Formica and Laminates and/or Holdings, as the same may be amended from
time to time; provided that in no event shall the amount permitted to be paid
under all those agreements and/or arrangements exceed the amount Formica would
be required to pay for income taxes were it to file a consolidated tax return
for itself and its consolidated Restricted Subsidiaries as if it were a
corporation that was a parent of a consolidated group.
"Total Assets" means the total consolidated assets of Formica and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of Formica.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary under a board resolution, but
only to the extent that Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement
or understanding with Formica or any Restricted Subsidiary of Formica
unless the terms of any such agreement, contract, arrangement or
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understanding are no less favorable to Formica or that Restricted
Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of Formica;
(c) is a Person with respect to which neither Formica
nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests (other
than Investments described in clause (g) of the definition of
Permitted Investments) or (2) to maintain or preserve that Person's
financial condition or to cause that Person to achieve any specified
levels, of operating results; and
(d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Formica or
any of its Restricted Subsidiaries. Any such designation by the board
of directors shall be evidenced to the trustee by filing with the
trustee a certified copy of the board resolution giving effect to
that designation and an Officers' Certificate certifying that the
designation complied with the foregoing conditions and was permitted
by the covenant described under the caption entitled "--Certain
Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as a Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of that Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Formica as of that date (and, if that Indebtedness is not
permitted to be incurred as of that date under the covenant described under the
caption entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," Formica shall be in default of that covenant).
The board of directors of Formica may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that the
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Formica of any outstanding Indebtedness of that Unrestricted
Subsidiary and the designation shall only be permitted if
(1) that Indebtedness is permitted under the covenant described under
the caption entitled "--Certain Covenants--Incurrence of Indebtedness
and Issuance Preferred of Stock" and
(2) no Default or Event of Default would be in existence following
that designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (1)
the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by (2) the number of years
(calculated to the nearest one-twelfth) that will elapse between that
date and the making of that payment, by
(b) the then outstanding principal amount of that
Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of that Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by that
Person or by one or more Wholly Owned Subsidiaries of that Person."Wholly Owned
Restricted Subsidiary" of any Person means a Restricted Subsidiary of that
Person all the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by that
Person or by one or more Wholly Owned Restricted Subsidiaries of that Person or
by that Person and one or more Wholly Owned Restricted Subsidiaries of that
Person.
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THE EXCHANGE OFFER
In a registration rights agreement between Formica and the initial
purchasers of the old notes, we agreed
(1) to file a registration statement on or prior to 90 days after the
closing of the offering of the old notes with respect to an offer to
exchange the old notes for a new issue of debt securities of Formica
registered under the Securities Act, with terms substantially identical to
those of the old notes and
(2) to use our reasonable best efforts to cause the registration statement
to be declared effective by the SEC on or prior to 180 days after the
closing and to complete the exchange offer within 40 business days after
effectiveness. In specified circumstances, we will be required to provide
a shelf registration statement to cover resales of the old notes by the
holders thereof.
The registration rights agreement provides that, in the event we fail to
satisfy our registration obligations under the registration rights agreement, we
will be required to pay liquidated damages to the holders of the old notes in an
amount equal to $0.05 per week per $1,000 principal amount of notes for the
first 90 days and increasing by $0.05 per week every 90 days thereafter up to a
maximum of $0.25 until that failure is remedied. Upon effectiveness of the
registration statement, completion of the exchange offer or the effectiveness of
the shelf registration statement, the provision for liquidated damages on the
old notes shall cease. Holders of old notes who fail to tender their old notes
will not have any further rights under the registration rights agreement to
require us to register their notes or to pay liquidated damages.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance thereof would not be in compliance with the
jurisdiction's securities or blue sky laws.
Terms of the Exchange Offer; Period for Tendering Old Notes
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together constitute the exchange offer, we will accept for
exchange old notes which are properly tendered on or prior to the expiration
date, unless you have withdrawn them as permitted below.
o when you tender to us old notes as provided below, our acceptance of
the old notes will constitute a binding agreement between you and us
upon the terms and subject to the conditions in this prospectus and in
the accompanying letter of transmittal.
o for each $1,000 principal amount of old notes surrendered to us in the
exchange offer, we will give you $1,000 principal amount of new notes.
o we will keep the exchange offer open for not less than 30 days, or
longer if required by applicable law, after the date that we first
mail notice of the exchange offer to the holders of the old notes. We
are sending this prospectus, together with the letter of transmittal,
on or about the date of this prospectus to all of the registered
holders of old notes at their addresses listed in the trustee's
security register with respect to old notes.
o the exchange offer expires at 5:00 p.m., New York City time, on
, 1999; provided, however, that we, in our sole
discretion, may extend the period of time for which the exchange
offer is open. The term "expiration date" means , 1999 or, if
extended by us, the latest time and date to which the exchange offer
is extended.
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o as of the date of this prospectus, $215,000,000 in aggregate principal
amount of the old notes were outstanding. The exchange offer is not
conditioned upon any minimum principal amount of old notes being
tendered.
o our obligation to accept old notes for exchange in the exchange offer
is subject to the conditions that we describe in the section called
"Conditions to the Exchange Offer" below.
o we expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and thereby delay
acceptance of any old notes, by giving oral or written notice of an
extension to the exchange agent and notice of that extension to the
holders as described below. During any extension, all old notes
previously tendered will remain subject to the exchange offer and may
be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
o we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes that we have not
yet accepted for exchange, upon the occurrence of any of the
conditions of the exchange offer specified below under "Conditions to
the Exchange Offer."
o we will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old
notes as promptly as practicable. If we extend the expiration date, we
will give notice by means of a press release or other public
announcement no later than 9:00 a.m., New York City Time, on the
business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public
announcement and subject to applicable law, we will have no obligation
to publish, advertise or otherwise communicate any public announcement
other than by issuing a release to the Dow Jones News Service.
o holders of old notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
o old notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding
and be entitled to the benefits of the indenture, but will not be
entitled to any further registration rights under the registration
rights agreement.
o we intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
o by executing, or otherwise becoming bound by, the letter of
transmittal, you will be making several representations to us.
See "--Resales of the New Notes."
Important rules concerning the exchange offer
You should note that:
o all questions as to the validity, form, eligibility and acceptance of
old notes tendered for exchange and all questions as to the time of
receipt will be determined by Formica in its sole discretion, which
determination shall be final and binding.
o we reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any
particular old notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
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o we also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular old notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks
to tender old notes in the exchange offer. Unless we agree to waive
any defect or irregularity in connection with the tender of old notes
for exchange, defects or irregularities must be cured within a
reasonable period of time as we shall determine.
o our interpretation of the terms and conditions of the exchange offer
as to any particular old notes either before or after the expiration
date shall be final and binding on all parties.
o neither Formica, the exchange agent nor any other person shall be
under any duty to give notification of any defect or irregularity with
respect to any tender of old notes for exchange, nor shall any of them
incur any liability for failure to give notification.
Procedures for Tendering Old Notes
What to submit and how
If you, as the registered holder of an old note, wish to tender your old
notes for exchange in the exchange offer, you must transmit a properly completed
and duly executed letter of transmittal to Summit Bank at the address set forth
below under "Exchange Agent" on or prior to the expiration date.
In addition,
(1) certificates for the old notes must be received by the exchange agent
along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer of old notes, if that
procedure is available, into the exchange agent's account at DTC using the
procedure for book-entry transfer described below, must be received by the
exchange agent prior to the expiration date or
(3) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If delivery is by mail, we
recommend that registered mail, properly insured, with return receipt requested,
be used. In all cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or old notes should be sent to Formica.
How to sign your letter of transmittal and other documents
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered with the letter:
(1) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an eligible institution described below.
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, the guarantees must be by one of the
following eligible institutions:
o a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc.
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o a commercial bank or trust company having an office or correspondent
in the United States
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, the person should so indicate when signing and, unless waived by
Formica, proper evidence satisfactory to Formica of its authority to so act must
be submitted.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all old notes
properly tendered and will issue the new notes promptly after acceptance of the
old notes. See "Conditions to the Exchange Offer" below. For purposes of the
exchange offer, we shall be deemed to have accepted properly tendered old notes
for exchange when, as and if we have given oral or written notice thereof to the
exchange agent.
In all cases, we will only issue new notes in exchange for old notes that
are accepted for exchange after timely receipt by the exchange agent of:
o certificates for the old notes or
o a timely book-entry confirmation of the old notes into the exchange
agent's account at DTC using the book-entry transfer procedures
described below, and
o a properly completed and duly executed letter of transmittal and all
other required documents.
If we do not accept any tendered old notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing old notes in a greater principal amount than you wish to exchange,
we will return the unaccepted or non-exchanged old notes without expense to the
tendering holder or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC using the book-entry transfer
procedures described below, the non-exchanged old notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the old notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution that is a
participant in DTC's systems may make book-entry delivery of old notes by
causing DTC to transfer the old notes into the exchange agent's account in
accordance with DTC's Automated Tender Offer Program, procedures for transfer.
However, the exchange for the old notes so tendered will only be made after
timely confirmation of the book-entry transfer of old notes into the exchange
agent's account, and timely receipt by the exchange agent of an agent's message
transmitted by DTC and received by the exchange agent and forming a part of a
book-entry confirmation, which states that DTC has received an express
acknowledgment from a participant tendering old notes that are the subject of
the book-entry confirmation that the participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce that
agreement against that participant. Although delivery of old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal or facsimile thereof, properly completed and duly
executed, with any required signature guarantees and any other required
documents, must in any case be delivered to and received by the exchange agent
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at its address set forth under "--Exchange Agent" on or prior to the expiration
date, or the guaranteed delivery procedure set forth below must be complied
with.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
If you are a registered holder of old notes and you want to tender old
notes but your old notes are not immediately available, or time will not permit
your old notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if
(1) the tender is made through an eligible institution,
(2) prior to the expiration date, the exchange agent receives from that
eligible institution a properly completed and duly executed letter of
transmittal or a facsimile thereof and notice of guaranteed delivery,
substantially in the form provided by us by facsimile transmission, mail
or hand delivery, stating:
o the name and address of the holder of old notes
o the amount of old notes tendered
o the tender is being made by delivering the notice and guaranteeing
that within five New York Stock Exchange trading days after the date
of execution of the notice of guaranteed delivery, the certificates of
all physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, will be deposited by that
eligible institution with the exchange agent, and
(3) the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, are
received by the exchange agent within five New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
You can withdraw your tender of old notes at any time on or prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"Exchange Agent." Any notice of withdrawal must specify:
o the name of the person having tendered the old notes to be withdrawn
o the old notes to be withdrawn, including the principal amount of the
old notes, and
o if certificates for old notes have been delivered to the exchange
agent, the name in which the old notes are registered, if different
from that of the withdrawing holder.
o if certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, you must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an eligible institution
unless you are an eligible institution.
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<PAGE>
o if old notes have been tendered in the procedure for book-entry
transfer described above, any note of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of DTC.
Please note that all questions as to the validity, form and eligibility of
notices of withdrawal, including time of receipt, will be determined by us. Our
determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you
may do so by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of old notes for exchange or the exchange of the new notes for old
notes, the acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
The foregoing condition is for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to it. Our failure at any time to
exercise the foregoing rights shall not be deemed a waiver by us of any of those
rights and each right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and
no new notes will be issued in exchange for any old notes, if at the time any
stop order has been threatened or is in effect with respect to the exchange
offer of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act.
Exchange Agent
Summit Bank has been appointed as the exchange agent for the exchange
offer. All executed letters of transmittal should be directed to the exchange
agent at one of the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
Deliver To:
H. Lewis Stone
Summit Bank, Exchange Agent
Corporate Trust Administration
210 Main Street
6th Floor
Hackensack, NJ 07601
General: 1-800-403-4034
Direct: (201) 646-6311
Facsimile: (201) 646-0087
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
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Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and affiliates. We will not pay any additional compensation to
any officers and employees who engage in soliciting tenders. We will not make
any payment to brokers, dealers, or others soliciting acceptances of the
exchange offer. However, we will pay the exchange agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$315,000.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer to be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Resale of the New Notes
Under existing interpretations of the staff of the SEC contained in
several no-action letters to third parties, the new notes would in general be
freely transferable after the exchange offer without further registration under
the Securities Act. However, any purchaser of old notes who is an "affiliate" of
Formica or who intends to participate in the exchange offer for the purpose of
distributing the new notes
(1) will not be able to rely on the interpretation of the staff of
the SEC,
(2) will not be able to tender its old notes in the exchange offer and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the notes unless the sale or transfer is made under an
exemption from those requirements.
By executing, or otherwise becoming bound by, the Letter of Transmittal
each holder of the old notes will represent that:
(1) it is not our "affiliate";
(2) any new notes to be received by it were acquired in the ordinary
course of its business;
(3) it has no arrangement with any person to participate in the
distribution of the new notes within the meaning of the Securities Act;
and
(4) it is not engaged in, and does not intend to engage in, a
distribution of the new notes.
In addition, in connection with any resales of new notes, any broker-dealer
participating in the exchange offer who acquired notes for its own account as a
result of market-making or other trading activities must represent that it does
not have any arrangement with us or our affiliates to distribute the new notes
and must deliver a prospectus meeting the requirements of the Securities Act.
The SEC has taken the position that participating broker-dealers may fulfill
their prospectus delivery requirements with respect to the new notes, other than
a resale of an unsold allotment from the original sale of the old notes, with
the prospectus contained in the exchange offer exchange
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<PAGE>
offer. Under the registration rights agreement, we are required to allow
participating broker-dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this prospectus as it may be amended or
supplemented from time to time, in connection with the resale of new notes
received from us in the exchange offer.
MATERIAL UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of old notes for new notes in the exchange offer will not
result in any United States federal income tax consequences to holders. When a
holder exchanges an old note for a new note in the exchange offer, the holder
will have the same adjusted basis and holding period in the new note as in the
old note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes received from us in the exchange offer. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new notes received in exchange
for old notes acquired as a result of market-making activities or other trading
activities. We have agreed that we will make this prospectus, as amended or
supplemented, available to any participating broker-dealer for use in connection
with those resale and participating broker-dealers shall be authorized to
deliver this prospectus for a period not exceeding 90 days after the expiration
date.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions
o in the over-the-counter market,
o in negotiated transactions,
o through the writing of options on the new notes or
o a combination of those methods of resale.
The sales may be made at market prices prevailing at the time of resale,
at prices related to prevailing market prices or negotiated prices. Any resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any new notes. Any broker-dealer that resells
new notes that were received by it for its own account in the exchange offer and
any broker or dealer that participates in a distribution of those new notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of those new notes and any commission or concessions
received by those persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
We will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any Participating Broker-Dealer
that requests those documents in the letter of transmittal. See "The Exchange
Offer."
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LEGAL MATTERS
Davis Polk & Wardwell, New York, New York will opine for Formica whether
the new notes are its valid and binding obligations.
CHANGE IN INDEPENDENT AUDITORS
On October 29, 1998, Formica dismissed its independent accountant, Ernst &
Young LLP. Ernst & Young's report on the financial statements for the years
ended December 31, 1997 and 1996 did not contain an adverse opinion or
disclaimer of opinion and was not modified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was recommended by the
Audit Committee of the Board of Directors and approved by the full Board of
Directors on October 29, 1998. There were no disagreements with Ernst & Young on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Please see Exhibit 16.1 to the
registration statement of which this prospectus forms a part.
Formica retained the accounting firm of Arthur Andersen LLP, on October
29, 1998 to provide audit services for the four month period ended April 30,
1998 and for the eight month period ended December 31, 1998. There were no
consultations with Arthur Andersen LLP, regarding the application of accounting
principles to specific transactions, or the type of audit opinion that might be
rendered at the date of assignment.
EXPERTS
The consolidated balance sheet of Formica Corporation and its subsidiaries
as of December 31, 1998 and the related consolidated statements of operations,
stockholder's equity and cash flows for the four months ended April 30, 1998 and
for the eight months ended December 31, 1998 appearing in this prospectus and
the registration statement have been audited by Arthur Andersen LLP, 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 giving
said reports.
The consolidated financial statements, including the Financial Statement
Schedule included herein, of Formica Corporation at December 31, 1997, and for
each of the two years in the period ended December 31, 1997, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon those reports given on the authority
of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Act with respect to our offering of the new
notes. This prospectus does not contain all the information included in the
registration statement and the exhibits and schedules thereto. You will find
additional information about us and the new notes in the registration statement.
The registration statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of this material may also be obtained from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The SEC also maintains a site
on the World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
Formica, that file electronically with the SEC. Statements made in this
prospectus about legal
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documents may not necessarily be complete and you should read the documents
which are filed as exhibits to the registration statement or otherwise filed
with the SEC.
If for any reason we are not required to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended, we are still
required under the indenture to furnish the holders of the new notes with the
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. In addition, we have agreed that, for so long as any notes
remain outstanding, we will furnish to the holders of the notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered by Rule 144A(d)(4) under the Securities
Act.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements of Formica are based on the consolidated financial statements of
Formica, adjusted to give effect to the acquisition, including the issuance of
the bridge notes to finance the acquisition and the issuance of $215.0 million
of senior subordinated notes. The unaudited pro forma condensed consolidated
financial statements have not been adjusted to give effect to $30.0 million of
estimated net annual (pre-tax) cost savings, primarily selling, general and
administrative expenses reductions, that we began to implement in early 1998.
See "Business--Cost Savings" and "Risk Factors--Our cost-cutting strategy may
not be successful and may reduce our sales."
The unaudited pro forma condensed consolidated statement of operations
data are derived from the historical consolidated statements of operations of
BTR-owned Formica and Formica, as applicable, for the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999, and assumes that the
acquisition was completed as of the beginning of each respective period. The
unaudited pro forma condensed consolidated financial data are also adjusted for
the issuance of the old notes. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements of Formica included elsewhere in this prospectus.
The unaudited pro forma condensed consolidated financial data do not
purport to be indicative of the results that would actually have been obtained
if the acquisition and the issuance of the old notes had occurred on the dates
indicated or of the results that may be obtained in the future. The unaudited
pro forma condensed consolidated financial data are presented for comparative
purposes only. The pro forma adjustments, as described in the accompanying data,
are based on available information and various assumptions that management
believes are reasonable.
P-1
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
(In millions)
<TABLE>
Adjustments
for Issuance
Historical of Old Notes Pro Forma
---------- ------------ ---------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 31.6 $ 8.0 (c) $ 39.6
Accounts receivable, net...................... 64.9 64.9
Inventories................................... 110.3 110.3
Prepaid expenses and other current assets..... 15.1 15.1
Deferred income taxes......................... 7.9 7.9
----- ----- -----
Total current assets......................... 229.8 8.0 237.8
Property, plant and equipment, net............ 288.7 288.7
Other assets.................................. 7.0 (b)
178.3 (2.0) (b) 183.3
----- ----- -----
Total assets................................. $696.8 $ 13.0 $709.8
Liabilities and stockholder's equity
Current liabilities:
Current maturities--notes payable............. $ 21.8 $ 21.8
Accounts payable.............................. 40.0 40.0
Accrued expenses.............................. 53.5 53.5
----- ----- -----
Total current liabilities.................... 115.3 -- 115.3
Notes payable................................. 95.9 95.9
Deferred income taxes......................... 133.7 133.7
Other liabilities............................. 32.1 32.1
Bridge notes.................................. 200.0 $(200.0) (a) --
----- ----- -----
Senior subordinated notes..................... -- 215.0 (a) 215.0
Total liabilities............................ 577.0 15.0 592.0
Total stockholder's equity................... 119.8 (2.0) (b) 117.8
----- ----- -----
Total liabilities and stockholder's equity... $696.8 $ 13.0 $709.8
===== ===== =====
See notes to unaudited pro forma condensed consolidated balance sheet.
</TABLE>
P-2
<PAGE>
FORMICA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) The bridge notes ($200.0 million) were refinanced with a portion of the
net proceeds from the old notes.
(b) Represents the capitalization of deferred financing costs related to the
old notes and the elimination of the deferred financing costs related to
the bridge notes against stockholder's equity.
(c) Represents the net cash proceeds from the old notes after repaying the
bridge notes and paying related financing costs.
P-3
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(In millions)
<TABLE>
Adjustments Pro Forma Adjustments
for the for the for issuance
Historical Acquisition Acquisition of Old Notes Pro Forma
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $549.7 $549.7 $549.7
Cost of products sold......................... 397.3 397.3 397.3
----- ---- ----- -----
Gross profit.................................. 152.4 152.4 152.4
Selling, general and administrative expenses.. 161.4 $ 3.2 (b) 164.6 164.6
Cost of terminated acquisition................ 3.0 3.0 3.0
----- ---- ----- -----
Operating loss................................ (12.0) (3.2) (15.2) (15.2)
Interest expense.............................. 27.4 11.2 (a) 38.0 $(26.6) (d) 35.5
(0.6) (c) 24.1 (e)
Other income, net............................. 5.3 5.3 5.3
----- ---- ----- -----
Loss before income taxes...................... (34.1) (13.8) (47.9) 2.5 (45.4)
Income tax (provision) benefit................ (2.8) -- (2.8) -- (2.8)
----- ---- ----- ----- -----
Net income (loss)............................. $(36.9) $(13.8) $(50.7) $ 2.5 $(48.2)
===== ==== ===== ===== =====
Other Data
Adjusted EBITDA (f)(g)........................ $ 50.2 $ 50.2 $ 50.2
Depreciation and amortization................. 40.4 43.6 43.6
Cash interest expense (h)..................... 24.8 32.8 34.4
Ratio of earnings to fixed charges (i)........ -- -- --
See notes to unaudited pro forma condensed consolidated
statements of operations.
</TABLE>
P-4
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(In millions)
<TABLE>
Adjustments Pro Forma Adjustments
for the for the for issuance
Historical Acquisition Acquisition of Old Notes Pro Forma
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $276.6 $276.6 $276.6
Cost of products sold......................... 198.7 198.7 198.7
----- ----- -----
Gross profit.................................. 77.9 77.9 77.9
Selling, general and administrative expenses.. 89.0 $3.2 (b) 92.2 92.2
----- ---- ----- ----- -----
Operating loss................................ (11.1) (3.2) (14.3) (14.3)
Interest expense.............................. 7.2 11.2 (a) 17.8 $(13.2) (d) 16.6
(0.6) (c) 12.0 (e)
Other income, net............................. 1.2 1.2 1.2
----- ---- ----- ----- -----
Loss before income taxes...................... (17.1) (13.8) (30.9) 1.2 (29.7)
Income tax (provision) benefit................ -- -- -- --
----- ---- ----- ----- -----
Net income (loss)............................. $(17.1) $(13.8) $(30.9) $ 1.2 $(29.7)
===== ==== ===== ===== =====
Other Data
Adjusted EBITDA (f)(g)........................ $ 21.5 $ 21.5 $ 21.5
Depreciation and Amortization................. 17.9 21.1 21.1
Cash interest expense (h)..................... 6.8 15.5 16.3
Ratio of earnings to fixed charges (i)........ -- -- --
See notes to unaudited pro forma condensed consolidated
statements of operations.
</TABLE>
P-5
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
Adjustments
for issuance
Historical of Old Notes Pro Forma
---------- ------------ ---------
<S> <C> <C> <C>
Net Sales........................................ $294.6 $294.6
Cost of products sold............................ 209.9 209.9
----- ---- -----
Gross profit..................................... 84.7 84.7
Selling, general and administrative expenses..... 78.5 78.5
----- ---- -----
Operating income................................. 6.2 6.2
Interest expense................................. 19.0 (4.7) (d) 17.2
2.9 (e)
Other income, net................................ 1.6 1.6
----- ---- -----
Loss before income taxes......................... (11.2) 1.8 (9.4)
Income tax (provision) benefit................... (1.9) (1.9)
----- ---- -----
Net income (loss)................................ $(13.1) $1.8 $(11.3)
===== ==== =====
Other Data
Adjusted EBITDA (f)(g)........................... $30.3 $ 30.3
Depreciation and Amortization.................... 22.5 22.5
Cash interest expense (h)........................ 15.8 16.0
Ratio of earnings to fixed charges (i)........... -- --
See notes to unaudited pro forma condensed consolidated
statements of operations.
</TABLE>
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FORMICA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (continued)
(In millions)
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1998 and the six months ended June 30, 1998 and
1999 give effect to the acquisition and the issuance of the old notes as if both
were effective at the beginning of the applicable periods:
(a) Represents the net increase in interest expense attributable to the
bridge notes and the new credit facility issued in connection with
the acquisition to the extent not reflected in the historical results
for the applicable period.
<TABLE>
Year Ended Six Months
December 31, Ended
1998 June 30, 1998
------------ -------------
<S> <C> <C>
Interest on $200.0 bridge notes (at an effective interest rate
of 10.25%)........................................................ $ 6.8 $ 6.8
Interest on $85.0 term loans under the new credit facility
(at an interest rate of LIBOR(5%) + 2.25%)........................ 2.1 2.1
Amortization of $6.1 of deferred financing costs related to
the bridge notes (over 1 year).................................... 2.0 2.0
Amortization of $5.0 of deferred financing costs related to
the new credit facility (over 6 years)............................ 0.3 0.3
---- ----
$11.2 $11.2
==== ====
</TABLE>
The bridge notes were repaid with a portion of the proceeds of the old
notes. The effective interest rate for the period during which the
bridge notes were outstanding was 10.25%.
(b) Represents net increase in depreciation and amortization related to
property plant and equipment and identified intangibles (primarily
patents and trademarks) based on the allocation of the purchase price
of the acquisition for the applicable period.
Year Ended Six Months
December 31, Ended
1998 June 30, 1998
------------ -------------
$ 3.2 $ 3.2
==== ====
(c) Represents elimination of interest expense related to loans due to
affiliates which were repaid in connection with the acquisition.
Year Ended Six Months
December 31, Ended
1998 June 30, 1998
------------ -------------
$ 0.6 $ 0.6
==== ====
P-7
<PAGE>
FORMICA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (continued)
(In millions)
(d) Represents reversal of interest and amortization of deferred financing
costs related to the bridge notes.
<TABLE>
Year Ended Six Months Six Months
December 31, Ended Ended
1998 June 30, 1998 June 30, 1999
------------ ------------- -------------
<S> <C> <C> <C>
Reversal of interest on $200.0 bridge notes (at an effective
rate of 10.25%)............................................ $20.5 $10.2 $2.6
Reversal of amortization of $6.1 of deferred financing costs
related to the bridge notes (over 1 year).................. 6.1 3.0 2.1
---- ---- ---
$26.6 $13.2 $4.7
==== ==== ===
</TABLE>
(e) Represents interest expense and amortization of deferred financing
costs related to the notes.
<TABLE>
Year Ended Six Months Six Months
December 31, Ended Ended
1998 June 30, 1998 June 30, 1999
------------ ------------- -------------
<S> <C> <C> <C>
Interest on $215.0 of notes at an assumed effective interest
rate of 10.875%............................................ $23.4 $11.7 $2.8
Amortization of $7.0 of deferred financing costs related to
the notes (over 10 years).................................. 0.7 0.3 0.1
---- ---- ---
$24.1 $12.0 $2.9
==== ==== ===
</TABLE>
(f) "Adjusted EBITDA" is defined as income before extraordinary item and
change in accounting principles plus interest expense, income tax
expense, depreciation and amortization expenses and goodwill
impairment charge plus the 1998 Charges totaling $13.5 for the six
months ended June 30, 1998 and $16.5 for the year ended December 31,
1998. EBITDA is a key financial measure but should not be construed as
an alternative to operating income or cash flows from operating
activities (as determined in accordance with generally accepted
accounting principles). We believe that EBITDA is a useful supplement
to net income (loss) and other consolidated income statement data in
understanding cash flows generated from operations that are available
for taxes, debt service and capital expenditures. However, our method
of computation may or may not be comparable to other similarly titled
measures of other companies.
(g) Adjusted EBITDA has not been adjusted for any of the incremental
annualized cost savings that we began implementing in 1998. We began
implementing various elements of the cost reduction program in the
first quarter of 1998 and accordingly, management believes that the
historical results for the periods ended December 31, 1998 reflect
approximately $20.0 of the total anticipated benefits of that cost
savings program. We do not expect to fully realize the benefits of
that program until 1999. We expect to realize $30.0 of annualized cost
savings in 1999. The savings relate primarily to specific areas of
advertising and promotion spending and also target other operating
expenses, including outside consultant expense and transportation and
warehousing costs. See "Business--Cost Savings" and "Risk Factors--Our
cost-cutting strategy may not be successful and may reduce our sales."
(h) Cash interest expense represents total interest expense less
amortization of deferred financing costs.
P-8
<PAGE>
FORMICA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (continued)
(In millions)
(i) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges.
Fixed charges consist of interest expense, which includes the
amortization of deferred financing costs, and one-third of the rent
expense from operating leases, which management believes is a
reasonable approximation of the interest component of rent expense.
For the year ended December 31, 1998, the six months ended June 30,
1998 and the six months ended June 30, 1999, earnings were
insufficient, on a pro forma basis, to cover fixed charges by $45.4,
$29.7 and $9.4, respectively.
P-9
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Arthur Andersen LLP, Independent Public Accountants...............F-2
Report of Ernst & Young LLP, Independent Auditors...........................F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997................F-4
Consolidated Statements of Operations for the eight months ended
December 31, 1998, four months ended April 30, 1998 and years
ended December 31, 1997 and 1996.......................................F-5
Consolidated Statements of Stockholders' Equity for the eight months ended
December 31, 1998, four months ended April 30, 1998 and years ended
December 31, 1997 and 1996.............................................F-6
Consolidated Statements of Cash Flows for the eight months ended
December 31, 1998, four months ended April 30, 1998 and years ended
December 31, 1997 and 1996.............................................F-7
Notes to Consolidated Financial Statements..................................F-8
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998.....................................................F-24
Unaudited Condensed Consolidated Statements of Operations for the six
months ended June 30, 1999 and for the four months ended April 30,
1998 and for the two months ended June 30, 1998.......................F-25
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and for the four months ended April 30,
1998 and for the two months ended June 30, 1998.......................F-26
Notes to Unaudited Condensed Consolidated Financial Statements.............F-27
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Formica Corporation:
We have audited the accompanying consolidated balance sheet of Formica
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, changes in stockholder's
equity and cash flows for the four-month period ended April 30, 1998 and the
eight-month period ended December 31, 1998 (see Note 1). 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, 1998, and the results of their operations and
their cash flows for the four-month period ended April 30, 1998 and the
eight-month period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Roseland, New Jersey
March 3, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Formica Corporation
We have audited the accompanying consolidated balance sheet of Formica
Corporation as of December 31, 1997, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1997 and 1996. 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 consolidated financial position of Formica
Corporation at December 31, 1997, and the consolidated results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
White Plains, New York
May 7, 1998, except for Note 3--"Reclassifications" as to which the date is
March 3, 1999.
F-3
<PAGE>
FORMICA CORPORATION
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1998 AND 1997
(in millions, except share data)
<TABLE>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 31.6 $ 27.2
Accounts receivable, less allowance for doubtful accounts of $4.2 and $1.5,
respectively............................................................... 64.9 68.4
Due from affiliates.......................................................... - 6.5
Inventories.................................................................. 110.3 119.0
Prepaid expenses and other current assets.................................... 15.1 13.1
Deferred income taxes........................................................ 7.9 9.2
----- -----
Total current assets................................................... 229.8 243.4
Property, Plant and Equipment, net............................................ 288.7 280.0
Other Assets:
Intangible assets, net....................................................... 176.5 114.9
Other noncurrent assets...................................................... 1.8 9.4
Total assets........................................................... $696.8 $647.7
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities--notes payable............................................ $ 21.8 $ 33.4
Accounts payable............................................................. 40.0 42.5
Accrued expenses............................................................. 53.5 55.7
Due to affiliates............................................................ - 45.2
----- -----
Total current liabilities.............................................. 115.3 176.8
Notes Payable................................................................. 295.9 11.4
Deferred Income Taxes......................................................... 133.7 104.8
Other Liabilities............................................................. 32.1 11.3
----- -----
Total liabilities...................................................... 577.0 304.3
Commitments and Contingencies
Stockholder's Equity:
Preferred stock--par value $.01 per share--authorized 1,000 shares, none
issued or outstanding...................................................... - -
Common stock - par value $.01 per share - authorized 2,000 shares, issued
and outstanding 100 shares................................................. 0.1 0.1
Additional paid-in capital................................................... 137.0 919.9
Accumulated deficit.......................................................... (22.3) (559.2)
Accumulated other comprehensive income (loss)................................ 5.0 (17.4)
----- -----
Total stockholder's equity............................................. 119.8 343.4
----- -----
Total liabilities and stockholder's equity............................. $696.8 $647.7
===== =====
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
F-4
<PAGE>
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
<S> <C> <C> <C> <C>
Net Sales...................................... $371.4 $178.3 $533.4 $521.6
Cost of Products Sold.......................... 266.2 131.1 350.1 348.3
----- ----- ----- -----
Gross Profit............................ 105.2 47.2 183.3 173.3
Selling, General and Administrative Expenses... 100.5 60.9 202.2 186.7
Cost of Terminated Acquisition................. 3.0 - - -
Goodwill Impairment Charge..................... - - 484.4 -
----- ----- ----- -----
Operating Income (Loss)................. 1.7 (13.7) (503.3) (13.4)
Interest Expense............................... (25.7) (1.7) (3.1) (10.6)
Other Income................................... 4.5 0.8 1.8 1.1
----- ----- ----- -----
Loss Before Income Taxes....................... (19.5) (14.6) (504.6) (22.9)
Income Tax Provision........................... (2.8) - (0.2) (5.0)
----- ----- ----- -----
Net Loss................................ $(22.3) $(14.6) $(504.8) $(27.9)
===== ===== ===== =====
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
F-5
<PAGE>
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in millions)
<TABLE>
Accumulated
Other
Additional Comprehen-
Common Paid-in- Accumulated sive Income
Stock Capital Deficit (Loss) Total
------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........................ $0.1 $487.2 $(26.5) $(1.4) $459.4
Comprehensive loss:
Net loss........................................... - - (27.9) - (27.9)
Foreign currency translation adjustments........... - - - 1.7 1.7
-----
(26.2)
Capital contributed by Parent....................... - 437.5 - - 437.5
--- ----- ----- ---- -----
Balance at December 31, 1996........................ 0.1 924.7 (54.4) 0.3 870.7
Comprehensive loss:
Net loss........................................... - - (504.8) - (504.8)
Foreign currency translation adjustments........... - - - (17.7) (17.7)
-----
(522.5)
Contribution of intangible pension asset to Parent.. - (4.8) - - (4.8)
--- ----- ----- ---- -----
Balance at December 31, 1997 0.1 919.9 (559.2) (17.4) 343.4
Comprehensive loss:
Net loss........................................... - - (14.6) - (14.6)
Foreign currency translation adjustments........... 2.9 2.9
-----
(11.7)
Dividend to Parent.................................. - - (0.5) - (0.5)
--- ----- ----- ---- -----
Balance at April 30, 1998........................... $0.1 $919.9 (574.3) $(14.5) $331.2
=== ===== ===== ==== =====
- --------------------------------------------------------------------------------------------------------------------------
Capitalization of the Company at May 1, 1998........ $0.1 $392.0 $ - $ - $392.1
Dividend to Parent.................................. - (255.0) - - (255.0)
--- ----- ----- ---- -----
Net capitalization of the Company at date of
acquisition........................................ 0.1 137.0 - - 137.1
Comprehensive loss:
Net loss........................................... - - (22.3) - (22.3)
Foreign currency translation adjustments........... - - - 5.0 5.0
(17.3)
--- ----- ----- ---- -----
Balance at December 31, 1998........................ $0.1 $137.0 $(22.3) $ 5.0 $119.8
=== ===== ===== ==== =====
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
F-6
<PAGE>
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, -------------------
1998 1998 1997 1996
------------ --------- ------ ------
<S> <C> <C> <C> <C>
Operating Activities:
Net loss.................................................. $(22.3) $(14.6) $(504.8) $(27.9)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 29.3 11.1 55.7 52.1
Goodwill impairment..................................... - - 484.4 -
Deferred income taxes................................... (0.8) 1.2 - 1.0
Changes in assets and liabilities:
Accounts receivable................................... 8.9 (5.4) 6.3 (4.0)
Inventories........................................... 7.8 (2.0) (6.4) (6.2)
Prepaid expenses and other current assets............. (7.4) 5.8 1.7 (4.1)
Accounts payable...................................... (2.6) 0.1 (10.4) 11.7
Accrued expenses...................................... (3.0) (18.1) (11.2) (32.0)
Other, net............................................ 16.8 10.2 (9.6) 10.9
----- ---- ---- ----
Net cash provided by (used in) operating activities. 26.7 (11.7) 5.7 1.5
Investing Activities--Purchases of property, plant and (35.5) (8.3) (46.5) (44.5)
----- ---- ----- -----
equipment..................................................
Net cash used in investing activities............... (35.5) (8.3) (46.5) (44.5)
----- ---- ---- ----
Financing Activities:
Proceeds from borrowings, net............................. 288.1 - 47.1 56.5
Due from affiliates....................................... - 15.5 - -
Dividends paid............................................ (255.0) (0.5) - -
Payments of debt.......................................... (0.1) (15.1) - -
----- ---- ---- ----
Net cash provided by (used in) financing activities. 33.0 (0.1) 47.1 56.5
Effects of Exchange Rate Changes on Cash................... 0.5 (0.2) (5.4) 3.0
--- ---- ---- ---
Increase/(Decrease) in Cash and Cash Equivalents........... 24.7 (20.3) 0.9 16.5
Cash and Cash Equivalents at the Beginning of Period....... 6.9 27.2 26.3 9.8
----- ---- ---- ----
Cash and Cash Equivalents at the End of Period............. $ 31.6 $ 6.9 $ 27.2 $26.3
===== ==== ==== ====
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
F-7
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions)
(1) BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
Formica Corporation ("Formica" or the "Company") is a wholly-owned
subsidiary of FM Holdings, Inc. ("Holdings"), which is a wholly-owned subsidiary
of Laminates Acquisition Co. ("Laminates"). Holdings and Laminates have no
operations separate from the operations of the Company and their assets consist
primarily of their direct or indirect investment in the Company.
The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries, prior to the acquisition from
BTR Nylex Ltd. (BTR) on May 1, 1998 (see Note 2), for the years ended December
31, 1997 and 1996 and the four-month period ended April 30, 1998. The accounts
of the Company as of and for the eight-month period ended December 31, 1998
reflect the acquisition. The results for the pre-acquisition period are not
necessarily comparable to the results for the post acquisition period because of
the changes in organizational structure, recorded asset values, cost structure
and capitalization of the Company resulting from the acquisition. Earnings per
share data are not presented because the Company's common stock is not publicly
traded and the Company is a wholly-owned subsidiary of Holdings.
The Company is a multinational organization, principally engaged in the
design, manufacture and distribution of high pressure decorative laminates. The
Company's operations and markets are primarily based in North America, Europe
and Asia.
(2) ACQUISITION:
Through April 30, 1998, the Company was an indirect wholly-owned
subsidiary of BTR. On May 1, 1998, Laminates acquired all of the outstanding
shares of Holdings, the Company's direct parent, from BTR, for approximately
$392.0 of cash (including transaction costs of approximately $15.4) and the
assumption of approximately $29.0 of net debt. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the excess of the purchase
price over the book value of the net assets acquired of $61.0 has been allocated
primarily to intangible assets based on appraisals of such assets.
Prior to May 1, 1998, the new management of Formica began to formulate a
plan to restructure certain operations. Included in the allocation of the
purchase price is a restructuring provision of $6.6 million primarily related to
severance. The Company began to execute the restructuring in 1999, and there
were no charges against this reserve through December 31, 1998. The Company
expects that the restructuring will be substantially completed in 1999.
The acquisition was financed with $87.1 in proceeds from the sale of
preferred and common stock by Laminates, $50.0 in proceeds from the sale of
senior preferred stock by an affiliate (which was merged into Holdings) and from
borrowings of $280.0 by the Company. The net proceeds to Holdings from the sale
of junior preferred stock and the net proceeds from borrowings by the Company
were transferred to Laminates as a dividend. After the payments to BTR for the
acquisition price, Laminates contributed the remaining cash to the Company.
See Note 8 for acquisition financing.
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1998 and 1997 assume the acquisition had occurred
at the beginning of the applicable period:
1998 1997
------ ------
Net sales................ $549.7 $533.4
Net loss................. $(48.2) $(35.0)
F-8
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisition been completed at the beginning of 1997 or at the beginning of
1998, or of future results.
In March 1999, Formica acquired a manufacturer of solid surface products.
The acquisition will not have a material effect on the Company's financial
position or results of operations.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. Investments in less than majority-owned affiliates,
over which the Company has significant influence, are accounted for using the
equity method. All intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
Revenues are recognized upon shipment of goods to customers.
Foreign Currencies
The Company's international operations are translated into U.S. dollars
using current exchange rates at the end of the period for the balance sheets and
a weighted-average rate for the period for the statements of operations with
currency translation adjustments reflected in accumulated other comprehensive
income (loss) in stockholder's equity. Realized gains and losses from foreign
currency transactions are reflected in the consolidated statements of
operations.
Foreign Exchange Contracts
The Company enters into forward sale and purchase contracts to manage
currency risk resulting from purchase and sale commitments denominated in
foreign currencies. Such contracts are usually short-term in nature and
generally involve the exchange of two foreign currencies. Gains and losses
related to these contracts are deferred and included in the measurement of the
related purchase or sale transaction. At December 31, 1998, the Company had $1.5
in contracts to buy and $0.1 in contracts to sell foreign currencies. Net
unrealized gains or losses were not material to the consolidated financial
statements at December 31, 1998.
F-9
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Concentration of Credit Risk-
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original
maturities of three months or less when purchased to be cash equivalents.
Customer Incentive Rebate Program
The Company offers percentage rebates to distributors on specified
products based on their actual resale prices to end customers, within
pre-established parameters. Customer incentive rebate expenses are accrued at
the time of the sale based upon historical rebate percentages. The accrued
expenses are then reduced through payments of rebates to the distributors after
the sale to the end customer.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
valued using the first-in, first-out (FIFO) method except for the United States
which utilizes the last-in, first-out (LIFO) method. As of December 31, 1998 and
1997, 55.0% and 53.8%, respectively, of inventories were valued under the LIFO
method. Inventories at LIFO approximate inventories at FIFO.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation charges are
made on a straight-line basis over the estimated useful life of the assets as
follows:
Buildings and improvements........................30 to 40 years
Machinery and equipment........................... 3 to 13 years
Computer and office equipment..................... 3 to 10 years
Leasehold improvements are amortized over the lesser of the life of the
asset or the lease term.
Intangible Assets
Intangible assets are amortized on a straight-line basis over their
estimated useful lives (5 to 20 years). The Company periodically reviews
intangible assets to evaluate whether changes have occurred that would suggest
these assets may be impaired based on the estimated net cash flows over the
remaining amortization period. If this review indicates that the remaining
estimated useful life requires revision or that the asset is not recoverable,
the carrying amount of the asset is reduced by the estimated shortfall of cash
flows on a discounted basis. See Note 6 for the impairment charge recorded by
the Company in 1997.
F-10
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Financial Instruments
At December 31, 1998, the fair value of substantially all of the Company's
financial instruments approximated their carrying value.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs included in selling, general and administrative expenses were
$1.4, $1.1, $3.3 and $1.2 for the eight-month period ended December 31, 1998,
the four-month period ended April 30, 1998, and the years ended December 31,
1997 and 1996, respectively.
Environmental Compliance and Remediation Costs
Environmental compliance costs include ongoing maintenance, monitoring and
similar expenditures. Such costs are expensed as incurred. Environmental
remediation costs are accrued when environmental assessments and/or remedial
efforts are probable and the cost can be reasonably estimated (see Note 15).
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs included in
selling, general and administrative expenses were $10.3, $10.6, $24.1 and $16.4
for the eight-month period ended December 31, 1998, the four-month period ended
April 30, 1998, and the years ended December 31, 1997 and 1996, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation. Effective January 1, 1998, the Company adopted
SFAS No. 130 - "Reporting Comprehensive Income," SFAS No. 131- "Disclosures
about Segments of an Enterprise and Related Information" and SFAS No. 132-
"Employers' Disclosures about Pensions and Other Postretirement Benefits". These
standards increased financial reporting disclosures and had no impact on the
Company's financial position or results of operations. Certain reclassifications
have been made to the December 31, 1997 and 1996 consolidated financial
statements to conform with the financial reporting requirements of SFAS No. 130
(see Consolidated Statements of Changes in Stockholder's Equity), SFAS No. 131
(see Note 13) and SFAS No. 132 (see Note 9).
Recently Issued Accounting Standards
In June 1998, SFAS No. 133- "Accounting for Derivative Instruments and
Hedging Activities" was issued and is effective for fiscal years beginning after
June 15, 1999 although earlier application is permitted. SFAS No. 133 requires
all derivatives to be measured at fair value and recognized as assets or
liabilities on the balance sheet.
F-11
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Changes in the fair value of derivatives should be recognized in either net
income or other comprehensive income, depending on the designated purpose of the
derivative. SFAS No. 133 is not expected to have a material impact on the
Company's financial position or results of operations. In February 1998,
Statement of Position ("SOP") 98-1- "Accounting for Costs of Computer Software
Developed or Purchased for Internal Use" was issued and is effective for fiscal
years beginning after December 15, 1998. In April 1998, SOP 98-5- "Reporting on
the Costs of Start-up Activities" was issued and is effective for fiscal years
beginning after December 15, 1998. SOP 98-1 and SOP 98-5 are not expected to
have a material impact on the Company's financial position or results of
operations.
(4) INVENTORIES:
Inventories consisted of the following at December 31:
1998 1997
------ ------
Finished goods........................... $ 77.2 $ 75.5
Work-in-process.......................... 12.2 10.6
Raw materials............................ 42.6 44.8
----- -----
Total............................... 132.0 130.9
Less: Obsolescence reserve............... 21.7 11.9
----- -----
$110.3 $119.0
===== =====
(5) PROPERTY, PLANT AND EQUIPMENT:
Depreciable assets consisted of the following at December 31:
1998 1997
------ ------
Land..................................... $17.7 $13.0
Buildings and improvements............... 51.0 59.2
Machinery and equipment.................. 237.2 261.0
----- -----
Total............................... 305.9 333.2
Less: Accumulated depreciation........... 17.2 53.2
----- -----
$288.7 $280.0
===== =====
Depreciation expense was $16.0, $7.9, $21.4, and $18.8 for the eight-month
period ended December 31, 1998, the four-month period ended April 30, 1998, and
the years ended December 31, 1997 and 1996, respectively.
Interest costs incurred in connection with major capital expenditures are
capitalized. Capitalized interest is amortized over the lives of the related
assets. Net interest costs of $1.3 were capitalized in 1997. No interest costs
were capitalized in 1998.
(6) INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31:
1998 1997
------ ------
Trademarks............................... $140.0 $150.0
Patents.................................. 19.9 14.4
Proprietary technology and other......... 29.4 40.3
----- -----
Total............................... 189.3 204.7
Less: Accumulated amortization........... 12.8 89.8
----- -----
$176.5 $114.9
===== =====
F-12
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
During 1997, BTR decided to dispose of its building product businesses,
including Formica by immediately offering such businesses for sale. Accordingly,
the Company recorded a goodwill impairment charge of $484.4 which was determined
utilizing the fair value of the Company's assets considering among other things,
the purchase price for the sale of Formica. The impairment charge did not result
in the reduction of property, plant, and equipment.
(7) ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
1998 1997
------ ------
Accrued salaries and benefits............ $20.6 $30.3
Restructuring reserve.................... 6.6 -
Other accrued expenses................... 26.3 25.4
----- -----
Total............................... $53.5 $55.7
===== =====
(8) NOTES PAYABLE:
Notes payable consisted of the following at December 31:
1998 1997
------ ------
Senior subordinated notes................ $200.0 $ -
Term loans............................... 85.0 -
Other.................................... 32.7 44.8
----- -----
Total............................... 317.7 44.8
Less: Current maturities................. 21.8 33.4
----- -----
$295.9 $11.4
===== =====
In connection with the acquisition (see Note 2), Formica sold $200.0 of
senior subordinated unsecured increasing rate bridge notes (the "Bridge Notes")
which bear interest at the greater of prime plus an additional amount or 10%
and, together with its subsidiaries, borrowed $80.0 of term loans under the new
senior loan facility (the "New Credit Facility"). Borrowings under the new
credit facility were expanded to $85.0 after the acquisition.
On February 22, 1999, the Company issued $215 of 10 7/8% Senior
Subordinated Notes due March 1, 2009 (the "Notes") and repaid the Bridge Notes.
Interest is payable semi-annually on March 1 and September 1 of each year. The
Notes are redeemable at the option of the Company in part beginning in 2002 and
in whole beginning in 2004 at specified redemption prices.
The Notes and related indenture place certain restrictions on the Company
and its subsidiaries including the ability to pay dividends, issue preferred
stock, repurchase capital stock, incur and pay indebtedness, sell assets and
make certain restricted investments.
F-13
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
The Company is subject to a Registration Rights Agreement that provides
that the Company will file an Exchange Offer Registration with the Securities
and Exchange Commission ("SEC") to register the Notes prior to 90 days from
February 22, 1999 and that the Company will use its reasonable best efforts to
have the Exchange Offer Registration Statement declared effective by the SEC on
or prior to 180 days from February 22, 1999. The Registration Rights Agreement
provides for certain liquidated damages to be paid to the holders of the Notes
if the registration timetable is not met.
The New Credit Facility includes a $120.0 revolving credit facility. The
revolving credit facility may be increased by up to $25.0 at the request of the
Company and will terminate on May 1, 2004. There were no borrowings outstanding
under the revolving credit facility at December 31, 1998. The term loans under
the New Credit Facility consist of $40.0, $35.0 and $10.0 loans.
Borrowings under the New Credit Facility generally bear interest based on
a margin over, at the Company's option, the base rate or LIBOR. The applicable
margin, until the date of delivery of the Company's December 31, 1998 financial
statements, will be 2.25% over LIBOR or 1% over the base rate. Thereafter, the
applicable margin will vary based upon the Company's ratio of consolidated debt
to EBITDA (as defined). The Company's obligations under the New Credit Facility
are guaranteed by Laminates, Holdings and all existing or future domestic
subsidiaries of the Company (the "subsidiary guarantors") and are secured by
substantially all of the assets of the Company and the subsidiary guarantors,
including a pledge of the capital stock of all existing and future subsidiaries
of the Company (provided that no more than 65% of the voting stock of any
foreign subsidiary shall be pledged) and a pledge by Holdings of the stock of
the Company and by Laminates of the stock of Holdings.
The New Credit Facility contains financial covenants requiring the Company
to maintain minimum earnings before interest, taxes, depreciation and
amortization; minimum coverage of interest expense and fixed charges; and a
maximum leverage ratio. The Company was in compliance with such financial
covenants at December 31, 1998.
The Company maintains various credit facilities in foreign countries
(primarily in Asia) that provide for borrowings in local currencies. At December
31, 1998, the Company has secured approximately $29.0 in letters of credit under
the New Credit Facility to provide credit enhancement for certain of such credit
facilities.
In addition to the above, the Company has established borrowing
arrangements with various financial institutions at interest rates ranging from
2.0% to 9.5% in order to fund the ongoing operations of the business. At
December 31, 1998 and 1997, there was approximately $32.7 and $44.8,
respectively, outstanding under these facilities. At December 31, 1998,
approximately $4.7 was available under these facilities.
The approximate aggregate debt maturities are as follows as of December
31, 1998:
1999..................................................... $ 21.8
2000..................................................... 7.0
2001..................................................... 15.0
2002..................................................... 20.3
2003..................................................... 32.5
Thereafter............................................... 221.1
-----
$ 317.7
=====
F-14
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Interest expense for 1997 and 1996 were inclusive of $0.5 and $1.6,
respectively, attributable to affiliated companies. There was no interest
expense attributed to affiliated companies in 1998. Cash payments for interest
approximated $20.6, $0.2, $3.1, and $10.6 for the eight-month period ended
December 31, 1998, the four-month period ended April 30, 1998, and the years
ended 1997 and 1996, respectively.
(9) EMPLOYEE BENEFIT PLANS:
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits", which revises disclosures about
pension and other postretirement benefit plans.
The Company sponsors defined benefit pension plans covering substantially
all United States and Canadian employees and certain employees in other
countries. The benefits provided under the defined benefit pension plans are
determined under formulas using years of service and compensation, or formulas
using years of service and a flat dollar benefit rate. The Company's principal
funding policy for the defined benefit pension plans is to maintain the plans in
accordance with the minimum funding provisions of the Employee Retirement Income
Security Act of 1974. The majority of the defined benefit pension plans' assets
are held in trust, and consist principally of equity securities and fixed income
instruments.
The majority of the defined contribution plans sponsored by the Company
are qualified under Section 401(k) of the Internal Revenue Code, with the amount
of the Company's contributions determined under a matching formula tied to
employee payroll deduction contributions. In addition, some defined contribution
plans offer discretionary Company contributions based upon a profit based
formula. Expenses related to these plans totaled approximately $1.1, $0.3, $0.7
and $0.7 during the eight-month period ended December 31, 1998, the four-month
period ended April 30, 1998, and the years ended December 31, 1997 and 1996,
respectively.
The net cost for Company and subsidiary defined benefit pension plans was
comprised of the following components:
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, -------------------
1998 1998 1997 1996
------------ --------- ---- ----
<S> <C> <C> <C> <C>
Service cost.......................... $2.9 $0.6 $1.7 $2.6
Interest cost......................... 3.0 1.2 3.5 6.0
Expected return on plan assets........ (2.8) (1.0) (3.1) (7.0)
Other................................. - - 0.1 0.1
---- ---- --- ---
Net periodic pension cost............. $3.1 $0.8 $2.2 $1.7
==== ==== ==== ====
</TABLE>
The net periodic pension cost attributable to international plans included
in the above table was $2.0, $0.2, $0.8 and $0.1 during the eight-month period
ended December 31, 1998, the four-month period ended April 30, 1998 and the
years ended December 31, 1997 and 1996.
The Company provides for the estimated cost of postretirement benefits
(principally medical, dental and life insurance benefits provided to retirees
and eligible dependents). The Company does not fund its postretirement benefit
plans.
The net cost of postretirement benefits other than pensions was comprised
of the following components:
F-15
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, -------------------
1998 1998 1997 1996
------------ --------- ---- ----
<S> <C> <C> <C> <C>
Service cost............................ $0.1 $ - $0.1 $0.1
Interest cost........................... 0.3 0.1 0.3 0.3
--- --- --- ---
Net postretirement benefit cost......... $0.4 $0.1 $0.4 $0.4
==== ==== ==== ====
</TABLE>
The cost of health care and life insurance benefits for active employees
was $7.5, $3.8, $11.0 and $9.8 for the eight-month period ended December 31,
1998, the four-month period ended April 30, 1998, and the years ended December
31, 1997 and 1996, respectively.
Summarized information about the changes in plan assets and benefit
obligation is as follows:
<TABLE>
Other Postretirement
Pension Benefits Benefits
--------------------- ----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fair value of plan assets at January 1........ $40.3 $85.0 $ - $ -
Actual return on plan assets.................. 4.8 6.5 - -
Company contributions......................... 4.1 3.8 - -
Transfer of plan's assets to BTR.............. - (52.1)
Transfer of plan's assets from BTR............ 38.4 -
Benefits paid from plan assets................ (4.2) (2.9) - -
---- ---- --- ---
Fair value of plan assets at December 31...... $83.4 $40.3 $ - $ -
==== ==== === ===
Benefit obligation at January 1............... $52.7 $91.5 $ 5.5 $ 5.1
Service cost.................................. 2.1 1.9 0.2 0.1
Interest cost................................. 2.0 3.5 0.1 0.3
Actuarial (gains) losses...................... 0.9 2.8 - -
Benefits paid................................. (1.3) (2.9) - -
Transfer from (to) BTR and other.............. 39.8 (44.1) - -
---- ---- --- ---
Benefit obligation at December 31............. $96.2 $52.7 $ 5.8 $ 5.5
==== ==== === ===
</TABLE>
The fair value of international pension plan assets included in the above
table was $44.6 and $8.2 in 1998 and 1997, respectively. The pension benefit
obligation of international plans included in this table was $49.3 and $12.7 in
1998 and 1997, respectively.
F-16
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
A reconciliation of the plans' funded status to the net asset (liability)
recognized at December 31 is as follows:
<TABLE>
Other Postretirement
Pension Benefits Benefits
--------------------- -----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Funded status (benefit obligation in excess of plan assets). $(12.8) $(12.4) $(6.4) $(6.2)
Unrecognized net loss (gain)................................ (1.4) 0.2 0.1 0.7
---- ---- --- ---
Net asset (liability)................................ (14.2) (12.2) (6.3) (5.5)
---- ---- --- ---
Reported as:
Other liabilities........................................ $14.2 $12.2 $6.3 $5.5
==== ==== === ===
</TABLE>
For Company pension plans with benefit obligations in excess of plan
assets at December 31, 1998 and 1997, the fair value of plan assets was $45.9
and $32.1, respectively, and the benefit obligation was $61.7 and $45.2,
respectively.
Assumptions used in determining pension plan information are:
<TABLE>
Eight Months Four Months Year Ended
Ended Ended December 31,
December 31, April 30, -------------------------
1998 1998 1997 1996
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Rate of future compensation increases................ 0.0%-5.0% 0.0%-5.5% 0.0%-5.5% 4.0%-6.0%
Discount rate........................................ 5.0%-7.0% 6.5%-8.0% 6.5%-8.0% 7.3%-10.0%
Expected long-term rate of return on plan assets..... 0.0%-9.0% 0.0%-9.5% 0.0%-9.5% 0.0%-9.5%
</TABLE>
Assumptions used in determining other post retirement plan information are
as follows:
<TABLE>
Eight Months Four Months Year Ended
Ended Ended December 31,
December 31, April 30, -------------------------
1998 1998 1997 1996
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Rate of future compensation increases................ 0.0%-3.5% 0.0%-3.5% 4.0% 5.0%
Discount rate........................................ 5.0%-7.0% 5.0%-7.0% 7.8% 7.3%
Expected long-term rate of return on plan assets..... 0.0%-9.0% 0.0%-9.0% 9.0% 9.0%
</TABLE>
In the aggregate, average international plan assumptions do not vary
significantly from U.S. assumptions.
The health care cost trend rate for other postretirement benefit plans was
10.0% at December 31, 1998. The rate will gradually decline to 6.0% over a
10-year period. A one percentage point change in the health care cost trend rate
would have had the following effects:
F-17
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
One Percentage Point
----------------------
Increase Decrease
-------- --------
Effect on total service and interest cost components..... $0.1 $0.1
=== ===
Effect on benefit obligation............................. $0.2 $0.2
=== ===
(10) INCOME TAXES:
The provision (benefit) for income taxes consisted of the following:
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
Current:
Federal........... $ -- $ -- $(2.1) $(4.8)
State............. 0.1 -- (0.3) (1.0)
Foreign........... 3.5 (1.2) 2.6 9.8
--- ---- --- ---
3.6 (1.2) 0.2 4.0
Deferred:
Federal........... -- -- (0.1) 0.3
State............. -- -- -- --
Foreign........... (0.8) 1.2 0.1 0.7
---- --- --- ---
(0.8) 1.2 -- 1.0
---- --- ---
$2.8 $ -- $0.2 $5.0
==== == ==== ====
Pretax income (loss) was taxed in the following jurisdictions:
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
Domestic............. $(25.6) $(12.6) $(518.4) $(52.2)
Foreign.............. 6.1 (2.0) 13.8 29.3
---- ---- ----- ----
Total pretax loss.. $(19.5) $(14.6) $(504.6) $(22.9)
==== ==== ===== ====
The 1997 domestic pretax loss includes the goodwill impairment charge of
$484.4 (see Note 6).
Deferred tax assets and liabilities are comprised of the following at
December 31:
1998 1997
---- ----
Deferred tax liabilities:
Book over tax bases of assets acquired.... $133.6 $90.7
Depreciation.............................. 0.1 14.1
F-18
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
1998 1997
---- ----
LIFO reserve.............................. 2.7 3.7
Other, net................................ 7.0 1.9
----- -----
Total deferred tax liabilities........ 143.4 110.4
----- -----
Deferred tax assets:
Accrued liabilities....................... 15.0 10.1
Net operating loss carryforwards.......... 15.4 9.6
Other, net................................ 2.6 4.7
----- -----
Total deferred tax assets............. 33.0 24.4
----- -----
Valuation allowance................... (15.4) (9.6)
----- -----
Net deferred tax liabilities.......... $125.8 $95.6
===== =====
The Company does not provide deferred income taxes on undistributed
earnings of its foreign subsidiaries as such earnings are considered
indefinitely reinvested. At December 31, 1998, the cumulative amount of
undistributed earnings on which the Company has not recognized deferred income
taxes is approximately $155.0. Determining the amount of unrecognized deferred
tax liability for this amount is not practicable. However, if the undistributed
earnings were remitted, any resulting federal tax would be substantially reduced
by foreign tax credits.
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to the Company's tax expense (benefit) is as follows:
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
<S> <C> <C> <C> <C>
U.S. statutory rate.......................................... (35.0%) (35.0%) (35.0%) (35.0%)
State income taxes........................................... -- -- -- (4.3%)
Intangibles amortization..................................... -- -- 35.2% 39.0%
Subpart F income............................................. 2.6% 2.1% 0.1% 2.3%
Tax on income of foreign subsidiaries and rate differential.. 13.8% -- (0.4%) 2.5%
Change in valuation allowance................................ 32.3% 32.9% -- 16.7%
Other, net................................................... 0.7% -- 0.1% 0.6%
---- ---- ---- ----
14.4% -- % -- % 21.8%
==== ==== ==== ====
</TABLE>
The Company is included in the consolidated federal and state tax returns
of its ultimate parent, Laminates. Cash (paid) received for income taxes
amounted to ($1.9), ($1.0), $4.0 and $8.5, for the eight-month period ended
December 31, 1998, the four-month period ended April 30, 1998, and years ended
December 31, 1997 and 1996, respectively. The utilization of net operating loss
carryforwards expiring in varying amounts in future periods may be limited by
Internal Revenue Service regulations regarding "change in ownership" (see Note
2), therefore, the Company has provided a full valuation allowance against the
net operating loss carryforwards.
F-19
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
(11) RELATED PARTY TRANSACTIONS:
During 1996, the Company entered into an arrangement with BTR whereby
certain advances previously provided for the repayment of certain acquisition
related debt and other operating capital was contributed to the capital of the
Company. This transaction, totaling $437.5 million was accounted for as a
contribution of capital from BTR in the Consolidated Statement of Changes in
Stockholder's Equity.
In order to fund its normal working capital requirements, the Company had
entered into certain arrangements with BTR affiliated companies. Such
arrangements were primarily short-term in nature and generally charged no
interest. At December 31, 1997, there was approximately $45.2 outstanding under
these arrangements.
(12) TERMINATION OF PROPOSED ACQUISITION:
During the eight months ended December 31, 1998, the Company recorded a
charge of $3.0 for expenses incurred in connection with its proposed acquisition
of a decorative products business. The Company has abandoned the proposed
transaction.
(13) SEGMENT REPORTING:
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
and disclosure requirements for operating segments.
The Company is principally engaged in a single line of business: the
design, manufacture and distribution of high pressure decorative laminates.
Substantially all revenues result from the sale of decorative laminates through
domestic and international distributors and dealers. The Company's operations
are managed on a geographic basis and, therefore, reportable segments are based
on geographic areas. Segment revenues are defined as net sales to external
customers of each segment. The Company measures segment results as operating
income (loss), which is defined as income (loss) before goodwill impairment
charge, interest expense, other income (expense) and income taxes. Depreciation
and amortization expense is included in the measure of segment results. All
intercompany sales and expenses have been eliminated in determining segment
revenues and segment profit (loss).
<TABLE>
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
<S> <C> <C> <C> <C>
Segment revenues
United States........................................... $202.3 $98.1 $272.2 $262.0
North America - other.................................... 32.3 13.9 42.8 39.2
Europe................................................... 92.5 48.4 146.1 156.1
Asia..................................................... 44.3 17.9 72.3 64.3
----- ----- ----- -----
Total........................................... $371.4 $178.3 $533.4 $521.6
===== ===== ===== =====
Segment profit (loss)
North America............................................ $(10.7) $(13.9) $(33.8) $(13.4)
Europe................................................... 7.6 1.3 9.0 (0.1)
Asia..................................................... 4.8 (1.1) 5.9 0.1
----- ----- ----- -----
Total........................................... $1.7 $(13.7) $(18.9) $(13.4)
===== ===== ===== =====
F-20
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Four
Eight Months Months Year Ended
Ended Ended December 31,
December 31, April 30, ------------------
1998 1998 1997 1996
------------ --------- ---- ----
Depreciation and amortization (included in segment profit
(loss))
North America............................................ $ 22.4 $ 6.2 $ 32.4 $ 29.3
Europe................................................... 4.6 3.5 17.2 17.5
Asia..................................................... 2.3 1.4 6.1 5.3
----- ----- ----- -----
Total........................................... $ 29.3 $ 11.1 $ 55.7 $ 52.1
===== ===== ===== =====
Expenditures for long-lived assets
North America............................................ $ 20.6 $ 4.8 $ 27.6 $ 26.9
Europe................................................... 11.1 1.2 11.2 8.4
Asia..................................................... 3.8 2.3 7.7 9.2
----- ----- ----- -----
Total........................................... $ 35.5 $ 8.3 $46.5 $ 44.5
===== ===== ===== =====
A reconciliation of total segment profit (loss) to income
(loss) before income taxes is as follows-
Segment profit (loss).................................... $1.7 $(13.7) $ (18.9) $(13.4)
Goodwill impairment charge............................... -- -- (484.4) --
Interest expense......................................... (25.7) (1.7) (3.1) (10.6)
Other income (expense)................................... 4.5 0.8 1.8 1.1
----- ----- ----- -----
Loss before income taxes........................ $(19.5) $(14.6) $(504.6) $(22.9)
===== ===== ===== =====
</TABLE>
December 31,
-----------------------------
1998 1997 1996
---- ---- ----
Total assets:
United States................ $406.4 $374.0 $ 711.9
North America - Other........ 36.4 34.5 35.6
Europe....................... 179.1 184.8 298.9
Asia......................... 74.9 54.4 90.4
----- ----- -------
Total............... $696.8 $647.7 $1,136.8
===== ===== =======
Long-lived assets:
United States................ $128.6 $151.9 $ 122.6
North America - Other........ 14.3 15.4 16.8
Europe....................... 106.6 80.7 92.9
Asia......................... 39.2 32.0 22.6
----- ----- -------
Total............... $288.7 $280.0 $ 254.9
===== ===== =======
(14) CHANGES IN ACCOUNTING ESTIMATES:
During the eight and four-months periods ended December 31 and April 30,
1998, the Company made certain changes in accounting estimates, resulting in
charges totaling $7.8 million and $5.7 million, respectively, due to new
management plans with the respect to asset carrying and disposition policies and
new information becoming
F-21
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
available, including information concerning customers, products and competitive
conditions in certain markets. The changes in accounting estimates for the
eight-month period ended December 31, 1998 include increasing the provisions for
doubtful accounts and inventory obsolescence by $2.4 million and $5.4 million,
respectively. The changes in accounting estimates for the four-month period
ended April 30, 1998 include increasing the provision for customer rebate
programs by $2.7 million, increasing the provision for doubtful accounts by $1.4
million and accruals for customs, property tax exposures and other items
totaling $1.6 million.
(15) COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases certain machinery, such as transportation and plant
equipment, and facilities, such as administrative offices and warehouse space,
under various non-cancelable operating lease agreements.
At December 31, 1998, future minimum lease payments under operating lease
agreements that have a remaining term in excess of one year are as follows:
1999.................................................. $ 6.3
2000.................................................. 5.7
2001.................................................. 4.7
2002.................................................. 3.7
2003.................................................. 3.3
Thereafter............................................ 2.9
----
$ 26.6
====
Rent expense aggregated $5.3, $2.4, $7.8 and $7.6 for the eight-month
period ended December 31, 1998, the four-month period ended April 30, 1998, and
the years ended December 31, 1997 and 1996, respectively.
Letters of Credit
At December 31, 1998, the Company was contingently liable for
approximately $30.3 of documentary and performance letters of credit.
Purchase Commitments
During 1996, the Company entered into a contract, expiring in 2002, to
purchase laminate flooring from an outside supplier. Minimum purchase
commitments for laminate flooring at December 31, 1998 are as follows:
1999.................................................. $ 20.1
2000.................................................. 22.0
2001.................................................. 19.0
2002.................................................. 4.5
----
$ 65.6
====
Purchases under such contract were $14.6 and $19.6 for the years ended
December 31, 1998 and 1997, respectively.
F-22
<PAGE>
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
Assuming the Company did not make any of its annual minimum purchase
commitments over the remaining term of the contract, the maximum aggregate
penalty which could be incurred would approximate $32.8.
Litigation and Environmental Matters
In the ordinary course of business, the Company is the subject of or party
to various pending litigation and claims. While it is not possible to predict
with certainty the outcome of any potential litigation or claims, the Company
believes, any known contingencies, individually or in the aggregate, will not
have a material adverse impact on its financial position or results of
operations.
The Company has been the subject of administrative proceedings, litigation
and investigations relating to environmental matters. Currently, the Company has
been named as a potentially responsible party at several Superfund sites and has
reserved $4.0 at December 31, 1998 and 1997 with respect to two such sites. The
Company believes that the ultimate resolution of these matters should not have a
material adverse effect on the Company's financial position or results of
operations.
F-23
<PAGE>
FORMICA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
June 30 December 31
1999 1998
----------- -----------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 7.2 $ 31.6
Accounts receivable, net.................................................. 88.5 64.9
Inventories............................................................... 129.0 110.3
Prepaid expenses and other current assets................................. 18.3 15.1
Deferred income taxes..................................................... 8.1 7.9
----- -----
Total current assets.............................................. 251.1 229.8
Property, Plant and Equipment, Net 287.7 288.7
Other Assets:
Intangible assets, net.................................................... 167.0 176.5
Other noncurrent assets................................................... 1.7 1.8
----- -----
Total assets...................................................... $707.5 $696.8
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities-notes payable.......................................... $ 21.7 $ 21.8
Accounts payable.......................................................... 44.8 40.0
Accrued expenses.......................................................... 59.7 53.5
----- -----
Total current liabilities......................................... 126.2 115.3
Notes Payable.............................................................. 319.9 295.9
Deferred Income Taxes...................................................... 133.7 133.7
Other Liabilities.......................................................... 32.8 32.1
----- -----
Total liabilities................................................. 612.6 577.0
Commitments and Contingencies..............................................
Stockholder's Equity:
Preferred stock - par value $.01 per share - authorized 1,000 shares,
none issued or outstanding.............................................. -- --
Common stock - par value $.01 per share - authorized 2,000 shares,
issued and outstanding 100 shares....................................... 0.1 0.1
Additional paid-in capital................................................ 137.0 137.0
Accumulated deficit....................................................... (35.4) (22.3)
Accumulated other comprehensive income.................................... (6.8) 5.0
----- -----
Total stockholder's equity........................................ 94.9 119.8
----- -----
Total liabilities and stockholder's equity........................ $707.5 $696.8
===== =====
- ------------
See notes to unaudited condensed consolidated financial statements.
</TABLE>
F-24
<PAGE>
FORMICA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share data)
Six Months Four Months Two Months
Ended Ended Ended
---------- ----------- ----------
June 30 April 30 June 30
1999 1998 1998
---------- ----------- ----------
Net Sales $294.6 $178.3 $98.3
Cost of Products Sold 209.9 131.1 67.6
----- ----- ----
Gross Profit 84.7 47.2 30.7
Selling, General and
Administrative Expenses 78.5 60.9 28.1
----- ----- ----
Operating Income (Loss) 6.2 (13.7) 2.6
Interest Expense (19.0) (1.7) (5.5)
Other Income 1.6 0.8 0.4
--- --- ---
Loss Before Income Taxes (11.2) (14.6) (2.5)
Income Tax Provision (1.9) - -
----- ----- ----
Net loss $(13.1) $(14.6) $(2.5)
===== ===== ====
See notes to condensed consolidated financial statements.
F-25
<PAGE>
FORMICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
<TABLE>
Six Months Four Months Two Months
Ended Ended Ended
---------- ----------- ----------
June 30 April 30 June 30
1999 1998 1998
---------- ----------- ----------
<S> <C> <C> <C>
Cash Used in Operations $(12.0) $(11.7) $(12.8)
Investing Activities:
Capital expenditures and investments, net (25.6) (8.3) (9.0)
----- ---- -----
Net cash used in investing activities (25.6) (8.3) (9.0)
Financing Activities:
Proceeds from borrowings, net 218.3 - 288.9
Due from affiliates - 15.5 -
Dividends paid - (0.5) (255.0)
Payments of debt (201.9) (15.1) -
----- ---- -----
Net cash provided by (used in) financing activities 16.4 (0.1) 33.9
Effects of Exchange Rate Changes on Cash (3.2) (0.2) 3.1
----- ---- -----
(Decrease) Increase in Cash and Cash Equivalents (24.4) (20.3) 15.2
Cash and Cash Equivalents at the Beginning of Period 31.6 27.2 6.9
----- ---- -----
Cash and Cash Equivalents at the End of Period $ 7.2 $ 6.9 $ 22.1
===== ==== =====
See notes to condensed consolidated financial statements.
</TABLE>
F-26
<PAGE>
FORMICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in millions)
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-months ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
The condensed consolidated statement of operations for the four-months
ended April 30, 1998 reflects the results of Formica Corporation and its
majority-owned subsidiaries (the "Company") prior to the acquisition from BTR
Nylex Ltd. on May 1, 1998. The results for the pre-acquisition period are not
necessarily comparative to the post-acquisition period because of the changes in
organizational structure, recorded asset value, cost structure and
capitalization of the Company resulting from the acquisition. During 1998, the
management of the Company formulated a plan to restructure certain operations
and provided a restructuring provision of $6.6 million. During the six-months
ended June 30, 1999, the Company spent $0.7 million of the restructuring
provision. The restructuring plan will be substantially completed in 1999.
Earnings per share data are not presented because the Company's common
stock is not publicly traded and the Company is a wholly-owned subsidiary of FM
Holdings, Inc.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the audited consolidated financial
statements and footnotes for the year ended December 31, 1998.
(2) INVENTORIES, NET:
Major classes of inventories are as follows:
June 30 December 31
1999 1998
------- -----------
Finished goods $ 91.6 $ 77.2
Work-in-process 12.0 12.2
Raw materials 48.4 42.6
----- -----
Total 152.0 132.0
Less-Obsolescence reserve 23.0 21.7
----- -----
$ 129.0 $ 110.3
===== =====
F-27
<PAGE>
(3) NOTES PAYABLE:
On February 22, 1999, the Company issued $215 million of 10 7/8% Senior
Subordinated Notes due March 1, 2009 (the "Notes") and repaid approximately $200
million of Senior Subordinated Unsecured Increasing Rate Bridge Notes. Interest
on the Notes is payable semi-annually on March 1 and September 1 of each year.
The Notes are redeemable at the option of the Company in part beginning in 2002
and in whole in 2004 at specified redemption prices.
The Notes and related indenture place certain restrictions on the Company
and its subsidiaries including the ability to pay dividends, issue preferred
stock, repurchase capital stock, incur and pay indebtedness, sell assets and
make certain restricted investments.
In conjunction with the issuance of the Notes, the Company is subject to a
Registration Rights Agreement that provides that the Company will file an
Exchange Offer Registration Statement (the "Statement") with the Securities and
Exchange Commission (the "SEC") to register the Notes prior to 90 days from
February 22, 1999 and that the Company will use its reasonable best efforts to
have the Statement declared effective by the SEC on or prior to 180 days from
February 22, 1999. Management has filed the Statement with the SEC on April 21,
1999.
(4) CONTINGENT MATTERS:
The Company has been the subject of administrative proceedings, litigation
and investigations relating to environmental matters. Currently, the Company has
been named as a potentially responsible party at several Superfund sites. The
Company has reserved $4 million at June 30, 1999 and December 31, 1998 for these
matters. The Company believes that the ultimate resolution of these matters
should not have a material adverse effect on the Company's financial position or
results of operations. However, depending on the amount and timing of an
unfavorable resolution of this contingency, it is possible that the Company's
future results of operations or cash flows could be materially affected in a
particular quarter.
On April 6, 1999, the Company received a subpoena from a federal grand jury
investigating possible antitrust violations in the high-pressure decorative
laminates industry. The subpoena period is from January 1, 1994 until April 1,
1999. The investigation is in its early stages and the Company is complying with
the subpoena. The Company is unable to determine at this time the effect, if
any, that this matter may have on its financial statements.
F-28
<PAGE>
(5) SEGMENT INFORMATION:
<TABLE>
Six Months Four Months Two Months
Ended Ended Ended
---------- ----------- ----------
June 30 April 30 June 30
1999 1998 1998
---------- ----------- ----------
<S> <C> <C> <C>
Segment revenues:
United States $165.2 $98.1 $52.0
North America - Other 23.4 13.9 8.0
Europe 74.2 48.4 26.9
Asia 31.8 17.9 11.4
----- ----- ----
Total $294.6 $178.3 $98.3
===== ===== ====
Segment profit (loss):
North America $ (5.4) $(13.9) $(3.8)
Europe 7.2 1.3 7.0
Asia 4.4 (1.1) (0.6)
----- ----- ----
Total $ 6.2 $(13.7) $ 2.6
===== ===== ====
Depreciation and amortization (included in
segment profit (loss))
North America $ 16.3 $ 6.2 $ 4.8
Europe 4.5 3.5 1.2
Asia 1.7 1.4 0.8
----- ----- ----
Total $ 22.5 $ 11.1 $ 6.8
===== ===== ====
Expenditures for long-lived assets:
North America $ 7.1 $ 4.8 $ 5.7
Europe 2.5 1.2 2.7
Asia 0.4 2.3 0.6
----- ----- ----
Total $ 10.0 $ 8.3 $ 9.0
===== ===== ====
A reconciliation of total segment profit (loss) to
loss before income taxes is as follows -
Segment profit (loss) $ 6.2 $(13.7) $ 2.6
Interest expense (19.0) (1.7) (5.5)
Other income (expense) 1.6 0.8 0.4
----- ----- ----
Loss before income taxes $(11.2) $(14.6) $(2.5)
===== ===== ====
</TABLE>
F-29
<PAGE>
June 30 December 31
1999 1998
------- -----------
Total assets:
United States $ 440.8 $ 406.4
North America - Other 34.8 36.4
Europe 160.1 179.1
Asia 71.8 74.9
----- -----
Total $ 707.5 $ 696.8
===== =====
Long-lived assets:
United States $ 144.3 $ 128.6
North America - Other 14.2 14.3
Europe 91.2 106.6
Asia 38.0 39.2
----- -----
Total $ 287.7 $ 288.7
===== =====
(6) COMPREHENSIVE LOSS:
Total comprehensive loss was $24.9 for the six-months ended June 30, 1999
and $11.7 and $5.8 for the four- months ended April 30, 1998 and two-months
ended June 30, 1998, respectively. The difference between comprehensive loss and
the net loss results from foreign currency translation adjustments.
(7) CHANGES IN ACCOUNTING ESTIMATES
During the two and four-months periods ended June 30, 1998 and April 30,
1998, the Company made certain changes in accounting estimates, resulting in
charges totaling $7.8 million and $5.7 million, respectively, due to new
management plans with respect to asset carrying and disposition policies and new
information becoming available, including information concerning customers,
products and competitive conditions in certain markets. The changes in
accounting estimates for the two-month period ended June 30, 1998 include
increasing the provisions for doubtful accounts and inventory obsolescence by
$2.4 million and $5.4 million, respectively. The changes in accounting estimates
for the four-month period ended April 30, 1998 include increasing the provision
for customer rebate programs by $2.7 million, increasing the provision for
doubtful accounts by $1.4 million and accruals for customs, property tax
exposures and other items totaling $1.6 million.
F-30
<PAGE>
================================================================================
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary...................................2
Risk Factors........................................13
Use of Proceeds.....................................21
Capitalization......................................21
Selected Consolidated Financial Data................22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................25
Business............................................35
Management..........................................52
Security Ownership of Certain Beneficial
Owners and Management of Laminates
Stockholders...................................61
Certain Relationships and Transactions..............64
The Acquisition.....................................65
Description of Our Credit Facility..................68
Description of Notes................................71
The Exchange Offer.................................115
Material United States Tax Consequences
of the Exchange Offer.........................122
Plan of Distribution...............................122
Legal Matters......................................123
Change in Independent Auditors.....................123
Experts............................................123
Unaudited Pro Forma Condensed Consolidated
Financial Data................................P-1
Index to Financial Statements......................F-1
================================================================================
$215,000,000
Formica Corporation
10 7/8% Series B Senior Subordinated Notes Due
2009
-----------------------
Prospectus
-----------------------
o, 1999
================================================================================
F-31
<PAGE>
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST 10, 1999
PROSPECTUS
FORMICA CORPORATION
10 7/8% Series B Senior Subordinated Notes due 2009
------------
The Company
o We are one of the leading brand names in the decorative surfacing products
market and are one of the largest producers of high pressure decorative
laminates in the world.
The Original Offering:
o We issued the notes in a private offering on
February 22, 1999.
o We used such net proceeds to repay in full the $200 million principal
amount outstanding under the bridge notes together with accrued interest.
The remaining net proceeds were used for general corporate purposes and
initially were temporarily invested in short-term securities.
The Notes:
o Maturity: March 1, 2009
o Interest Payment: semi-annually on March 1 and September 1, commencing on
September 1, 1999.
o Optional Redemption: The notes will be redeemable on or after March 1, 2004
at the prices state herein. In addition, we may redeem up to 35% of the
notes on or prior to March 1, 2002 at a redemption price of 110.875% of the
principal amount, plus accrued interest, with the net cash proceeds of one
or more public equity offerings provided that at least 65% of the aggregate
principal amount of the notes remain outstanding after such redemption.
o Mandatory Redemption: We also have the right to redeem, and you have the
right to require us to purchase, the notes upon the occurrence of certain
change of control events, at the prices set forth herein.
o Ranking of Notes: The notes are general unsecured obligations, subordinated
to all of our senior obligations, including any borrowings under our bank
credit facility. The notes rank senior to all subordinated indebtedness.
The notes will effectively rank junior to all liabilities of our
subsidiaries.
o As of June 30, 1999, Formica had outstanding approximately $84.5 million of
senior indebtedness, and our subsidiaries had approximately $179.4 million
of outstanding liabilities, including trade payables.
This investment involves risks. See "Risk Factors" on page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus will be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales in market-making transactions at
negotiated prices related to prevailing market prices. There is currently no
public market for the notes. We do not intend to list the notes on any
securities exchange. Donaldson, Lufkin & Jenrette Securities Corporation has
advised us that it is currently making a market in the notes; however, it is not
obligated to do so and may stop at any time. Donaldson, Lufkin & Jenrette
Securities Corporation may act as principal or agent in any such transaction. We
will not receive the proceeds of the sale of the notes but will bear the
expenses of registration.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
The date of this Prospectus is , 1999.
<PAGE>
[ALTERNATE SECTIONS FOR DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
Trading Market for the Notes
There is no existing trading market for the notes, and we cannot assure
you about the future development of a market for the notes or your ability to
sell their new notes or the price at which you may be able to sell your notes.
If such market were to develop, the notes could trade at prices that may be
higher or lower than their initial offering price depending on many factors,
including prevailing interest rates, our operating results and the market for
similar securities. Although it is not obligated to do so, Donaldson, Lufkin &
Jenrette Securities Corporation intends to make a market in the notes. Any such
market-making activity may be discontinued at any time, for any reason, without
notice at the sole discretion of Donaldson, Lufkin & Jenrette Securities
Corporation. No assurance can be given as to the liquidity of or the trading
market for the notes.
Donaldson, Lufkin & Jenrette Securities Corporation may be deemed to be
our "affiliate", as defined the Securities Act, and, as a result, may be
required to deliver a prospectus in connection with its market-making activities
in the notes. In the registration rights agreement that we signed with
Donaldson, Lufkin & Jenrette Securities Corporation in connection with the
initial sale of the notes, we agreed to use our best efforts to file and
maintain a registration statement that would allow Donaldson, Lufkin & Jenrette
Securities Corporation to engage in market-making transactions in the notes. We
have agreed to bear substantially all the costs and expenses related to
registration.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by
Donaldson, Lufkin & Jenrette Securities Corporation in market-making
transactions. We will not receive any of the proceeds from such transactions.
PLAN OF DISTRIBUTION
This prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales of the new notes in
market-making transactions effected from time to time. Donaldson, Lufkin &
Jenrette Securities Corporation may act as a principal or agent in such
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form of
discounts and commissions, including from both counterparties when it acts as
agent for both. Such sales will be made at prevailing market prices at the time
of sale, at prices related thereto or at negotiated prices.
DLJ Merchant Banking, an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation, and certain of its affiliates beneficially own
approximately 45.1% of the common stock of Formica. Thompson Dean and Peter T.
Grauer, each of whom is a principal of DLJ Merchant Banking, are members of the
board of directors of Laminates, Holdings and Formica. Further, DLJ Capital
Funding, Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, acted as syndication agent in connection with the new credit
facility for which it received certain customary fees and expenses and Laminates
Funding, Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, purchased a portion of the bridge notes, for which it received
customary fees and expenses. Donaldson, Lufkin & Jenrette Securities Corporation
has, from time to time, provided investment banking and other financial advisory
services to Formica in the past for which it has received customary
compensation, and will provide such services and financial advisory services to
Formica in the future. Donaldson, Lufkin & Jenrette Securities Corporation acted
as purchaser in connection with the initial sale of the old notes and received
an underwriting discount of approximately $3.5 million in connection therewith.
In addition, Donaldson, Lufkin & Jenrette Securities Corporation received a
advisory fee of $1.0 million in cash from Laminates after the completion of the
acquisition. See "Certain Relationships and Related Transactions."
<PAGE>
Donaldson, Lufkin & Jenrette Securities Corporation has informed Formica
that it does not intend to confirm sales of the new notes to any accounts over
which it exercises discretionary authority without the prior specific written
approval of such transactions by the customer.
Formica has been advised by Donaldson, Lufkin & Jenrette Securities
Corporation that, subject to applicable laws and regulations, Donaldson, Lufkin
& Jenrette Securities Corporation currently intends to make a market in the new
notes following completion of the exchange offer. However, Donaldson, Lufkin &
Jenrette Securities Corporation is not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors--Trading
Market for the New Notes."
Donaldson, Lufkin & Jenrette Securities Corporation and Formica have
entered into the Registration Rights Agreement with respect to the use by
Donaldson, Lufkin & Jenrette Securities Corporation of this prospectus. In that
agreement, Formica agreed to bear all registration expenses incurred under such
agreement, and Formica agreed to indemnify Donaldson, Lufkin & Jenrette
Securities Corporation against a variety of liabilities, including liabilities
under the Securities Act.
<PAGE>
================================================================================
[BACK COVER FOR MARKET-MAKING PROSPECTUS]
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized anyone to provide you with
information that is different. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary...................................2
Risk Factors........................................13
Use of Proceeds.....................................21
Capitalization......................................21
Selected Consolidated Financial Data................22
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...25
Business............................................35
Management..........................................52
Security Ownership of Certain Beneficial Owners
and Management of Laminates Stockholders.........61
Certain Relationships and Transactions..............64
The Acquisition.....................................65
Description of Our Credit Facility..................68
Description of Notes................................71
Plan of Distribution...............................122
Legal Matters......................................123
Change in Independent Auditors.....................123
Experts............................................123
Unaudited Pro Forma Condensed Consolidated
Financial Data..................................P-1
Index to Financial Statements......................F-1
================================================================================
$215,000,000
Formica Corporation
10 7/8% Series B Senior Subordinated Notes Due
2009
--------------------
Prospectus
--------------------
Donaldson, Lufkin & Jenrette
o, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
Item Amount
SEC Registration Fee................................. $ 59,770
Printing and Engraving Costs......................... 25,000
Trustee Fees......................................... 35,000
Legal Fees and Expenses.............................. 110,000
Accounting Fees and Expenses......................... 65,000
Miscellaneous........................................ 20,000
-------
Total............................................... $ 314,770
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Exculpation. Section 102(b)(7) of the Delaware General Corporations Law
("Delaware Law") permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision may not eliminate
or limit the liability of a director for any breach of the director's duty of
loyalty to the corporation or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for the payment of unlawful dividends, or for any transaction from which
the director derived an improper personal benefit.
The Formica certificate of incorporation (the "Formica Charter") limits
the personal liability of a director to Formica and its stockholders for
monetary damages for a breach of fiduciary duty as a director to the fullest
extent permitted by law.
Indemnification. Section 145 of the Delaware Law permits a corporation to
indemnify any of its directors or officers who was or is a party, or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe that such person's conduct was unlawful. In
a derivative action, i.e., one by or in the right of a corporation, the
corporation is permitted to indemnify directors and officers against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of an action or suit if they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged liable to the corporation,
unless and only to the extent that the court in which the action or suit was
brought shall determine upon application that the defendant directors or
officers are fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
The Formica Charter provides for indemnification of directors, officers,
employees or agents of Formica against liability they may incur in their
capacities as such to the fullest extent permitted under the Delaware Law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 22, 1999 the Registrant sold $215,000,000 in aggregate
principal amount of its 10 7/8% Senior Subordinated Notes due 2009 (the old
notes), to Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex. Brown
and Credit Suisse First Boston (the "initial purchasers") in a private placement
in reliance on Section 4(2) under the Securities Act, at an offering price of
$970 per $1,000 principal amount at maturity. The old notes were immediately
resold by the initial purchasers in transactions not involving a public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Document
----------- --------
1.1 * Registration Rights Agreement dated as of February 22, 1999
between Formica and Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated and Credit Suisse
First Boston as Initial Purchasers
3.1 * Certificate of Incorporation
3.2 * By laws
4.1 * Indenture, dated as of February 22, 1999 between Formica and
the Trustee
5.1 ** Opinion of Davis Polk & Wardwell with respect to the new
notes
10.1 * Investors' Agreement dated as of April 30, 1998 among
Laminates, the DLJ Merchant Banking funds, the institutional
investors and the management shareholders
10.2 * Restricted Stock Program
10.3 * Employment Agreement of Vincent Langone
10.4 * Employment Agreement of David Schneider
10.5 ** Employment Agreement of William Adams
10.6 ** Employment Agreement of Steven Kuo
10.7 * Amended and Restated Credit Agreement dated as of
July 20, 1998 among Formica, certain Formica subsidiaries and
a syndicate of financial institutions led by DLJ Capital
Funding, Inc.
10.8 ** Supplemental Executive Retirement Plan
10.9 * Restated Formica Corporation Employee Retirement Plan dated
as of January 1, 1996, as amended
10.10 * Formica Taiwan Corporation Employee Retirement Plan dated as
of December 23, 1986
10.11 ** Formica UK Corporation Employee Retirement Plan
10.12 ** Laminates 1999 Stock Plan
10.13 ** Laminates 1999 Stock Purchase Agreement
12.1 ** Computation of Ratio of Earnings to Fixed Charges
16.1 * Letter from Ernst & Young LLP regarding change in independent
auditors
21.1 * Subsidiaries of Formica
23.1 ** Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2 ** Consent of Arthur Andersen LLP
23.3 ** Consent of Ernst & Young LLP
24.1 * Power of Attorney (Included on the signature page of this
registration statement)
25.1 * Statement of Eligibility of Summit Bank on Form T-1.
27.1 ** Financial Data Schedule
99.1 * Form of Letter of Transmittal
II-2
<PAGE>
Exhibit No. Document
----------- --------
99.2 * Form of Notice of Guaranteed Delivery
99.3 * Form of Letter to Clients
99.4 * Form of Letter to Nominees
99.5 * Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules and Auditors' Reports thereon
Valuation and Qualifying Accounts
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Balance at Additions
Beginning Charged Charged to
of Period to Costs Other Balance at
and Accounts Deductions End of
Description Expenses - Describe - Describe Period
- -------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Deducted from assets accounts:
Allowance for doubtful accounts... $1.5 $6.0 -- $(3.3) (1) $4.2
=== === === === ===
Year ended December 31, 1997:
Deducted from assets accounts:
Allowance for doubtful accounts... 1.4 3.0 -- (2.9) (1) 1.5
=== === === === ===
Year ended December 31, 1996:
Deducted from assets accounts:
Allowance for doubtful accounts... 2.6 1.8 -- (3.0) (1) 1.4
=== === === === ===
- -------------------------------------------------------------------------------------------------------------------
(1) Write-off of uncollectible accounts.
</TABLE>
II-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Formica Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Formica Corporation, as of December 31, 1998 and for
the four-month period ended April 30, 1998 and for the eight-month period ended
December 31, 1998, included in this registration statement, and have issued our
report thereon dated March 3, 1999. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 16(b) of this registration statement is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the basic financial statements. The information in this schedule for the year
ended December 31, 1998, has been subjected to the auditing procedures applied
in the audit of the basic 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 financial statements taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
March 3, 1999
II-4
<PAGE>
Report of Independent Auditors on Schedule
We have audited the consolidated financial statements of Formica
Corporation as of December 31, 1997, and for each of the two years in the period
then ended, and have issued our report thereon dated May 7, 1998 (except for
Note 3 -- "Reclassifications" as to which the date is March 3, 1999), included
elsewhere in this Registration Statement. Our audits also included the financial
statement schedule as of December 31, 1997 and 1996 and for each of the two
years in the period ended December 31, 1997 listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
White Plains, New York
May 7, 1998
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the SEC pursuant to
Rule 424(b) under the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the 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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Formica
pursuant to the foregoing provisions, or otherwise, Formica has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Formica of expenses incurred or paid
by a director, officer or controlling person of Formica 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,
Formica will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Warren, State of New Jersey, on August 6, 1999.
FORMICA CORPORATION
By: /s/ David T. Schneider
--------------------------------
David T. Schneider
Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director, Chairman, President and August 6, 1999
- ------------------------------------ Chief Executive Officer
Vincent P. Langone
/s/ David T. Schneider Vice President, Chief Financial Officer August 6, 1999
- ------------------------------------ and Secretary (Principal Financial and
David T. Schneider Accounting Officer)
* Director August 6, 1999
- ------------------------------------
Thompson Dean
* Director August 6, 1999
- ------------------------------------
Peter T. Grauer
* Director August 6, 1999
- ------------------------------------
David Y. Howe
* Director August 6, 1999
- ------------------------------------
Alexander Donald Mackenzie
* By: /s/ David T. Schneider August 6, 1999
------------------------------
David T. Schneider
Attorney-in-fact
</TABLE>
II-7
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
212-450-4000
August 9, 1999
Formica Corporation
15 Independence Boulevard
Warren, NJ 07059
Ladies and Gentlemen:
We have acted as special counsel to Formica Corporation, a Delaware
corporation (the "Company"), in connection with the Company's offer (the
"Exchange Offer") to exchange its 10 7/8% Series B Senior Subordinated Notes due
2009 (the "New Notes") for any and all of its outstanding 10 7/8% Series A
Senior Subordinated Notes due 2009 (the "Old Notes").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution and
delivery of the New Notes, we are of the opinion that the New Notes, when
executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (x) as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, (y) as such enforcement may
be limited by general principles of equity, regardless of whether enforcement
is sought in a proceeding at law or in equity and (z) to the extent that a
waiver of rights under any usury or stay law may be unenforceable.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the
<PAGE>
United States of America and the General Corporation Law of the State of
Delaware (which includes the General Corporation Law of the State of Delaware,
the applicable provisions of the Delaware constitution and reported judicial
decisions interpreting those laws).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained
in such Registration Statement.
This opinion is rendered to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by or furnished to any other person without our prior written consent except
that Summit Bank, N.A., as Exchange Agent for the Exchange Offer, and the
holders of the Old Notes and New Notes may rely upon this opinion as if it were
addressed directly to them.
Very truly yours,
EXHIBIT 10.5
FORMICA LIMITED
Coast Road-North Shields
Tyne & Wear NE29 8RE
United Kingdom
October , 1997
Dear Mr. Adams:
Reference is made to your employment agreement with the Company dated 14th
March, 1990 (the "Agreement"). This will confirm that the first sentence under
the caption "Termination of Employment" on page 6 of the Agreement is hereby
amended in its entirety to read:
"You are entitled to receive twelve months notice of termination of your
employment."
In addition, the last sentence of the first paragraph under such caption
("When you are .... notice.") is hereby deleted in its entirety.
Except as expressly modified herein, all other terms and conditions of the
Agreement remain unmodified and in full force and effect.
Please sign and return the enclosed copy of this letter indicating your
acceptance of the modification to the Agreement set forth above.
Very truly yours,
FORMICA LIMITED
By:
-------------------------------
ACCEPTED AND AGREED:
- --------------------------------------
William Adams
<PAGE>
[FORMICA LETTERHEAD]
[FORMICA LOGO] Formica Limited
Formica Limited
Coast Road, North Shields
Tyne & Wear NE29 8RE
Telephone: 091 259 3000
Telex: 53295 Fax: 091 258 2719
AS/VMS
14th March, 1990
Mr. W. Adams
9 Warwick Close
Seghill
Cramlington
Northumberland
Dear Mr. Adams,
In accordance with the Employment (Consolidation) Act 1978, the terms and
conditions upon which Formica Limited, Coast Road, North Shields, Tyne & Wear
NE29 8RE employs you, Mr. W. Adams, at Formica Limited are herein set out. This
'Statement' dated as above, supersedes any previous Contract of Employment you
may have with Formica Limited.
The Company has arranged a Group Health Care Scheme with British United
Provident Association for all employees. The subscription for yourself is paid
by the Company and you can include your dependants at a subscription subsidised
by the Company.
As membership of the scheme is optional, the Company has the right to terminate
the scheme or vary the terms upon which it operates without varying the terms
and conditions of your employment.
The Company also operates an Ill Health Scheme; details are contained in the
Company's Pension booklet which is available from the Pensions Department.
Changes in Terms and Conditions
In accordance with the legislation, changes in terms and conditions will be
notified to you as follows:
a) Changes of a general nature affecting your employment will normally be
notified by notices posted on the notice board;
b) Changes in your own status of employment will be notified to you
personally in writing;
c) Changes in your salary and allowances (if applicable) will be notified on
your payslip;
<PAGE>
-2-
The Terms and Conditions relating to your employment are as follows:-
Job Title
You are employed as Plant Manager.
Commencement of Employment
Your employment with Formica Limited begins on 19th February 1968.
Your employment with any previous employers does not count as part of your
continuous period of employment.
Remuneration
Your salary is E32,000 per annum, payable monthly on the 15th day of the month
by credit transfer into your bank account.
Further, you will also benefit from any incentive scheme for the time being in
effect to the extent and in the manner determined by the Company and notified
to you by the Managing Director.
Normal Hours of Work
You are required, unless prevented by ill health, to devote the whole of your
time and attention to the duties of your appointment.
Your normal hours of work are from 9.00 am to 5.00 pm, Monday to Friday
inclusive, with a one hour break for lunch each day, but you may be required to
work additional hours without recompense. It is in the nature of your job that
considerable flexibility of working will be required.
Holidays
You are entitled to 25 working days paid holiday for each complete calendar
year (January - December). In addition, you are entitled to all Public and Bank
Holidays designated for England or the United Kingdom as a whole. Holidays must
be taken by the year end or agreement reached with the Managing Director by the
end of the year on specific arrangements to take them by 31st March of the
following year.
It is a condition of employment that you must take your holidays during the
agreed shutdown periods or as otherwise indicated. Other holidays may be taken
by mutual agreement with the Managing Director.
<PAGE>
-3-
Company Sick Pay
Your entitlement to sick pay in a 12 month period is 26 weeks at your normal
salary, (any payment of SSP will be included in this figure).
After 26 weeks absence consideration under the salary continuance arrangement
can be given to those who are members of the Company Pension Scheme have 5
years pensionable service and are over 30 years of age.
As a member of the Pension Scheme and fulfilling the necessary service and age
requirements, after 26 weeks sickness absence consideration would be given
under the salary continuance arrangements if this was appropriate.
Pension and Life Assurance Scheme
You are a member of the Company's Contributory Pension and Life Assurance scheme
The Contracted-out Certificate number is S0621759A and the Employers reference
is E3804178J.
Grievance Procedure
If you consider you have a grievance relating to your employment you should
raise it with the Managing Director.
Disciplinary Procedure
The company Disciplinary Procedure will apply to you and any matters would be
handled by the Managing Director.
Inventions
The nature of your duties and your responsibilities are such that you have a
special obligation to further the interests of the Company's business.
a) If you shall either solely or jointly invent make or discover any
invention, device, design, art, product, process or mechanical or other
contrivance which relates to or is useful in connection with any process,
product or appliance carried on, made or dealt with by the company (all of
which are hereinafter referred to by the term "Invention") such Invention
shall forthwith be communicated to the Secretary of the Company.
<PAGE>
-4-
b) An Invention and all rights therein shall belong to you if it is an
invention within the meaning of the Patents Act 1977 ("the Act") and it
belongs to you by virtue of Section 39 (2) of the Act. All other
inventions and all rights therein belong to the Company. References in
this Clause to Inventions belonging to you or to the Company shall be
construed accordingly.
c) You shall not, without the consent in writing of the Company divulge or
communicate any Invention to any third party nor use the same for your own
personal benefit or otherwise than for the benefit of the Company save as
provided for in paragraph (d).
d) on communication of any Invention which belongs to you the Company will
consider the same and shall be entitled to negotiate with you regarding
the acquisition of any or all rights, title and benefit in such Invention.
You shall not, without the consent in writing of the Company, disclose the
same to any third party (save only you may divulge the same to a chartered
Patent Agent for the purpose of seeking protection for such Invention) nor
use the same for your own personal benefit or otherwise than for the
benefit of the Company until the Company has, in writing, declined to
enter into such negotiation or six months after the date of said
communication, whichever is the sooner, provided that if such negotiations
are entered into no disclosure of such Invention to any third party shall
be made until the conclusion thereof and such disclosure may then only be
made to such extent as the Company shall consent in writing (such consent
not to be unreasonably withheld).
e) With regard to any Invention which belongs to the Company and/or any
Invention which originally belonged to you and is acquired from you by the
Company, the Company shall have the right at any time to require you, at
the Company's expense, to execute all such documents and do all such acts
and things as may in the opinion of the Company be necessary or
convenient:-
(i) to vest such Invention in the Company or it's assigns;
<PAGE>
-5-
(ii) to enable any application to be made, prosecuted amended or abandoned
and any appeal to be made in respect of such Application in the name
of the Company or its assigns, or of yourself whether alone or
jointly with the Company or some other person or body in all or any
countries of the World;
(iii) to assign to the Company, or as it shall direct, all your rights of
whatever nature (including without limitation your rights in any
Letters Patent or Registered or Copyright or any Application
therefor) in or in respect of such invention or your rights, title
and interest in any such rights belonging to you jointly with the
Company or some other person or persons.
f) A copy of the Act is available in the Personnel Department for inspection
on request at any convenient time during the working day.
Confidentiality
You agree to keep secret and not at any time either before or after the
termination of your employment (whether such termination is in accordance with
the terms of the contract or otherwise) use for your own or another's advantage
or reveal to any person, firm or company any of the trade secrets, business
methods or business information of the company which you know or ought
reasonably to have known to have been confidential concerning the business or
affairs of the company including but not limited to information about the
company's products, production methods, technical developments, production
processes, new product developments, marketing plans in so far as it shall have
come to your knowledge during your employment. You acknowledge that in your
position as Plant Manager you have access to detailed information concerning
the above matters which information is of a confidential nature.
<PAGE>
-6-
Expenses
Whenever you are required to travel on Company business your reasonable
travelling and subsistence expenses will be reimbursed following prior
agreement on the nature of these.
Part-Time Employment
For the duration of your employment with the Company you may not enter into any
other business in any way related to that of the Company without the written
consent of the Company.
Termination of Employment
You are entitled to receive three months notice of termination of your
employment. Such notice to run from the first day of the calendar month
following that in which it is given. When you are aged fifty years you are
entitled to six months notice.
The Company reserves the right to make payment in lieu of notice.
If you are dismissed for serious misconduct or breach of contract, such
dismissal may be summary and without notice.
You are required to give the Company three months notice of termination of
employment, irrespective of the length of your service; such notice to run
from the first day of the calendar month following that in which it is given.
Health and Safety
The Company has a Health and Safety policy with which you must comply for the
sake of the health and safety of all employees.
<PAGE>
-7-
Company Rules
Company rules are displayed at each location. A condition of employment is that
you undertake to become familiar and comply with these rules.
By way of acknowledgement of, and agreement to, these terms of employment will
you please sign the second copy and return it to the Resources Director.
/s/ A. Smith
A. Smith
Resources Director
- ------------------
I acknowledge receipt of this 'Statement'.
Signed:.......................................Date..............................
EXHIBIT 10.6
Agreement
The agreement is signed between Cyanamid Taiwan Co.(hereinafter Cyanamid Co.),
Formica Taiwan Corp. (hereinafter Formica Corp.) and Steve Kuo (hereinafter
employee) on March 18, 1986.
The employee accepts the following terms to terminate the employment
relationship with Cyanamid Co. and is transferred to Formica Corp. under its
employment. Cyanamid Co. and Formica Corp. also agree to the employment
transfer relationship based on the following terms.
1. Date of Employment Transfer
The agreement between "Employee" and "Cyanamid Co." is ended on March 19,
1986 and will be transferred to "Formica Corp." on March 20, 1986. (Up to
March 19, 1986, the employee's service years in Cyanamid Co. is one year
and 4 days.)
2. Statement of Employee
The employee states that up to March 19, 1986 all payments should be paid
by Cyanamid Co. such as salary, allowance and other related expenses have
been done and will not request any compensation from Cyanamid Co. based on
the agreement of employment transferring. The employee also agrees that
any loan from Cyanamid Co. that hasn't been refunded will return to
Formica Corp. by installment based on the Cyanamid's SOI of Loan Refund.
3. Statement of Cyanamid Co.
Cyanamid Co. states that the employee has completed the leaving request
formalities on the date of employment transfer and no any incomplete
affairs except the aforesaid loan which should be returned to Formica
Corp.
4. Statement of Formica Corp.
Formica Corp. states that it will employ the employee under Cyanamid Co.'s
employment terms from March 20, 1986. And the service years in Cyanamid
Corp. will be traced back and applied to the pension in the future.
<PAGE>
Signed by:
Cyanamid Taiwan Co.
General Manager Frank Chen
Formica Taiwan Corp.
President Gordon Sterling
Employee Steve Kuo
ID No. A102024376
March 18,1986 The Republic of China
Exhibit B-1
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
INTRODUCTION.................................................................1
SECTION 1
Definitions..................................................................1
1.1 "Benefit Accrual Service".............................................1
1.2 "Board" ..............................................................1
1.3 "Chief Executive Officer".............................................1
1.4 "Committee"...........................................................1
1.5 "Company".............................................................1
1.6 "Disability Pension"..................................................1
1.7 "Disability Retirement"...............................................1
1.8 "Disability Retirement Date"..........................................2
1.9 "Early Pension".......................................................2
1.10 "Early Retirement"....................................................2
1.11 "Early Retirement Date"...............................................2
1.12 "Earnings"............................................................2
1.13 "Employee"............................................................2
1.14 "Final Average Earnings"..............................................2
1.15 "Member"..............................................................2
1.16 "Normal Pension"......................................................2
1.17 "Normal Retirement" or "Postponed Retirement".........................2
1.18 "Normal Retirement Date"..............................................2
1.19 "Pension Offset"......................................................2
1.20 "Plan"................................................................3
i
<PAGE>
1.21 "Postponed Pension"...................................................3
1.22 "Postponed Retirement Date"...........................................3
1.23 "Retirement Benefit"..................................................3
1.24 "Retirement Date".....................................................4
1.25 "Retirement Plan".....................................................4
1.26 "Savings Plan"........................................................4
1.27 "Service".............................................................4
1.28 "Surviving Spouse Pension"............................................4
1.29 "Vested Pension"......................................................4
1.30 "Years of Service"....................................................4
SECTION 2
Membership...................................................................4
2.1 Membership............................................................4
2.2 Continuation of Membership............................................4
2.3 Discontinuation of Membership.........................................5
SECTION 3
Normal and Postponed Retirement Benefits.....................................5
3.1 Normal and Postponed Retirement Dates.................................5
3.2 Normal and Postponed Retirement Pension...............................5
3.3 Normal Pension........................................................5
SECTION 4
Early Retirement Benefits....................................................6
4.1 Early Retirement Date.................................................6
4.2 Early Retirement Pension..............................................6
ii
<PAGE>
4.3 Early Pension.........................................................6
SECTION 5
Disability Retirement Benefits...............................................6
5.1 Disability Retirement Date............................................6
5.2 Disability Retirement Pension.........................................6
5.3 Disability Pension....................................................6
SECTION 6
Death Benefits...............................................................7
6.1 Surviving Spouse Pension..............................................7
SECTION 7
Benefits Upon Other Termination of Employment................................8
7.1 Vesting...............................................................8
7.2 Vested Pension........................................................8
SECTION 8
Payment of Benefits..........................................................8
8.1 Retirement Pensions...................................................8
8.2 Surviving Spouse Pensions.............................................8
8.3 Vested Pensions.......................................................8
8.4 Form of Benefits......................................................9
8.5 Source of Benefits....................................................9
SECTION 9
Medical Benefits.............................................................9
9.1 Supplemental Retiree Medical Benefits.................................9
SECTION 10
iii
<PAGE>
Administration of the Plan...................................................9
10.1 Plan Administrator....................................................9
10.2 Powers and Duties of the Plan Administrator..........................10
SECTION 11
Miscellaneous...............................................................10
11.1 Rights of Employees..................................................10
11.2 Governing Law........................................................10
11.3 Nonalienation of Benefits............................................10
11.4 Binding Agreement....................................................10
11.5 Payment to Representatives...........................................10
11.6 Change of Control....................................................11
11.7 Effect of Employment Agreement.......................................11
SECTION 12
Amendment or Termination of the Plan........................................11
12.1 Amendment............................................................11
12.2 Termination..........................................................11
12.3 Reservation of Accrued Vested Benefits...............................12
APPENDIX A
Participating Companies.....................................................13
iv
<PAGE>
INTRODUCTION
The Formica Corporation Supplemental Executive Retirement Plan set forth herein
is intended to be an unfunded deferred compensation plan maintained for a select
group of management or highly compensated employees, as described in Section
201(2) of the Employee Retirement Income Security Act of 1974, as amended.
The purpose of the Plan is to supplement other sources of retirement income
provided by the Company and by the Social Security Act so as to provide a
competitive level of total benefits for retiring executives or surviving spouses
of deceased executives, in order to attract, retain and motivate selected
executives of the Company.
SECTION 1
Definitions
The following words and phrases as used herein have the following meanings
unless a different meaning is plainly required by the context:
1.1 "Benefit Accrual Service" means those years of Benefit Accrual Service
credited to the Member under the Retirement Plan, excluding any years
accrued prior to 1998.
1.2 "Board" means the board of directors of Formica Corporation, except that
any action which could be taken by the Board may also be taken by a duly
authorized committee of the Board.
1.3 "Chief Executive Officer" means the Chief Executive Officer of Formica
Corporation.
1.4 "Committee" means the committee appointed by the Board to administer the
Plan or the Board itself.
1.5 "Company" means, individually (i) Formica Corporation, with respect to
its Employees, and (ii) any subsidiary or affiliate of Formica
Corporation that is designated by the Board and that adopts the Plan,
with respect to its Employees. Companies participating in the Plan are
listed in Appendix A.
1.6 "Disability Pension" means the disability pension benefit as defined in
Section 5.3 (Disability Pension).
1.7 "Disability Retirement" means termination of employment on the
Disability Retirement Date.
1
<PAGE>
1.8 "Disability Retirement Date" means the first day of any month on which a
Member retires in accordance with Section 5 (Disability Retirement).
1.9 "Early Pension" means the early pension benefit as defined in Section
4.3 (Early Pension).
1.10 "Early Retirement" means termination of employment on the Early
Retirement Date.
1.11 "Early Retirement Date" means the first day of the month coinciding with
or next following a Member's Severance from Service Date, provided such
date is earlier than the Member's Normal Retirement Date and after the
Member has attained age 55 and completed five Years of Service.
1.12 "Earnings" means a Member's total cash compensation in respect of a
calendar year, including any such compensation which is deferred under a
qualified (e.g., a plan established under Section 125 or Section 401(k)
of the Internal Revenue Code of 1986, as amended) or nonqualified plan
of the Company; provided, however, that "Earnings" in respect of
calendar year 1998 shall mean a Member's total cash compensation in
respect of calendar year 1998, multiplied by 150%.
1.13 "Employee" means any person who is a common-law employee of the Company.
1.14 "Final Average Earnings" means the highest amount obtainable by
averaging a Member's Earnings paid in respect of the lesser of (i) any
three, or (ii) all, calendar years of employment with the Company after
1997.
1.15 "Member" means an Employee who is an executive of the Company and who is
included in the Plan as provided in Section 2 (Membership).
1.16 "Normal Pension" means the normal pension benefit before offset, as
defined in Section 3.3 (Normal Pension).
1.17 "Normal Retirement" or "Postponed Retirement" means termination of
employment on the Normal Retirement Date or the Postponed Retirement
Date, whichever is applicable.
1.18 "Normal Retirement Date" means the first day of the calendar month
coincident with or next following the Member's attainment of age 65 or,
if a Member's combined age and Service total 65, the first day of the
calendar month coincident with or next following the Member's attainment
of age 62 (or such later age when age and Service first total 65).
1.19 "Pension Offset" means the sum of:
(i) that portion of the annual pension benefit payable (or that would
be payable at the earliest time such benefits could be paid if
application were made at such time) to the Member as a pension,
excluding any qualified domestic relations order benefits
2
<PAGE>
which may be payable to an alternate payee, under the Retirement
Plan, which constitutes the benefit accrual attributable to
Executive's employment with the Company after 1997. Such offset
shall be computed as if such benefits commenced under the
applicable plan as of the same date that benefits commence under
this Plan, and as if the form of benefit, and any designated
beneficiary or joint annuitant, if any, under such other plan was
the same as the form of payment and designated beneficiary or
joint annuitant, if any, under this Plan. In the event that
payments commence under this Plan as of a date earlier than the
date benefits can first commence under any such other plan, the
offset for benefits payable from such other plan shall be applied
when the Member can first elect to commence benefits under such
other plan;
(ii) 100% of the Member's annual primary Social Security benefit
calculated under Title II of the Social Security Act as in effect
at the time his benefit under the Plan commences. In the event
that the Member's Retirement Date hereunder precedes the date such
Social Security benefit commences, the offset for the Member's
Social Security benefit shall first be effective when such Social
Security benefits commence. The Committee may condition receipt of
benefits under the Plan upon the Member providing evidence of the
amount of Social Security benefits to which he is entitled; and
(iii) the equivalent actuarial value of (i) the Member's Profit Sharing
Contribution Account under the Savings Plan as of the date that
the Pension Offset is applied (including any Profit Sharing
Contributions later allocated to the Member's Profit Sharing
Contribution Account for the year in which the Pension Offset is
determined), plus (ii) any amounts previously distributed
(excluding loans from the Plan which have been repaid in their
entirety) from the Member's Profit Sharing Contribution Account
under the Savings Plan. Such equivalent actuarial value shall be
determined by converting such amounts to an equivalent annual
lifetime annuity payable at the Member's Retirement Date using the
then current Retirement Plan's mortality and interest assumptions.
1.20 "Plan" means the Formica Corporation Supplemental Executive Retirement
Plan, as embodied herein and as may be amended from time to time.
1.21 "Postponed Pension" means the postponed pension benefit, as defined in
Section 3 (Normal and Postponed Retirement Benefits).
1.22 "Postponed Retirement Date" means the first day of the calendar month
following the Member's Normal Retirement Date upon which the Member
retires in accordance with Section 3.1 (Normal and Postponed Retirement
Dates).
1.23 "Retirement Benefit" means the Normal, Early Disability or Postponed
Retirement benefit, whichever is applicable, determined in accordance
with Sections 3, 4 and 5.
3
<PAGE>
1.24 "Retirement Date" means the Normal, Early, Disability or Postponed
Retirement Date, whichever is applicable.
1.25 "Retirement Plan" means the Formica Corporation Employee Retirement
Plan, or any successor plan, as in effect upon the Member's Retirement
Date or termination of Service, if earlier.
1.26 "Savings Plan" means the Formica Corporation Employees Savings Plan for
Employees Not Covered by a Collective Bargaining Agreement as adopted
effective May 30, 1985, and as thereafter amended from time to time.
1.27 "Service" means a Member's period of employment with the Company or its
subsidiaries or affiliates.
1.28 "Surviving Spouse Pension" means the death benefit payable to the spouse
of the Member in accordance with Section 6 (Death Benefits).
1.29 "Vested Pension" means the pension benefit payable to a Member
terminating employment at other than death, Disability Retirement Date,
Early Retirement Date, Normal Retirement Date or Postponed Retirement
Date, as defined in Section 7.2 (Vested Pension).
1.30 "Years of Service" are those Years of Service credited to the Member
under the Retirement Plan, excluding, for purposes of Section 3.3, any
years credited prior to 1998.
The masculine pronoun wherever used shall include the feminine pronoun and the
singular, the plural.
SECTION 2
Membership
2.1 Membership:
Those executive Employees who have been selected by the Committee to
become Members in the Plan.
2.2 Continuation of Membership:
An Employee who has become a Member in accordance with Section 2.1
shall continue as a Member as long as he continues in the employment of
the Company and thereafter as long as he is entitled to benefits under
the Plan.
4
<PAGE>
2.3 Discontinuation of Membership:
A Member shall cease to be such and shall forfeit all rights to unpaid
benefits otherwise payable to him or with respect to him under the Plan
if the Board gives him written notice of its findings that he has
entered into employment with any direct competitor of the Company who
is engaged in the manufacture or sale of high pressure decorative
laminate. A Member who ceases to be such for the above cause shall
forfeit all rights to any pension benefits payable to him or with
respect to him, and the vesting provisions of Section 7.1 shall be
void.
SECTION 3
Normal and Postponed Retirement Benefits
3.1 Normal and Postponed Retirement Dates:
A Member may retire on his Normal Retirement Date, or if not so retired,
he may retire on the first day of the calendar month coincident with or
next following his severance from Service, his "Postponed Retirement
Date".
3.2 Normal and Postponed Retirement Pension:
A Member who retires at his Normal or Postponed Retirement Date shall be
entitled to an annual pension for such Member's life, payable monthly,
commencing upon the Member's Retirement Date, equal to the excess, if
any, of his Normal Pension, determined in accordance with Section 3.3,
over his Pension Offset.
3.3 Normal Pension:
The annual Normal Pension of a Member who has completed at least 25
Years of Service is 60% of his Final Average Earnings. The annual Normal
Pension of a Member who has completed less than 25 Years of Service is
7.5% of his Final Average Earnings multiplied by the number of years of
his Benefit Accrual Service. The maximum annual Normal Pension payable
shall be $500,000.
5
<PAGE>
SECTION 4
Early Retirement Benefits
4.1 Early Retirement Date:
A Member who has attained age 60 and has completed five Years of Service
may elect to retire on an Early Retirement Date.
4.2 Early Retirement Pension:
A Member who retires on his Early Retirement Date shall be entitled to
an annual pension, payable monthly, equal to the excess, if any, of his
Early Pension, determined in accordance with Section 4.3, over his
Pension Offset.
4.3 Early Pension:
A Member's annual Early Pension shall equal his Normal Pension (as
determined in accordance with Section 3.3 (Normal Pension)), reduced by
1/4 of 1% for each month by which the Member's Early Retirement Date
precedes his Normal Retirement Date.
SECTION 5
Disability Retirement Benefits
5.1 Disability Retirement Date:
The date on which it is determined that a Member who is totally and
permanently disabled, as defined in the Retirement Plan, and who has
completed at least five Years of Service shall be entitled to receive a
Disability Pension.
5.2 Disability Retirement Pension:
A Member who retires at a Disability Retirement Date shall be entitled
to an annual pension, payable monthly, equal to the excess, if any, of
his Disability Pension, determined in accordance with Section 5.3, over
his Pension Offset.
5.3 Disability Pension:
A Member's annual Disability Pension shall equal his Normal Pension (as
determined in accordance with Section 3.3 (Normal Pension)), reduced by
any benefits payable pursuant to the Company's long-term disability plan
and any similar federal and state plans.
6
<PAGE>
A Member who is receiving a Disability Pension hereunder shall furnish
medical evidence acceptable to the Committee and/or shall submit to a
medical examination, in either case at the Committee's request (but not
more often than once every six months), to enable the Committee to
determine whether or not such Member is entitled to continue to receive
a Disability Pension. If the Committee determines that such Member is no
longer totally and permanently disabled as defined in the Retirement
Plan, no further Disability Pension will be paid to such Member. In the
event that a Member refuses to or fails to furnish acceptable medical
evidence or submit to a medical examination, as above provided, no
Disability Pension will be paid to such Member for the period of such
refusal or failure.
If a Member recovers from his total and permanent disability and
thereupon returns to the active service of the Company, (i) his credits
will commence to accrue again as of the date of such return, (ii) he
will retain all credits for Service prior to the date as of which he
became entitled to receive a Disability Pension hereunder, and (iii) the
entire period of such total and permanent disability will be deemed to
be Service of such Member.
SECTION 6
Death Benefits
6.1 Surviving Spouse Pension:
In the event of the death while an active Employee before retirement of
a Member who has completed five Years of Service and who is survived by
a spouse to whom he was married continuously during the one-year period
ending on the date of his death, such surviving spouse shall
automatically receive an annual Surviving Spouse Pension in an amount
equal to one-half of the amount of Normal, Early or Postponed Retirement
Benefit, whichever is applicable, which would have been payable to the
spouse if the Member had retired on the day preceding his death, and
commenced receiving benefits in the form of a qualified joint and
survivor annuity, as defined in the Retirement Plan, with a 50% survivor
annuity payable to the spouse. If the Member at the date of death was
not eligible to retire under the Plan and receive a benefit under the
Plan at a Normal, Early, or Postponed Retirement Date, then the Member's
surviving spouse shall receive an automatic Surviving Spouse Pension in
an amount equal to the amount that would have been payable to the spouse
had the Member separated from Service on the date of his death, survived
to the earliest date he could have retired and received a benefit under
the Plan, and retired on such date with a benefit in the form of a
qualified joint and survivor annuity with a 50% survivor annuity payable
to the spouse, and died on the next day. Such Surviving Spouse Pension
shall be payable monthly to the surviving spouse as of the first day of
the month coinciding with or next following the date the Member would
have attained his 55th birthday.
7
<PAGE>
SECTION 7
Benefits Upon Other Termination of Employment
7.1 Vesting:
If a Member's employment with the Company ceases for any reason other
than Normal or Postponed Retirement, Early Retirement, Disability
Retirement, or death after completing five or more Years of Service, he
shall be entitled to a fully vested benefit determined in accordance
with Section 7.2.
7.2 Vested Pension:
A Member's annual Vested Pension, reduced by his Pension Offset, shall
be determined in accordance with Section 3 (Normal and Postponed
Retirement Benefits), assuming commencement at age 65, and the pension
benefit payable from the Plan will commence at age 65 or, if the
Member's age and Service total at least 65, the pension benefit payable
from the Plan will commence at age 62 (or at such later age when age and
Service first total 65). Upon application by such Member, the Member
shall be able to have his Vested Pension, including Pension Offset,
redetermined based upon an earlier benefit commencement in accordance
with Section 4 (Early Retirement Benefits).
SECTION 8
Payment of Benefits
8.1 Retirement Pensions:
Normal, Early, Disability and Postponed Pensions are payable in monthly
installments as of the first day of each month commencing with the
Member's Retirement Date and ceasing with the last payment due under the
form of payment in effect, or if benefits were payable by reason of
total and permanent disability, on the first day of the month in which
the Member fails to be so disabled.
8.2 Surviving Spouse Pensions:
Surviving Spouse Pensions are payable in monthly installments as of the
first day of each month in accordance with Section 6.1 and ceasing with
the last payment due prior to the surviving spouse's death.
8.3 Vested Pensions:
Vested Pensions are payable in monthly installments as of the first day
of each month in accordance with Section 7.2 and ceasing with the last
payment due under the form of payment in effect.
8
<PAGE>
8.4 Form of Benefits:
Payments under this Plan shall be paid in the same form (other than as a
single lump sum) as benefits to the Member under the Retirement Plan. In
the event that benefits commence under this Plan prior to the time
benefits commence under the Retirement Plan, benefits under this Plan
shall be paid in a straight life annuity. If the form of payment is a
form other than a straight life annuity for the Member's life only, the
benefit payable (prior to application of the Pension Offset) shall be
the actuarial equivalent, as defined in the Retirement Plan, of the
benefit payable to the Member in a straight life annuity form. All
payments of retirement benefits shall be reduced by the amounts of
applicable Federal, state and local withholding taxes.
8.5 Source of Benefits:
Benefits under the Plan shall not be prefunded, but shall be paid by the
Company as and when they become due as provided herein, and the interest
of the Member and his spouse in any benefits under the Plan shall be
only that of an unsecured creditor of the Company.
SECTION 9
Medical Benefits
9.1 Supplemental Retiree Medical Benefits:
A Member who terminates from Service after attaining age 50 and
completing at least five Years of Service, but prior to attaining age
55, shall receive retiree medical benefits for 36 months (or until
attainment of age 55, if earlier) equal to those benefits provided by
the Company under its retiree medical reimbursement plan (or an
equivalent plan provided by the Company) upon attaining age 55.
SECTION 10
Administration of the Plan
10.1 Plan Administrator:
The Committee shall be the Plan Administrator, except with respect to
any matter relating exclusively to a member of the Committee in which
case the Board shall serve as the Plan Administrator. The Committee may
delegate to any management committee, employee, director or agent its
responsibility to perform any act hereunder, including without
limitation those matters involving the exercise of discretion, provided
that such delegation shall be subject to revocation at any time at its
discretion.
9
<PAGE>
10.2 Powers and Duties of the Plan Administrator:
The Committee, in addition to all the powers and duties specified in the
various provisions of the Plan, shall have the right to interpret the
Plan and to decide any matter arising in connection with the
administration of the Plan, including authority to determine eligibility
for benefits and to remedy possible ambiguities, inconsistencies, or
omissions in the Plan.
SECTION 11
Miscellaneous
11.1 Rights of Employees:
Neither the adoption of the Plan nor its operation shall in any way
affect the right and power of the Company to dismiss or otherwise
terminate the employment of, or change the terms of employment or amount
of compensation of, any Employee at any time for any reason.
11.2 Governing Law:
The Plan shall be construed in accordance with the laws of the State of
New Jersey, excluding any provisions thereof that would require the
application of the laws of another jurisdiction.
11.3 Nonalienation of Benefits:
No benefit payable hereunder may be assigned, pledged, mortgaged or
otherwise alienated, and, except to the extent required by applicable
law, no such benefit shall be subject to legal process or attachment for
the payment of any claims of a Member or other beneficiary.
11.4 Binding Agreement:
The Plan shall inure to the benefit of, and be binding upon, the Company
and its successors or assigns, and the Member and the Member's next of
kin, legatees, administrators, executors, legal representatives,
designated beneficiary and estate.
11.5 Payment to Representatives:
If a Member or a surviving spouse or other beneficiary of a Member
entitled to receive any benefit hereunder is determined by the Committee
or is adjudged to be legally incapable of giving valid receipt and
discharge for any benefits, they shall be paid to the individual's duly
appointed legal guardian, if any, and if no such guardian is appointed,
to such persons as the Committee may designate. Such payment shall be,
to the extent made, a complete discharge for such payments under the
Plan.
10
<PAGE>
11.6 Change of Control:
Notwithstanding anything in the Plan to the contrary (other than the
provisions of Section 11.7), upon the occurrence of a "Change of
Control" (as defined in any Company plan or any Member's employment
contract), or upon the Company's termination of the Member's employment
without "Cause" (as defined in his or her employment contract or any
Company plan) or the Member's termination of his or her employment with
"Good Reason" (as defined in his or her employment contract or any
Company plan) in contemplation of, or within six months of, a Change of
Control: (a) Reductions (except for the Pension Offset) shall no longer
be made in such Member's Early, Disability or Vested Pension; (b)
Section 2.3 shall no longer apply; (c) Such Member shall immediately
become entitled to a fully vested benefit based on his or her Years of
Service to date; and (d) Such Member and his or her surviving spouse
shall receive, prior to the Change of Control, a lump sum cash
distribution in an amount equal to the present value of his or her
unpaid accrued benefits hereunder, in full satisfaction of all present
and future Plan liability with respect to him or her.
11.7 Effect of Employment Agreement:
Notwithstanding anything in the Plan to the contrary, if a Member is a
party to an employment contract, then the provisions of such contract
shall take precedence over any conflicting provisions set forth in the
Plan.
SECTION 12
Amendment or Termination of the Plan
12.1 Amendment:
The Board reserves the right at any time, and from time to time, to
modify or amend, in whole or in part, any or all of the provisions of
the Plan.
12.2 Termination:
The Board shall have the right to terminate the Plan at any time.
11
<PAGE>
12.3 Reservation of Accrued Vested Benefits:
No amendment or termination of the Plan shall serve to reduce the
benefit accrued hereunder nor relieve the Company of its obligation for
payment of such accrued benefits hereunder, determined as of the date of
such amendment or termination, of a Member who, as of the date of such
amendment or termination, has completed at least five Years of Service.
By:
-----------------------------------
Title: Attest:
--------------------------------
12
<PAGE>
APPENDIX A
Participating Companies
Formica Corporation
13
EXHIBIT 10.11
==============================================================================='
DATED 4TH May 1999
------------------
FORMICA LIMITED
and
WILLIAM ADAMS AND OTHERS
-----------------------------------
DEED OF AMENDMENT
Formica Limited 1999 Pension Scheme
-----------------------------------
HERBERT SMITH
EXCHANGE HOUSE
PRIMROSE STREET
LONDON EC2A 2HS
===============================================================================
<PAGE>
THIS DEED OF AMENDMENT is made the fourth day of May [LOGO]
1999
BETWEEN:
(1) FORMICA LIMITED (hereinafter called the "Principal Employer")
AND:
(2) WILLIAM ADAMS PETER DENIS HALL WILLIAM HENRY STRIKE and GEORGE HOGG
(hereinafter called the "Trustees")
SUPPLEMENTAL inter alia to
(a) a trust dead dated 29th October 1998 whereby the Principal Employer
established under irrevocable trusts with effect from I'm November 1998 a
trust fund for the purpose of maintaining a retirement benefits scheme to
be known as the Formica Limited 1998 Pension Scheme (hereinafter called
the "Scheme") for the purposes therein stated
(b) a definitive trust deed (hereinafter called the "Definitive Deed") dated
11th February 1999 whereby the establishment of the Scheme was confirmed
and rules (hereinafter called the "Rules") scheduled thereto
WHEREAS:
(A) the Trustees are the present trustees of the Scheme
(B) by Clause 7 of the Definitive Deed the Principal Employer with the consent
of the Trustees may alter or add to all or any of the trusts powers and
provisions of the Definitive Deed or the Rules in the manner therein
appearing
(C) it has been agreed that the provisions of the Rules be amended in the
manner hereinafter appearing
1
<PAGE>
NOW THIS DEED WITNESSES and it is HEREBY AGREED AND DECLARED THAT with effect
from 1st November 1998
1. the reference to "sub-Rule 13.1" in Rule 3 of the Rules is amended to read
"sub-Rule 13.3"
2. the reference to "sub-Rule 18.4" in item (b) of Rule 10 of the Rules is
amended to read "sub-Rule 18.3".
IN WITNESS whereof this deed has been executed on the first date above written
[SEAL] (THE COMMON SEAL of FORMICA
(LIMITED was hereunto affixed in the
(presence of:
Director /s/
Secretary /s/
SIGNED and DELIVERED as a deed )
by WILLIAM ADAMS in the presence of: )..........................................
/s/ Ada I. Craig
....................................
Signature of Witness
Ada I Craig
....................................
Name of Witness
27 Dalton Heights,
....................................
Dalton Le Dale, Durham 5R7 8LB
....................................
Occupation of Witness
Secretary
<PAGE>
SIGNED and DELIVERED as a deed )
by PETER DENIS HALL in the )............................................
presence of:
/s/ L. Palmer
...................................
Signature of Witness
L. Palmer
...................................
Name of Witness
L. Palmer
...................................
48 Chirton West View
...................................
Address of Witness
North Shields T&W
...................................
Occupation of Witness
Secretary
SIGNED and DELIVERED as a deed )
by WILLIAM HENRY STRIKE ).............................................
in the presence of: )
/s/ A. Tansey
...................................
Signature of Witness
A. Tansey
...................................
Name of Witness
1A Bede Close, Holystone,
...................................
Tyne & Wear
...................................
Address of Witness
...................................
Occupation of Witness
Miller Turner
SIGNED and DELIVERED as a deed )
by GEORGE HOGG in the presence of:).............................................
/s/ P. Reynolds
...................................
Signature of Witness
P. Reynolds
...................................
Name of Witness
21 St. Martins Close, Whitley Bay
...................................
Tyne & Wear NE4 35W
...................................
Address of Witness
Personnel Administration Manager
...................................
Occupation of Witness
[Notary]
WE HEREBY CERTIFY
THIS TO BE A TRUE AND
ACCURATE COPY OF
THE ORIGINAL
/s/ Herbert Smith
.............................
HERBERT SMITH
Exchange House
Primrose Street
London EC2A 2HS
Date 11 May 1999
.........................
<PAGE>
===============================================================================
DATED 11TH February 1999
------------------------
FORMICA LIMITED
and
WILLIAM ADAMS AND OTHERS
-----------------------------------
DEFINITIVE TRUST DEED AND RULES
Formica Limited 1999 Pension Scheme
-----------------------------------
HERBERT SMITH
EXCHANGE HOUSE
PRIMROSE STREET
LONDON EC2A 2HS
===============================================================================
<PAGE>
TABLE OF CONTENTS
Clause Heading Page
I. GENERAL.............................................................1
2. THE FUND............................................................2
3. INVESTMENTS ........................................................2
4. TRUSTEES' RIGHT TO CHARGE ..........................................4
S. SPECIAL POWERS .....................................................5
6. APPOINTMENT AND REMOVAL OF TRUSTEES ................................6
7. AMENDMENTS .........................................................6
8. PARTICIPATION IN THE SCHEME ........................................7
9. EXPENSES ...........................................................8
10. ACCOUNTS ...........................................................8
11. ACTUARIAL INVESTIGATIONS ...........................................9
12. TERMINATION, SUSPENSION OR REDUCTION OF EMPLOYERS'
LIABILITY ..........................................................9
13. SUBSTITUTION OF PRINCIPAL EMPLOYER ................................10
14. EVENTS LEADING TO TERMINATION OF THE SCHEME .......................10
15. TERMINATION OF THE SCHEME .........................................11
16. DURATION OF THE SCHEME ............................................15
17. HEADINGS ..........................................................15
18. CONSTRUCTION ......................................................15
THE SCHEDULE ................................................................18
<PAGE>
THIS DEFINITIVE TRUST DEED is made the eleventh day of February 1999
[LOGO]
BETWEEN:
(1) FORMICA LIMITED registered number 139731 whose registered office is at
Cast Road North Shields Tyne & Wear NE29 8RE (hereinafter called the
"Principal Employer")
AND:
(2) WILLIAM ADAMS of 61 Hatfield Drive Netherfield Park Seghill Northumberland
NE23 7TU PETER DENIS HALL of Rosedene Elvaston Park Road Hexham
Northumberland NE46 2HT WILLIAM HENRY STRIKE of 26 Frankland Drive West
Monkseaton Whitley Bay Tyne & Wear NE25 9DS and GEORGE HOGG of 8 St.
George's Crescent North Shields Tyne & Wear NE29 0JW (hereinafter called
the "Trustees")
SUPPLEMENTAL to a trust deed (hereinafter called (the "Interim Deed") dated
29th October 1998 and made between the Principal Employer of the one part and
the Trustees of the other part whereby the Principal Employer established under
irrevocable trusts with effect from 1st November 1998 a trust fund
(hereinafter called the "Fund") for the purpose of maintaining a retirement
benefits scheme to be known as the Formica Limited 1998 Pension Scheme
(hereinafter called the "Scheme") for the provision of relevant benefits as
defined in Section 612(l) of the Income and Corporation Taxes Act 1988 for and
in respect of such employees and former employees of the Principal Employer and
any other Employers (as hereinafter defined) as shall be admitted to membership
of the Scheme
WHEREAS:
(A) By Clause 2 of the Interim Deed the Principal Employer and the Trustees
undertook to execute a Definitive Trust Deed and Rules within twenty-four
months of the date thereof defining and setting out in full the
constitution of the Scheme as therein specified.
(B) This Deed and the Rules annexed hereto are intended to constitute the
Definitive Trust Deed and Rules referred to in the Interim Deed.
NOW THIS DEED WITNESSES and it is HEREBY AGREED AND DECLARED as follows:
1. GENERAL
1.1 This Deed and the rules (hereinafter called "the Rules") set out in the
Schedule hereto and which are deemed to be incorporated herein are hereby
adopted to define the trusts powers and provisions applicable to the Fund
and by which the Scheme is to be constituted subject to any alterations or
additions which may from time to time be made in accordance with the
provisions hereinafter contained.
1.2 This Deed and the Rules shall have effect in like manner as if they had
been executed immediately after the Interim Deed.
1.3 The definitions set out in Rule I of the Rules shall apply to this Deed.
1
<PAGE>
2. THE FUND
2.1 The Fund shall consist of all contributions made to it in accordance with
the provisions of the Trust Deed and the Rules or otherwise and shall
include all income profits and accretions to the Fund whether arising from
investments or not and any donations legacies or gifts.
2.2 The Trustees shall stand possessed of the Fund upon trust to administer
and manage the Fund and to apply the same in or towards providing the
pensions and other benefits in accordance with and subject to the powers
and provisions hereinafter and in the Rules declared and contained
concerning the same.
2.3 Where voluntary contributions are paid by Members to the Fund or received
as part of any transfer into the Fund and such voluntary contributions are
applied to procure additional benefits on a money purchase basis the
Trustees shall hold the assets from time to time representing such of the
voluntary contributions so paid or received as relate to Members who have
not yet retired separately from the other assets of the Scheme as a
segregated fund (hereinafter called the "Voluntary Contributions Fund")
and the Trustees shall apply the Voluntary Contributions Fund in the
provision of the benefits attributable to such voluntary contributions and
shall apply the other assets of the Scheme in the provision of the benefits
under the Scheme other than those so attributable to such voluntary
contributions.
2.4 Where sub-Clause 2.3 of this Clause applies the Trustees may if they think
fit, hold the assets representing voluntary contributions so paid by any
individual Member separately from the other assets of the Scheme as a
segregated fund within the Voluntary Contributions Fund on such terms, and
conditions as the Trustees may determine.
2.5 The Trustees shall be the administrator of the Scheme for the purposes of
the Taxes Act unless a person other than the Trustees is appointed to
manage the Scheme in accordance with the provisions of sub-Clause 5.1.
3. INVESTMENTS
3.1 Subject to the provisions of Section 36 of the Pensions Act regarding the
choice of investments and Section 40 of the Pensions Act relating to
employer-related investments the Trustees shall have power to invest or
apply any moneys forming part of the Fund in so far as they are not
required to meet current payments in or upon the security of such stocks
shares debentures debenture stocks or other investments or property of
whatsoever nature (including any interest in land and notwithstanding the
intent hereinafter expressed any tax exempt trusts and funds) and
wheresoever situate and whether producing income or not or upon such
personal credit with or without security as the Trustees in their absolute
discretion shall think fit to the intent that the Trustees shall have the
same unrestricted powers of making and transposing investments as if they
were absolutely entitled to such moneys beneficially and so that without
prejudice to the generality of the foregoing trust moneys may be invested
or applied in any deferred or immediate annuity policies retirement
endowment and assurance policies sinking fund policies managed fund or
deposit administration contracts and any other assurance policies or
contracts effected with an Insurance Office.
2
<PAGE>
3.2 Any cash held as part of the Fund may be retained or placed on deposit or
current account with any bank or with any company or society of good
repute and the Trustees shall not be chargeable in respect of any interest
on any such cash in excess of the interest (if any) actually paid or
credited thereon.
3.3 If any investment requires an indemnity to be given by the Trustees
against liabilities arising in the event of the Scheme losing its status
as an exempt approved scheme the Trustees shall have power to bind the
Scheme notwithstanding that such indemnity may only become operative by
reason of some act or omission which constitutes a breach of trust on the
part of the Trustees.
3.4 The Trustees shall have power:
3.4.1 to enter into underwriting or sub-underwriting contracts on such
terms as they shall think fit;
3.4.2 to maintain improve and develop any investments of the Scheme in
freehold or leasehold land or land of any other tenure by
expenditure in the erection or completion of buildings or other
works on any such land or in the alteration demolition
reconstruction enlargement repair decoration equipment or furnishing
of any buildings or other works for the time being thereon or in
insurance of any such buildings or other works or in any other
maintenance improvement or development of any such land or buildings
or other works as aforesaid;
3.4.3 if they think fit to enter into contracts to purchase sell create
cancel or otherwise deal in traded options or financial futures
traded on any recognised traded option or financial futures market
and all such contracts shall for the purpose of this Deed be deemed
to be investments.
3.5 The Trustees may at any time appoint one or more investment managers to
manage the investments of the Scheme subject to such terms and conditions
as the Trustees may think fit and any such investment manager may be
empowered in accordance with the provisions of sub-Clause 5.1
3.5.1 to exercise all or any of the powers or discretions of the Trustees
in regard to the selection making changing and realisation of
investments or arising from and concerned with holding of
investments
3.5.2 to delegate and authorise the sub-delegation of any power or
discretion so given to the investment manager
3.5.3 to appoint any custodian and authorise the appointment of
sub-custodians. Any investments of the Scheme may be made in the
name of or transferred or delivered to or otherwise vested in such
investment manager or its nominee.
3.6 Investments may be made by the Trustees either in their own name or in the
name as nominee for them of any corporate body and in the latter event the
corporate body may comply with any direction issued to it by the Trustees
concerning the investments the capital and income thereof and any rights
attaching thereto without being obliged
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to ascertain whether or not such directions are in accordance with the
provisions hereof.
3.7 The Trustees shall ensure that there is prepared, maintained and from time
to time revised a statement of investment principles relating to the Fund
in accordance with the requirements of Section 35 of the Pensions Act.
4. TRUSTEES' RIGHT TO CHARGE
4.1 Any Trustee may receive and retain beneficially as remuneration for the
performance of his duties hereunder such fees as may from time to time be
agreed upon between the Trustee and the Principal employer and all out of
pocket expenses incurred by the Trustee in the performance of his duties
hereunder.
4.2 Any Trustee may act as professional adviser to the Scheme and may charge
and be paid all professional charges incurred by him or his firm in
connection with the trusts hereof.
4.3 Professional Advice
The Trustees shall, where applicable, comply with the requirements of
Section 47 of the Pensions Act relating to the manner and terms of
appointment of professional advisers. Subject thereto the Trustees may in
relation to the Scheme rely upon the advice or opinion (whether or not
obtained by them) of any lawyer broker actuary accountant medical
practitioner or other professional person including a firm or company of
pension consultants and shall not be responsible for any loss occasioned
thereby. The cost of obtaining such advice or opinion (to the extent that
it is not otherwise paid) shall form part of the expenses of the Scheme.
4.4 Trustees' Liability
(A) No Trustee shall as trustee of the Scheme or in respect of the
exercise of the rights or powers hereunder incur any personal
responsibility or be liable for anything whatsoever except for breach
of trust knowingly and intentionally committed by him and (save only
in the case aforesaid) the Trustees shall be entitled to be fully and
effectually indemnified out of the Fund in priority to any payment to
or in respect of the beneficiaries against all liabilities and
expenses incurred by them in the execution or purported execution of
the powers trusts authorities and discretions vested in the Trustees
hereunder and against all proceedings costs charges expenses claims
and payments in respect of any matter or thing done or omitted in
any way relating to the Scheme. The foregoing provisions of this
sub-Clause shall mutatis mutandis apply to any officer of a
corporation acting as trustee hereof and any corporate body in whose
name investments have been made.
(B) The provisions of this sub-Clause are subject to Section 31 of the
Pensions Act which prohibits reimbursement of fines and penalties out
of the assets of a scheme and the Employer shall indemnify the
Trustees accordingly except in respect of a breach of trust knowingly
and intentionally committed.
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4.5 Personal Interest
No decision of or exercise of a power by the Trustees shall be invalidated
or questioned on the ground that any Trustee (or in the case of a
corporate Trustee any member of its board of directors) had a direct or
indirect interest in the result of any such decision or in the exercise of
any such power.
4.6 Decisions of Trustees
If there shall be more than one body corporate or individuals as trustees
of the Scheme:
4.6.1 the Principal Employer shall from time to time nominate one of the
Trustees to act as chairman of the Trustees;
4.6.2 where there are three or more trustees at a meeting of the Trustees
all business brought before such meeting shall be decided by a
majority of the votes of the Trustees present and voting thereon and
in the case of equality of votes the chairman of the meeting shall
have a second or casting vote;
4.6.3 a resolution in writing signed by all the Trustees shall be as
effectual as if it had been passed at a meeting of the Trustees and
may consist of one or more documents in similar form each signed by
one or more of the Trustees;
4.6.4 a majority of the Trustees present at a meeting of the Trustees of
which notice has been given to all the Trustees shall form a quorum;
4.6.5 subject to the foregoing provisions of this sub-Clause and to the
requirements of the Pensions Act the Trustees may meet together for
the dispatch of business adjourn and otherwise regulate their
meetings as they think fit.
4.7 Borrowing Powers
The Trustees may with the consent of the Principal Employer borrow money
for the purposes of the Fund and secure repayment thereof in such manner
as they think fit by mortgaging or charging all or any part of the Fund.
5. SPECIAL POWERS
Subject to the provisions of the Pensions Act (where applicable) the
Trustees shall have and may exercise the following powers in addition to
all other powers vested in them by general law and by statute, namely:
5.1 power to delegate to any person or body of persons (whether or not that
person or one of those persons is a Trustee) all or any of the powers
duties and discretions vested in them hereunder and any such delegation
may be on such terms and conditions as the Trustees think fit (including
the power to sub-delegate) and the Trustees shall not be bound to
supervise the proceedings of or be in any way responsible for any loss
incurred as a result of such delegation or sub-delegation or the
negligence or default of any delegate or sub-delegate;
5.2 power from time to time in writing to authorise such persons as they think
fit to draw cheques on any banking account of the Scheme or to endorse any
cheque or to give
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receipts and discharges and so that any such receipt or discharge shall be
as valid and effective as if it were given by the Trustees and so that the
provision of a written authority of the Trustees shall be a sufficient
protection to any person taking any such receipts or discharge or
otherwise acting under or relying upon such authority;
5.3 power to make arrangements generally for the administration of the Scheme
as they think fit in particular to employ such agents and staff including
a secretary to transact any business of the Scheme including the payment
of pensions and benefits and any valid receipt therefor given to such
agents and staff shall be a good and sufficient discharge to the Trustees.
5.4 power (to the extent to which the law may permit) conclusively to
determine all questions and matters of doubt disputes or differences
arising in or in connection with the execution of the trusts of the Trust
Deed or the Rules and whether relating to the construction thereof or the
benefits thereunder or otherwise;
5.5 power (subject to the powers for the time being exercisable by the
Principal Employer or the Employers) to exercise all rights authorities
and discretions in connection with the Scheme requisite or proper to
enable them to carry out any transaction act deed or thing arising under
or in connection with the Scheme.
6. APPOINTMENT AND REMOVAL OF TRUSTEES
6.1 The Principal Employer shall have the power of appointing a new or
additional trustee or trustees of the Scheme at any time (without
limitation as to number) and shall likewise have the power of removing any
Trustee from office whereupon the relevant Trustee shall execute such
documents and do such things as may be necessary to give proper effect to
such removal; any such appointment or removal shall be made or confirmed
by deed.
6.2 The Principal Employer may at its discretion appoint a body corporate to
act as a Trustee or the sole Trustee whereupon the powers duties
authorities and discretions of the Trustees shall be exercisable by the
board of directors of such body corporate or by any officer properly
appointed by it.
6.3 Any Trustee may resign his appointment as trustee by serving on the
Principal Employer one month's notice in writing to that effect which
notice shall be delivered to or sent by registered post to the registered
office of the Principal Employer and at the expiration of such notice the
Trustee by whom the notice was served as aforesaid shall be deemed to have
retired from office and the Principal Employer and the Trustee shall
execute such documents and do such things as may be necessary to give
proper effect to such retirement.
6.4 The provisions of this Clause are subject (where applicable) to the
requirements of Sections 16 to 21 of the Pensions Act relating to
member-nominated trustees and member-nominated directors.
7. AMENDMENTS
Subject to Section 67 of the Pensions Act the Principal Employer shall
have power from time to time and at any time with the consent of the
Trustees by deed to alter or add to all or any of the trusts powers and
provisions of the Trust Deed or the Rules
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and any such alteration or addition shall have effect from such time as
may be specified in such deed and so that the time so specified may be
the date of such deed or any reasonable time previous or subsequent
thereto so as to give the alteration or addition retrospective or future
effect (as the case may be).
8. PARTICIPATION IN THE SCHEME
8.1 Any company subsidiary to or associated with the Principal Employer or
other employer associated with the Principal Employer may with the consent
of the Principal Employer and the Trustees participate in the Scheme by
executing jointly with the Principal Employer and the Trustees a deed
whereby it undertakes to observe and perform all things which are by the
Trust Deed and the Rules applicable to it as a Participating Employer
provided that no such employer shall participate in the Scheme unless the
Trustees are satisfied that such participation would not prejudice the
Approval of the Scheme. Unless the Principal Employer decides otherwise,
the Participating Employer shall undertake in such deed to nominate the
Principal Employer (or any other Employer chosen by the Principal
Employer) to take decisions for it on matters relating to the Pensions
Act, in particular in relation to Sections 16 to 21 (member-nominated
trustees or directors) Section 35 (statement of investment principles) and
Sections 56 to 61 (minimum funding requirements and schedule of
contributions).
8.2 The participation of a Participating Employer in the Scheme shall cease
upon the happening of one or more of the following events:
8.2.1 if the Participating Employer with the consent of the Principal
Employer gives notice terminating its liability to pay
contributions to the Fund in accordance with the provisions of
sub-Clause 12.1;
8.2.2 if the Participating Employer fails to observe and perform the
covenants, agreements and provisions relating to it under the Trust
Deed and the Rules;
8.2.3 if the Participating Employer enters into liquidation or ceases to
carry on business or is dissolved unless a successor in business of
the Participating Employer undertakes to take the place of the
Participating Employer for all the purposes of the Scheme;
8.2.4 if the degree of association of the Participating Employer with the
Principal Employer ceases to be such as enables its participation in
the Scheme to be consistent with the continued Approval of the
Scheme but so that notwithstanding such cesser the Participating
Employer may continue to participate in the Scheme for such period
(if any) not exceeding such period as is acceptable to the Board of
Inland Revenue as the Participating Employer the Principal Employer
and the Trustees shall agree.
8.3 In the event that 8.3.1
a Participating Employer ceases in accordance with sub-Clause 8.2 of
this Clause to participate in the Scheme; or
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8.3.2 part of the business of any of the Employers is disposed of and the
Principal Employer at its discretion directs that the provisions of
this sub-Clause shall apply (but not otherwise)
such part of the Fund as the Trustees on the advice of the Actuary
determine to be applicable to those Members employed by that Participating
Employer or in that part of the business as the case may be and who are
not immediately transferred to the employ of another of the Employers or
another part of the business shall be applied in accordance with the
provisions of Clause 15 (mutatis mutandis) except that the Trustees may
with the approval of the Principal Employer postpone the application of
this sub-Clause for such period (not extending beyond the date of
termination of the Scheme) as the Trustees think fit on the basis that no
further benefits shall accrue for such Members under the Rules and that no
further contributions shall be made by such former Participating Employer
or such Members and that no further Employees of such former Participating
Employer shall be admitted to membership.
8.4 The Trustees may subject to the approval of the Principal Employer
determine that the provisions of sub-Clause 8.3 of this Clause shall apply
in addition to such part of the Fund as the Trustees on the advice of the
Actuary determine to be applicable to all or any of those Members or other
Beneficiaries within any one or more of the following categories:
8.4.1 Members in receipt of pensions from the Fund who were last in
Pensionable Service by virtue of employment by that Participating
Employer or in that part of the business (as the case may be);
8.4.2 Members prospectively entitled to deferred pensions from the Fund
who were last in Pensionable Service by virtue of such employment as
aforesaid;
8.4.3 Beneficiaries entitled or contingently entitled to pension on the
death of those Members who were last in Pensionable Service by
virtue of such employment as aforesaid.
9. EXPENSES
Subject to sub-Clause 4.4(B) all costs charges and expenses of or
incidental to the establishment administration and management of the
Scheme shall be met by the Trustees out of the assets of the Scheme except
to the extent that the Principal Employer determines that such costs
charges and expenses shall be met by the Employers in which event they
shall be met by each of the Employers in such proportions as the Principal
Employer shall determine. The Voluntary Contributions Fund shall bear
such costs charges and expenses as may be properly chargeable thereto in
accordance with the manner in which the Voluntary Contributions Fund is
from time to time invested.
10. ACCOUNTS
10.1 The Trustees shall keep such accounts registers and records as may be
necessary for the proper administration of the Scheme and as may be
required by the Pensions Act and shall cause the said accounts to be
audited annually by the Auditor (as defined in sub-Clause 10.2).
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10.2 The Trustees shall appoint as auditor to the Scheme (the "Auditor") a
person or firm qualified to act as auditor under the Pensions Act. The
Auditor shall be provided with such information and evidence as he may
properly require.
11. ACTUARIAL INVESTIGATIONS
11.1 The Trustees shall appoint as actuary to the Scheme (the "Actuary") an
actuary (being a Fellow of the Institute of Actuaries or of the Faculty of
Actuaries in Scotland) and may at any time and from time to time revoke
such appointment and appoint another such actuary subject to the
requirements of the Pensions Act.
11.2 The Trustees shall instruct the Actuary to make an actuarial investigation
of the financial condition of the fund at such intervals consistent with
the requirements of the Pensions Act as the Trustees shall arrange in
consultation with the Principal Employer. The Employers and the Trustees
shall furnish to the Actuary all accounts and information which the
Actuary may reasonably require for that purpose.
11.3 The Trustees shall require the Actuary to report to them and to the
Principal Employer in writing on the completion of each actuarial
investigation carried out pursuant to the provisions of sub-Clause 11.2 of
this Clause. If such actuarial investigation discloses a significant
surplus or deficiency in the Fund the Trustees shall subject to the
approval of the Principal Employer determine what action shall be taken
having regard to the recommendations of the Actuary. Such action may
include the return of the whole or any part of a surplus to the Employers
in such proportions as shall be determined by the Actuary but only in so
far as such action shall have been expressly approved by the Board of
Inland Revenue and subject to compliance with Section 37 of the Pensions
Act.
11.4 The Trustees shall instruct the Actuary to prepare such other valuations,
reports and certificates as may be required by the Pensions Act.
12. TERMINATION, SUSPENSION OR REDUCTION OF EMPLOYERS' LIABILITY
12.1 The Principal Employer or any other Employer with the consent of the
Principal Employer may at any time terminate its liability and (where
applicable) that of its Employees to pay contributions to the Fund by
notice in writing to the Trustees.
12.2 Where an Employer terminates its liability to pay contributions to the
Fund in pursuance of sub-Clause 12.1 of this Clause its liability to pay
contributions assessed and due before the date of termination shall not be
affected.
12.3 The liability of the Employers or any of them to pay contributions to the
Fund may, with the consent of all the Employers and subject (where
applicable) to the requirements of Sections 56 to 61 of the Pensions Act,
be suspended or reduced at any time by notice in writing given to the
Trustees by the Principal Employer in which event the Rules shall be
appropriately altered or added to in accordance with the provisions of
Clause 7 to such extent as may be necessary in the opinion of the Trustees
on the advice of the Actuary to take account of such suspension or
reduction.
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13. SUBSTITUTION OF PRINCIPAL EMPLOYER
13.1 The Trustees may at any time enter into an agreement with any body
corporate or firm which as the result of any amalgamation or
reconstruction or otherwise may for the time being be carrying on the
business of or substantially the same business as that carried on by the
Principal Employer or which directly or indirectly controls or is
otherwise associated with the Principal Employer or any other body
corporate or firm for the time being participating in the Scheme whereby
that body corporate or firm undertakes to perform the obligations of the
Principal Employer under the Scheme and thereupon the Principal Employer
shall be released from all the said obligations and such other body
corporate or firm shall be deemed to be substituted for the Principal
Employer as the person entitled to exercise the rights powers and
discretions vested in the Principal Employer under the Scheme and liable
to perform the said obligations. This Deed and the Rules shall thenceforth
have effect as if such other body corporate or firm had been a party to
and had executed this Deed in place of the Principal Employer and as if
references to the Principal Employer contained in the Trust Deed and the
Rules were references to such body corporate or firm.
13.2 In the event that the Principal Employer enters into liquidation or ceases
to carry on business or is dissolved and there is no agreement to
substitute any other body corporate or firm as the Principal Employer such
as is mentioned in sub-Clause 13.1 of this Clause and no reasonable
expectation of such agreement then and in any such event the Trustees may
determine the Scheme or may by deed exercise the power under Clause 7 to
alter or add to all or any of the trusts powers and provisions of the
Trust Deed or the Rules without the concurrence of the Principal Employer
and may make such arrangements or enter into such agreements (not being
arrangements or agreements of such a kind as to prejudice the Approval of
the Scheme) as they shall in their discretion think fit for the
continuation of the Scheme.
14. EVENTS LEADING TO TERMINATION OF THE SCHEME
14.1 Subject to the provisions of this Clause the Scheme shall be determined
upon the happening of any one of the following events:
14.1.1 if the Principal Employer terminates its liability and (where
applicable) that of its Employees to pay contributions to the Fund
under sub-Clause 12.1 (unless the Trustees shall resolve that the
determination of the Scheme shall be deferred);
14.1.2 if the Principal Employer fails at any time to pay to the Trustees
any sum or sums due under the Trust Deed or the Rules within the
period required by the Trustees or fails to observe and perform any
other of its obligations under the Trust Deed or the Rules (unless
the Trustees shall resolve that the determination of the Scheme
shall be deferred);
14.1.3 if it shall appear to the Trustees that the Fund is insolvent or if
they receive actuarial advice to that effect and the Trustees
thereupon resolve to determine the Scheme;
14.1.4 if the Trustees exercise the power to determine the Scheme
conferred on them in certain events by sub-Clause 13.2;
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14.1.5 if the Trustees resolve to determine the Scheme at any time after
it would have determined under any of sub-paragraphs 14.1.1, 14-1.2
or 14.1.4 of this sub-Clause but for a decision by the Trustees
that the determination of the Scheme should be deferred;
14.1.6 if the period specified in Clause 16 for the duration of the Scheme
shall expire.
14.2 Upon the Scheme being determined the liability of each of the Employers
and (where applicable) the Members to pay contributions to the Fund (if
not already terminated) shall terminate but without prejudice to the
liability for the payment of any contributions assessed and due before the
date of termination and the Fund shall be applied in accordance with the
provisions of Clause 15.
15. TERMINATION OF THE SCHEME
15.1 On the termination of the Scheme the Trustees shall subject to:
15.1.1 meeting out of the Fund all costs charges and expenses of or
incidental to the administration and the termination of the Scheme
which in the opinion of the Trustees may not be recoverable from
the Employers and any tax for which the Trustees may be
accountable; and
15.1.2 repaying and paying interest on and the expenses in connection with
any moneys borrowed for the purposes of the Scheme; and
15.1.3 completing the application of any lump sum benefit which has become
payable in accordance with the provisions of Rule 15 on the death
of a Member prior to such termination
wind up the Fund by applying the assets thereof in the manner
hereinafter prescribed.
15.2 The Trustees shall apply the Voluntary Contributions Fund so far as the
same may be available in the provision for and in respect of each of the
Members who have paid voluntary contributions and who have not retired of
such benefits as the Trustees shall determine to be appropriate having
regard to the portion of the Voluntary Contributions Fund which they
determine to be attributable to voluntary contributions paid by the Member
and to any decision by the Trustees pursuant to sub-Clause 2.4 to maintain
a segregated fund within the Voluntary Contributions Fund in respect of
the Member and to such arrangements as the Trustees shall have made with
the Member and such wishes as he shall have notified to the Trustees as to
the benefits to be provided under the Scheme by his voluntary
contributions and such Members shall (except to the extent that a
segregated fund has been maintained in respect of any Member as aforesaid)
rank pari passu among themselves in relation to such benefits.
15.3 Subject to the foregoing provisions of this Clause the Trustees shall
apply the remaining assets in the Fund towards satisfying (to the extent
not already satisfied) the outstanding liabilities of the Scheme in
accordance with Section 73 of the Pensions Act. Thereafter any remaining
assets in the Fund shall be applied in so far as the same may be available
in the following order of priority:
FIRST
In securing (in so far as the Trustees have not already done so) the
payment of:
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(i) immediate annuities for those persons who are in receipt of pensions
under the Scheme equal to such pensions;
(ii) immediate annuities for those persons whose retirement on pension has
been deferred beyond Normal Pension Date equal to the pensions to
which such persons would have been entitled under the Scheme had such
persons retired on pension immediately prior to the date of
termination of the Scheme;
(iii) contingent annuities for those persons entitled to pensions on the
death of those persons within either of the categories (i) and (ii)
above equal to such pensions
but excluding all pensions attributable to Member's Voluntary Contributions.
SECOND
In meeting the following liabilities of the Fund in so far as they have
not already been satisfied:
(i) any equivalent pension benefits within the meaning of Section 13 of
the Pension Schemes Act;
(ii) any guaranteed minimum pensions and any accrued tights to guaranteed
minimum pensions;
(iii) any state scheme premiums as described in Part III of the Pension
Schemes Act.
THIRD
In securing (in so far as the Trustees have not already done so):
(i) for and in respect of those Members who before the date of
termination of the Scheme had left Service with an entitlement to a
deferred pension under sub-Rule 18.1 but had not reached Normal
Pension Date or retired early and any other persons prospectively
entitled to a deferred pension under the Scheme at the date of
termination of the Scheme, annuities payable from their Normal
Pension Date equal to the deferred pensions to which they were
entitled under the Scheme immediately prior to the date of
termination of the Scheme and annuities contingent upon their death
equal to the pensions contingent upon their death which were provided
under the Scheme in respect of them immediately prior to the date of
termination of the Scheme;
(ii) for and in respect of those Members who on the date of termination of
the Scheme were still in Service and had not reached Normal Pension
Date, deferred annuities payable from their Normal Pension Dates
equal to the deferred pensions to which such Members would have been
entitled under Rule 18.1 on the assumption that such Members had left
Service immediately prior to the date of termination of the Scheme
and had been Qualified Members and annuities contingent upon their
death equal to the pensions contingent upon their death which (making
the same assumption) would have been provided under the Scheme in
respect of them immediately prior to the date of termination of the
Scheme
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but excluding all pensions attributable to Member's Voluntary
Contributions.
FOURTH
In respect of such part of the balance of the Fund then remaining as the
Trustees with the consent of the Principal Employer shall decide in
augmenting the benefits described in the First and Third Classes above
within the limitations contained in the Inland Revenue Limits Rules in
such manner as the Trustees shall on the advice of the Actuary and with
the consent of the Principal Employer determine provided that the consent
of the Principal Employer for the foregoing purposes shall not be required
if the Principal Employer is then in receivership or liquidation (other
than a voluntary liquidation for the purposes of amalgamation or
reconstruction).
FIFTH
Subject to compliance with Section 76(2) of the Pensions Act in repaying
to the employers any balance of the Fund remaining unexpended in such
proportions as the Trustees on the advice of the Actuary shall determine.
In the event of there being insufficient moneys to meet the liabilities in
any of the First Second or Third Classes above the amount of each
liability secured in that Class shall subject to Section 73 of the
Pensions Act be abated in such manner and by such amount as the Trustees
on the advice of the Actuary consider just and equitable.
15.4 An annuity to be secured for any person in accordance with sub-Clause 15.3
of this Clause shall be secured by the purchase from an Insurance Office
of a policy which satisfies the requirements described in Rule 26 and
which may contain such options consistent with Approval as the Trustees
may determine including (without prejudice to the generality of the
foregoing) in the case of a person who is a Member on the date of
termination of the Scheme
15.4.1 a provision allowing such person to elect to receive an
appropriately reduced annuity earlier than Normal Pension Date (but
not earlier than age fifty other than in the event of Incapacity);
15.4.2 a provision allowing such person to commute for a lump sum the
whole or part of such annuity on the date upon which it commences
to be payable subject to the limitations contained in the Inland
Revenue Limits Rules;
15.4.3 a provision allowing such person on the commencement of such
annuity to surrender part of it for an annuity to a Dependant or
Dependants on terms similar to Rule 12.
15.5 Notwithstanding the foregoing provisions of this Clause the Trustees may
exercise all or any of the following powers in the event of a termination
of the Scheme instead of securing the whole or any part of the benefits to
be secured in respect of some or all of the Members and other
Beneficiaries in accordance with sub-Clauses 15.2 and 15.3 of this Clause:
15.5.1 power to transfer all or any part of the assets in the Fund as the
Trustees on the advice of the Actuary consider appropriate (subject
to sub-Clause 15.1 of this Clause) to another retirement benefits
scheme which has received Approval or
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any other fund or scheme or arrangement approved for the purposes
of this sub-Clause by the Board of Inland Revenue (hereinafter
called the "Receiving Scheme") to the intent that such Members and
other Beneficiaries shall be entitled to such rights under the
Receiving Scheme as may be agreed between the Trustees and the
trustees or the administrator of the Receiving Scheme;
15.5.2 power to purchase an insurance policy or annuity contract with the
consent or at the request of the Member or other Beneficiary in
accordance with the provisions of Rule 26;
15.5.3 power to make arrangements in connection with any insurance policy
or annuity contract held as part of the Fund to secure payment of
the benefits under the foregoing provisions of this Clause whether
by assignment of such policy or contract to the Member or other
Beneficiary or otherwise.
15.6 Any transfer made pursuant to sub-Clause 15.5.1 of this Clause shall be
subject to the same terms and conditions as those set out in sub-Rule
25.2.
15.7 The exercise of any power under sub-Clause 15.5 of this Clause shall
discharge the Trustees from any further liability to provide the benefits
that would otherwise have been payable under sub-Clause 15.2 or 15.3 of
this Clause and the Trustees shall be under no liability to see to the
application of the assets so transferred or assigned.
15.8 Until the completion of the winding-up of the Fund and subject to the
provisions of sub-Clause 13.2 such of the provisions of the Trust Deed and
the Rules as are not inconsistent with the foregoing provisions of this
Clause shall continue in full force and effect including (without
limitation) the power of amendment under Clause 7.
15.9 If a pension to be provided under any of the foregoing provisions of this
Clause is trivial (as defined for the purpose of sub-Rule 11.2) or if a
Member entitled thereto is in exceptional circumstances of serious
ill-health the Trustees may make an immediate cash payment in lieu of such
annuity and benefits subject to the provisions of sub-Rule 11.2 and
sub-Rule 11.3. If the whole of a Member's pension is so commuted any
pension payable in the event of his death which is trivial shall also be
commuted for a cash sum payable to the Member.
15.10 Subject to the contracting-out requirements of the Pension Schemes Act
the Trustees shall be entitled to assume in respect of any Member for the
purposes of sub-Clauses 15.2 and 15.3 of this Clause that no marriages
will be entered into or dissolved and no Children will be born after the
date of termination of the Scheme.
15.11 If in securing any of the annuities for the persons to whom sub-Clause
15.3 of this Clause refers the Trustees consider that it is impracticable
or inexpedient to secure annuities the amounts and terms whereof are the
same as the respective pensions referred to in sub-Clause 15.3 of this
Clause the Trustees may secure annuities of such amounts and subject to
such terms as they shall in their discretion determine but so that the
said amounts and terms shall be as nearly as possible the same as the
amounts and terms of the said respective pensions and shall be such as are
consistent with the preservation requirements and the contracting-out
requirements of the Pension Schemes Act.
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16. DURATION OF THE SCHEME
Unless determined earlier in accordance with Clause 15 the trusts of the
Scheme shall endure for eighty years from the date of the Trust Deed which
period is specified to be perpetuity period for the said trusts and for
such longer period as shall then be lawful and shall then be wound up.
17. HEADINGS
The headings in this Deed and the Rules are for reference purposes and
shall not affect the construction thereof.
18. CONSTRUCTION
The trusts hereby created shall be construed and the rights of the parties
thereto be governed by the laws of England and shall be subject to the
jurisdiction of the courts of England.
IN WITNESS whereof this deed has been executed the day and year first above
written
THE COMMON SEAL of FORMICA )
LIMITED was hereunto affixed in the )
presence of: )
Director
[SEAL]
Secretary
15
<PAGE>
SIGNED and DELIVERED as a deed )
by the said WILLIAM ADAMS in the )
presence of: )
................................
Signature of Witness
................................
Name of Witness
................................
................................
................................
Address of Witness
................................
Occupation of Witness
SIGNED and DELIVERED as a deed )
by the said PETER DENIS HALL in the )
presence of: )
................................
Signature of Witness
................................
Name of Witness
................................
................................
................................
................................
Address of Witness
................................
Occupation of Witness
16
<PAGE>
SIGNED and DELIVERED as a deed )
by the said GEORGE HOGG )
in the presence of: )
................................
Signature of Witness
................................
Name of Witness
................................
................................
................................
................................
Address of Witness
................................
Occupation of Witness
SIGNED and DELIVERED as a deed )
by the said WILLIAM HENRY STRIKE )
in the presence of: )
................................
Signature of Witness
................................
Name of Witness
................................ [Notary]
................................ WE HEREBY CERTIFY
................................ THIS TO BE A TRUE AND
................................ ACCURATE COPY OF
Address of Witness THE ORIGINAL
/s/ Herbert Smith
................................ ........................
Occupation of Witness HERBERT SMITH
Exchange House
Primrose Street
London EC2A 2HS
Date 18 February 1999
........................
17
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THE SCHEDULE
TABLE OF CONTENTS
Rule Heading Page
1. DEFINITIONS ......................................................20
2. MEMBERSHIP .......................................................26
3. ADMISSION TO LIFE ASSURANCE MEMBERSHIP ...........................27
4. ADMISSION TO MEMBERSHIP ..........................................27
5. CONTINUATION OF AND RE-ADMISSION TO MEMBERSHIP ...................27
6. MEMBERS' CONTRIBUTIONS ...........................................28
7. EMPLOYERS' CONTRIBUTIONS .........................................28
8. MEMBERS' VOLUNTARY CONTRIBUTIONS .................................28
9. RETIREMENT PENSIONS ..............................................30
10. PAYMENT OF PENSIONS ..............................................31
11. COMMUTATION OF PENSION ...........................................31
12. DEPENDANT'S PENSION OPTION .......................................32
13. LUMP SUM ON DEATH IN SERVICE OF MEMBER OR LIFE
ASSURANCE MEMBER .................................................33
14. LUMP SUM ON DEATH AFTER RETIREMENT OR LEAVING
SERVICE ..........................................................34
15. APPLICATION OF LUMP SUM DEATH BENEFITS ...........................34
16. SPOUSE'S PENSIONS.................................................35
17. CHILDREN'S PENSIONS ..............................................37
18. LEAVING SERVICE ..................................................39
19. CEASING TO BE ELIGIBLE ...........................................39
20. LEAVE OF ABSENCE .................................................40
21. BROKEN SERVICE ...................................................41
18
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Rule Heading Page
22. REVALUATION OF PENSIONS IN EXCESS OF GUARANTEED
MINIMUM PENSIONS .................................................42
23. ALTERNATIVES TO SHORT SERVICE BENEFIT ............................43
24. AUGMENTATION AND DISCRETIONARY BENEFITS ..........................43
25. TRANSFER TO ANOTHER SCHEME .......................................44
26. PURCHASE OF ANNUITIES ............................................45
27. RIGHT TO A TRANSFER PAYMENT ......................................47
28. TRANSFER FROM ANOTHER SCHEME .....................................49
29. GENERAL PROVISIONS ...............................................50
30. PENSION INCREASES ................................................53
31. INLAND REVENUE LIMITS ON BENEFITS ................................53
32. CONTRACTING-OUT: PENSION SCHEMES ACT 1993 ........................54
33. NATIONAL INSURANCE ACT 1965 ......................................54
34. SPECIAL PROVISIONS APPLICABLE TO PART-TIME EMPLOYEES .............54
APPENDIX I INLAND REVENUE LIMITS RULES .....................................57
APPENDIX 2 CONTRACTING-OUT REQUIREMENTS ....................................71
19
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RULES
1. DEFINITIONS
Throughout the Trust Deed and Rules a reference to any enactment or any
regulations thereunder shall be deemed to include a reference to any
amendment or re-enactment thereof for the time being in force and unless
the context otherwise requires the masculine includes the feminine the
singular includes the plural and vice versa and the following words and
expressions shall have the following meanings:
"Active Member" means an Employee who has been admitted to membership of
the Scheme under Rule 4 and has not ceased to be eligible by virtue of
Rule 19.
"Actuary" means the actuary for the time being appointed by the Trustees
or otherwise acting as the Actuary to the Scheme as provided in Clause 11
of the Trust Deed.
"Approval" means approval by the Board of Inland Revenue as an exempt
approved scheme for the purpose of Chapter I of Part XIV of the Taxes Act.
"Beneficiary" means (other than for the purposes of Rule 15) any person
absolutely or contingently entitled to receive a benefit under the Scheme.
"BTR Scheme" means the BTR Group Pension Scheme established by a trust
deed dated 31st March 1988.
"Calculation Date" means 6th April 1999 and each subsequent 6th April.
"Child" or "Children" means in relation to a Member each legitimate child
(including any such posthumous child) and step-child and legitimated child
of and any child legally adopted by him (but excluding any such child who
has been legally adopted by another person) who (a) is under the age of 16
years or, if over that age, is receiving full-time education or full-time
vocational training approved by the Trustees and is under the age of 23
years and (b) is in the case of a step-child at the date of death of the
Member living with him or financially dependent upon him to a substantial
extent, and in determining whether a step-child is so dependent the
decision of the Trustees shall be final. Provided that:
(1) the category "Child" or "Children" shall exclude a child conceived
after the date of the Member's retirement or leaving Pensionable
Service, whichever is the earlier;
(2) the Trustees may, subject to the consent of the Employer, in any
particular case (i) extend the definition of "Child" or "Children" to
include any illegitimate child of a Member; and/or (ii) determine
that the relevant qualifying maximum age and the reference to
full-time education or full-time vocational training and to a
step-child living with or financially dependent upon a Member at the
date of his death or any of these provisions may be ignored or that
the relevant qualifying maximum age may be later than 16 years or 23
years (as the case may be), provided that Approval will not thereby
be affected.
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"Commencement Date" means 1st November 1998.
"Contracting-out Rules" means the contracting-out rules set out in
Appendix 2 to these Rules.
"Contribution Salary" means in relation to a Member the amount by which
his Pensionable Salary received in the relevant pay period exceeds the
equivalent for that period of the lower earnings limit as at 6th April
1998
"Dependant" means in relation to a Beneficiary a person (being an
individual) who in the opinion of the Trustees is or was at the time of
death of the Beneficiary wholly or partly maintained or regularly
financially assisted by the Beneficiary except that a legitimate child of
the Beneficiary shall qualify as a Dependant without evidence of such
maintenance or assistance if he is under the age of 18 or undergoing
full-time educational or other vocational training; the term "Dependants"
shall be construed accordingly.
"Employee" means any employee or director of any of the Employers provided
that in the case of a director
(a) he is beneficially entitled to his director's fees and any other
remuneration and is not under an obligation to account for them to
another company or employer, and
(b) such fees and other remuneration are not being treated for tax
purposes as a receipt of a profession in which the director is
engaged.
"Employers" means the Principal Employer and any Participating Employers
and in relation to any particular Employee "Employer" means that one of
the Employers by which he is at the relevant time employed or by which he
was last employed.
"Final Pensionable Salary" means in relation to a Member, but subject to
Rule 20, the highest total of his Pensionable Salary in any complete Tax
Year within the period of five years ending on the Normal Pension Date or
the earlier date of retirement from or leaving Service or death or, if a
Member has been in Service for less than twelve complete consecutive
months, the annual equivalent of his Pensionable Salary over such shorter
period, except that in relation to a Member who leaves Service or retires
on or before 6th April 2001 Final Pensionable Salary shall mean the
greatest of:-
(a) his Pensionable Salary in the Tax Year ending on 5th April 1997 (if
any)
(b) his Pensionable Salary in the Tax Year ending on 5th April 1998 (if
any)
(c) his Pensionable Salary in the Tax Year ending on 5th April 1999 (if
any)
(d) his Pensionable Salary in the Tax Year ending on 5th April 2000 (if
any), and
(e) his BTR notional pay used to calculate his transfer payment (if any)
from the 1985 Scheme to the BTR Scheme as at 5th April 1997.
"Fund" means the money and other assets including the income and profits
therefrom and accretions thereto held by the Trustees for the purposes of
the Scheme.
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"Incapacity" means physical or mental deterioration which prevents a
Member from following his normal employment.
"Index" means the Index of Retail Prices published by the Department of
Employment, or any other official cost-of-living index selected by the
Trustees and approved by the Board of Inland Revenue.
"Inland Revenue Limits Rules" means the Inland Revenue Limits set out in
Appendix I to these Rules.
"Insurance Office" means any insurance company or insurance office which
satisfies the requirements stated in Section 19(4)(a) of the Pension
Schemes Act.
"Life Assurance Member" means an Employee who has been admitted to and
remains in membership of the Scheme under sub-Rule 2.1.
"Member" means an Employee who has been admitted to membership of the
Scheme pursuant to Rule 4 and such a person shall continue to be a Member
so long as but only so long as he is entitled or prospectively entitled to
any benefit under the Scheme but excludes a Life Assurance Member except
where otherwise provided in the Rules.
"Member's Normal Contributions" means in relation to a Member the total of:
(a) in the case of a Member who prior to 6th April 1997 was a member of
the 1985 Scheme, the contributions which counted as Member's Normal
Contributions under the 1985 Scheme; and
(b) in the case of a Member who prior to the Commencement Date was a
member of the BTR Scheme in respect of whom a transfer payment is
received by the Scheme under sub-Rule 28.5, his contributions paid to
the BTR Scheme; and
(c) his contributions paid to the Fund under Rule 6
together with interest thereon added as at each Calculation Date at the
rate of 5% per annum (and so in proportion for each complete month in any
incomplete year) calculated on the total of his contributions at the
previous Calculation Date and any interest added previously.
"Member's Total Contributions" means in relation to a Member the aggregate
of the Member's Normal Contributions and (if any) the Member's Transferred
Contributions.
"Member's Transferred Contributions" means in relation to a Member the
amount (if any) certified by the trustees or other administrator of the
other scheme referred to in Rule 28 (excluding the BTR Scheme in the case
of a Member in respect of whom a transfer payment is received by the
Scheme under sub-Rule 28.5) as representing the contributions made by him
to the other scheme and to be treated as a contribution paid by him to the
Fund, together with interest at such rate (if any) as the Trustees on the
advice of the Actuary shall determine.
22
<PAGE>
"Member's Voluntary Contributions" means in relation to a Member his
contributions to the Voluntary Contributions Fund.
"1985 Scheme" means the Formica Limited Pension Scheme established by a
trust deed dated 19th September 1985.
"Normal Pension Date" means in relation to a Member the 65th birthday. The
application of this definition throughout the Rules shall be on the basis
that if a Member were to retire at the Normal Pension Date such day would
be his last day in Service.
"Participating Employer" means any company or other employer admitted to
participation in the Scheme in accordance with the provisions of
sub-Clause 8.1 of the Trust Deed.
"Pensionable Salary" means in relation to a Member, subject to Rule 20,
the basic salary or wage paid to him by the Employer, together with any
shift premium and overtime payments, but excluding director's fees,
commission, bonuses and any other fluctuating emoluments.
"Pensionable Service" means in relation to a Member:
(a) the last or only period of Service as a Member excluding (i) any
period or periods which are not to be regarded as Pensionable Service
under Rule 19 or 20 and (ii) any period after Normal Pension Date;
and
(b) such other periods as may be determined to be periods of Pensionable
Service in pursuance of the powers contained in Rule 20, Rule 24 or
Rule 28.
Provided that:
(1) Pensionable Service shall be calculated in complete years and days
and in any such calculation each day of an incomplete year shall be
included as 1/365 of a year;
(2) any period as may be determined to be a period of Pensionable
Service as referred to in paragraph (b) of this definition shall be
Pensionable Service to such extent for such purposes and on such
terms and conditions as may be specified in the relevant
determination;
(3) for the purpose of sub-Rule 27.1 Pensionable Service shall have the
meaning described in paragraph (a) of this definition except that no
account shall be taken of any period which is not a period of actual
service with the Employers.
"Pensions Act" means the Pensions Act 1995 and all references thereto and
the provisions thereof shall where appropriate be interpreted as
references to the parallel provisions in force in Northern Ireland; words
and expressions defined in the Pensions Act shall have the same meaning
when used in the Trust Deed and the Rules unless the context otherwise
requires.
"Pension Schemes Act" means the Pension Schemes Act 1993 and all
references thereto and the provisions thereof shall where appropriate be
interpreted as references to the parallel provisions in force in Northern
Ireland; words and expressions defined
23
<PAGE>
in the Pension Schemes Act shall have the same meaning when used in the
Trust Deed and the Rules unless the context otherwise requires.
"Principal Employer" means Formica Limited or any other body corporate or
Firm which has entered into an agreement with the Trustees to fulfil the
liabilities and obligations of the Principal Employer under the Scheme
pursuant to sub-Clause 13.1 of the Trust Deed.
"Qualified Member" means a Member who retires from or leaves Service
before the Normal Pension Date having completed not less than two years'
Qualifying Service and in the case of a Member who re-enters Service shall
be determined separately in relation to each period of Service except as
otherwise provided in the definition of Qualifying Service.
"Qualifying Service" means in relation to a Member the aggregate of:
(a) his Pensionable Service
(b) any period of employment while a member of any other retirement
benefit scheme in respect of which the Member has become entitled to
additional rights under the Scheme in substitution for accrued rights
under such other scheme;
EXCEPT THAT
(1) if a Member re-enters Pensionable Service
(i) after a break not exceeding one month; or
(ii) no later than one month after returning to work having exercised
a right under Section 71 of the Employment Rights Act 1996 or in
exercise of a right under Section 79 of the Employment Rights
Act 1996 following a period of absence for pregnancy or
confinement; or
(iii) after a break corresponding to the Member's absence from work
in furtherance of a "trade dispute" as defined in Section 35(l)
of the Jobseekers Act 1995
then on re-admission to or continuation of membership of the Scheme
(as the case may be) the two periods of Pensionable Service shall be
regarded as continuous,
(2) if having completed two years' Qualifying Service the Member
re-enters Pensionable Service he shall be deemed on any subsequent
occasion on which he leaves Pensionable Service to have completed the
said period;
(3) subject to (1) above no account shall be taken by any period which
does not qualify the Member for benefits payable on or after the
Normal Pension Date;
(4) no period shall be reckoned more than once.
"Relatives" means in relation to a Beneficiary the spouse of the
Beneficiary and the ancestors and the descendants of the Beneficiary and
the spouses of such ancestors
24
<PAGE>
and descendants, the Beneficiary's brothers sisters uncles aunts (whether
of the whole or half blood) the spouses and descendants of them and for
the purpose of this definition "descendant" shall include an adopted
child.
"Rules" means these rules and any alterations to them made under the powers
contained in the Trust Deed.
"Scale Pension" means in relation to a Member (subject to sub-Rule 9.4) a
pension of such annual amount as is equal to the total of:
(1) 1.667% of his Final Pensionable Salary multiplied by the period of
Pensionable Service from and including the Commencement Date, and
(2) such percentage of his Final Pensionable Salary as is accredited to
him in respect of a transfer payment received by the Scheme in
respect of him (if any) from the BTR Scheme under sub-Rule 28.5
except that if immediately prior to 6th April 1997 the Member had
been a member of the 1985 Scheme, and a transfer payment was
subsequently made in respect of him from the 1985 Scheme to the BTR
Scheme, that part of his Scale Pension relating to Service prior to
6th April 1997 shall not be less than the pension that he had accrued
under the 1985 Scheme increased in respect of the period from 6th
April 1997 to the date on which his Pensionable Service is terminated
by the revaluation percentage specified as being relevant in an order
made under Section 84 of the Pension Schemes Act during the calendar
year before the year in which the Member's Pensionable Service is
terminated
subject to a maximum of 66.667% of Final Pensionable Salary or, if the
Member continues to pay contributions under sub-Rule 6.1 after this
percentage has been accrued, such greater percentage as would not
prejudice Approval of the Scheme.
"Scheme" means the Formica Limited 1998 Pension Scheme constituted by the
Trust Deed and the Rules.
"Service" means in relation to an Employee or Member
(a) service with the Employers and so that for the purpose of the Scheme
transfer of service between any of the Employers shall not be
construed as termination of Service, and
(b) any other period which the Principal Employer determines to be
Service provided that such determination shall not prejudice Approval
of the Scheme.
"Special Director" means a Member who, at any time in the last ten years
before retirement, or leaving Pensionable Service if earlier, has been a
director within the definitions of a director in both Section 612 and
paragraph (b) of Section 417(5) of the Taxes Act in relation to the
Employer.
"Taxes Act" means the Income and Corporation Taxes Act 1988.
"Tax Year" means each year ending on 5th April or such other period (if
any) which is a tax year for the purposes of the Pension Schemes Act.
25
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"Trust Deed" means the deed to which these Rules are annexed and any deed
supplemental thereto.
"Trustees" means the trustee or trustees for the time being of the Scheme."
"Voluntary Contributions Fund" means the fund maintained in accordance
with Clause 2.3 of the Trust Deed.
"Voluntary Contributions Fund Account" means in relation to a Member who
has paid Member's Voluntary Contributions an account maintained by or on
behalf of the Trustees in accordance with sub-Clause 2.4 of the Trust
Deed.
2. MEMBERSHIP
2.1 Subject to sub-Rule 5.2, an Employee shall be eligible for admission to
membership of the Scheme as a Life Assurance Member under Rule 3 if he
2.1.1 is not eligible under sub-Rule 2.2, and
2.1.2 is not a casual Employee or a temporary Employee employed on a
fixed term contract, and
2.1.3 is normally employed in the United Kingdom.
2.2 Subject to sub-Rule 5.2, an Employee who has not reached age 65 shall be
eligible for admission to membership of the Scheme as a Member under
sub-Rule 4.1 if he
2.2.1 is a permanent Employee who commenced employment with the Principal
Employer after 1st May 1998, or
2.2.2 is a temporary Employee with at least six months' continuous Service
(but excluding any casual Employee or a temporary Employee employed
on a fixed term contract), or
2.2.3 was an active member of the BTR Scheme immediately prior to the
Commencement Date and signed an application form to join the Scheme
and is normally employed in the United Kingdom.
2.3 The Principal Employer may at any time by notice in writing to the
Trustees direct that any person or class of persons specified in that
notice shall not be eligible for admission to membership of the Scheme or
shall cease to be eligible for continued membership of the Scheme and any
notice given under this sub-Rule shall have effect notwithstanding the
foregoing provisions of this Rule.
2.4 The Principal Employer may at any time direct that membership of the
Scheme shall be closed and thereafter no person shall be eligible to become
a Member.
2.5 The Trustees may on the application of the Employer admit an Employee to
membership of the Scheme under Rule 3 or sub-Rule 4.1 notwithstanding that
in his case one or more of the conditions set out in sub-Rule 2.1 or
sub-Rule 2.2 are not fulfilled, or have ceased to be fulfilled, in which
event the Trustees may determine with the advice of the Actuary, that the
benefits under the Scheme as applicable to
26
<PAGE>
such Employee, and the terms and conditions applicable to his membership
shall be varied in such manner as the Trustees shall consider appropriate
or necessary.
3. ADMISSION TO LIFE ASSURANCE MEMBERSHIP
An Employee who is eligible for admission to membership of the Scheme
under sub-Rule 2.1 shall be admitted to membership as a Life Assurance
Member as from the date on which he becomes eligible under sub-Rule 2.1
and so that (i) he shall not pay contributions to the Fund under Rule 6 or
Rule 8 while a Life Assurance Member, (ii) no benefit except the benefit
under sub-Rule 13.1 shall apply in respect of him and (iii) he shall cease
to be a Life Assurance Member as from the earliest date on which he can
become a Member under sub-Rule 4.1.
4. ADMISSION TO MEMBERSHIP
4.1 The Employer will give notice to an Employee on his first becoming eligible
for admission to membership of the Scheme under sub-Rule 2.2 and unless
within one calendar month of receipt of such notice the Employee informs
the Employer in writing that he does not wish to become a Member he shall
be admitted to membership of the Scheme as from the first day of the month
coincident with or. if not coincident with, next following the date on
which he becomes eligible under sub-Rule 2.2 (subject to sub-Rule 4.3 and
Rule 5).
4.2 An Employee who gives notice in accordance with sub-Rule 4.1 that he does
not wish to become a Member at his first opportunity may apply for
membership of the Scheme within five years thereafter if he remains
eligible and has not attained age 55 but his admission to membership shall
be subject to the approval of the Employer, and on such terms and
conditions as the Employer may, with the consent of the Trustees and the
advice of the Actuary, consider appropriate or necessary.
4.3 Members shall provide to the Trustees upon request a birth certificate or
other evidence of age acceptable to the Trustees a marriage certificate
(where relevant) and such evidence of health or other information as the
Trustees may at any time require and application for membership under
sub-Rule 4.2 shall be made in such form and manner and accompanied by such
information and evidence as shall in such case be required by the
Trustees.
4.4 If the Trustees require a Member to provide evidence of health and such
evidence is either not produced or is not satisfactory to the Trustees,
the Trustees may refuse admission to membership of the Scheme or may
modify any benefit or benefits payable to or in respect of the Member to
such extent as the Trustees shall determine.
5. CONTINUATION OF AND RE-ADMISSION TO MEMBERSHIP
5.1 A Member or Life Assurance Member may elect to withdraw from membership of
the Scheme by giving not less than one month's written notice to the
Trustees (or such lesser period of notice as the Trustees may agree to
accept).
5.2 An Employee who has elected to withdraw from membership of the Scheme may
be re-admitted as a Member under Rule 4 within five years thereafter
provided that he has not attained age 55 but only with the approval of the
Employer and the Trustees
27
<PAGE>
and nn such terms and conditions as the Employer may, with the consent of
the Trustees and the advice of the Actuary, consider appropriate or
necessary.
6. MEMBERS' CONTRIBUTIONS
6.1 Except as otherwise provided in the Rules, each Member shall for the
duration of his Pensionable Service pay contributions to the Fund at the
annual rate of 5 per cent of his Contribution Salary. Such contributions
shall cease to be payable if the Scale Pension is equal to 66.667% of the
Member's Final Pensionable Salary unless the Member and the Employer agree
otherwise and the continuation of contributions would not provide benefits
that would prejudice Approval of the Scheme.
6.2 A Member's contributions shall be deducted from his pay (or otherwise
collected) by the Employer at such intervals as the Employer shall
determine and shall be paid over by the Employer to the Trustees or as
the Trustees may direct on or before the 19th day of the month
immediately following the month in which they are deducted.
6.3 The total contributions paid by the Member in any Tax Year to the Scheme
and to any other Relevant Scheme (as defined in the Inland Revenue Limits
Rules) providing benefits by virtue of Service shall not exceed 15% of his
Remuneration (as defined in the Inland Revenue Limits Rules) for that year
in respect of that Service or such higher amount as the Board of Inland
Revenue may in any particular case permit.
7. EMPLOYERS' CONTRIBUTIONS
7.1 Each Employer shall pay such contributions to the Fund as shall from time
to time be determined by the Trustees on the advice of the Actuary and
agreed with the Employer to be required together with the contributions of
the Members under sub-Rule 6.1 to make due provision for the benefits of
the Scheme for the Members and Life Assurance Members employed by such
Employer.
7.2 The Employers' contributions shall be paid by the Employers to the Trustees
or as the Trustees may direct at such intervals as may be arranged between
the Trustees and the Employers.
7.3 The Employers may. with the agreement of the Trustees and provided
Approval will not thereby be affected, at any time or times pay to the
Fund any sum or sums in excess of the contributions required to be paid
under sub-Rule 7.1 for any purpose designated by the Employers.
7.4 The provisions of sub-Rules 7.1 and 7.2 shall apply subject to the
requirements of Sections 56 to 61 of the Pensions Act relating to the
minimum funding requirement and schedules of contributions. The Trustees
shall notify the Occupational Pensions Regulatory Authority and the
Members in the event of an Employer failing to pay contributions in
accordance with the schedule of contributions where such notification is
required under Section 59 of the Pensions Act.
8. MEMBERS' VOLUNTARY CONTRIBUTIONS
8.1 Subject to the provisions of this Rule, a Member may elect to make
voluntary contributions to the Fund upon such terms and conditions as may
be determined by the Trustees and notified to the Member in writing in
order to provide benefits (being
28
<PAGE>
relevant benefits within the meaning of Section 612(1) of the Taxes Act)
additional to those provided for him under the other provisions of the
Rules.
8.2 The amount of the voluntary contributions shall not, when added to the
Member's ordinary contributions under sub-Rule 6.1, exceed the limit
stated in sub-Rule 6.3 and shall be further restricted by the Trustees to
comply with the limits on benefits specified in the Inland Revenue Limits
Rules.
8.3 The amount of the voluntary contributions in respect of any Tax Year shall
not be less than the minimum amount determined from time to time by the
Trustees such minimum amount not to exceed the greater of:
8.3.1 0.5 per cent of the Member's earnings in that Tax Year from the
Employers, and
8.3.2 three times the weekly amount of the Lower Earnings Limit for that
Tax Year.
8.4 The Trustees may require a period of notice to be given by the Member
(which shall not exceed twelve months) of his intention to pay voluntary
contributions at a specified rate or to vary that rate.
8.5 A Member may pay voluntary contributions to the Fund only while he is in
Pensionable Service except that a Member who remains in Service after
Normal Pension Date may with the consent of the Trustees elect to
commence or continue the payment of voluntary contributions until the
date of actual retirement or commencement of his pension (whichever is
earlier).
8.6 The provisions of sub-Rule 6.2 shall apply similarly to the deduction (or
other collection) by the Employer of voluntary contributions and the
payment thereof.
8.7 Any pension secured by voluntary contributions shall be non-commutable
unless the Member entered into arrangements to pay voluntary contributions
to the 1985 Scheme prior to 8th April 1987 or the Approval of the Scheme
would not otherwise be prejudiced.
8.8 Any additional benefit payable in lump sum form on the death of a Member
shall, unless otherwise notified in writing to the Member during his
lifetime, be payable in accordance with the provisions of Rule 15.
8.9 Any additional benefits to be provided under this Rule in respect of a
Member who leaves Service before Normal Pension Date shall comply with the
preservation requirements of the Pension Schemes Act,
8.10 Subject only to the Inland Revenue Limits Rules, the additional benefits
payable under this Rule shall not be taken into account in determining the
benefits payable under the other Rules unless otherwise determined by the
Trustees and notified in writing to the Member.
8.11 If voluntary contributions are reduced, suspended or terminated the
additional benefits to be provided under this Rule may be modified in such
manner as the Trustees determine to be appropriate to take account of such
reduction, suspension or termination.
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8.12 The administrator of the Scheme shall comply with the requirements of
Regulation 5 of the Retirement Benefits Scheme (Restriction on Discretion
to Approve) (Additional Voluntary Contributions) Regulations 1993 and
where the Scheme is the "leading scheme" in relation to a Member, with the
requirements of Regulation 6 of those Regulations in so far as they
concern main schemes. If those Regulations are amended or replaced by any
other Regulations then this sub-Rule will have effect as if it had been
amended or replaced accordingly.
8.13 If the Trustees receive any incidental benefit as a consequence of holding
any particular asset as an investment for the purposes of this Rule they
may at their discretion adjust Members' entitlements under this Rule in
such manner as they think fit to take account of such benefit (provided
that the basis for any such adjustment is consistent with Approval of the
Scheme).
9. RETIREMENT PENSIONS
On the retirement of a Member (being an Eligible Employee) there shall be
payable subject to the provisions of the Rules the appropriate pension as
follows:
9.1 Normal Retirement
On the retirement of a Member from Service at the Normal Pension Date he
shall be entitled to an annual pension equal to the Scale Pension.
9.2 Late Retirement
If, with the consent of the Employer, a Member's retirement from Service
is deferred until after the Normal Pension Date he shall at the date of
his retirement be entitled to an annual pension equal to the Scale Pension
which would have been payable to him had he retired at the Normal Pension
Date increased by such amount as the Actuary may certify to be appropriate
having regard to the period by which his retirement is deferred. In no case
may payment of a Member's guaranteed minimum pension be postponed for more
than five years without the Member's consent and accordingly where the
Member is still in Service on the fifth anniversary of the date on which
he attains pensionable age. this sub-Rule shall (unless the Member elects
otherwise) have effect in like manner as if the Member had retired from
Service on such date.
9.3 Early Retirement - Voluntary
If a Member retires from Service having attained aged 50 but prior to the
Normal Pension Date and sub-Rule 9.4 does not apply then with the consent
of the Employer he shall be entitled to the Scale Pension except that, if
he has not attained age 60, the Scale Pension shall be reduced by such
amount as the Trustees shall determine on a basis certified as reasonable
by the Actuary. The Member may, if he so wishes, elect at retirement that
Rule 18 shall apply to him in which event no benefit shall be payable
under or in relation to this sub-Rule 9.3.
9.4 Early Retirement - Incapacity
If a Member retires from Service at any time on account of Incapacity
proved to the satisfaction of the Employer and the Trustees (having taken
independent medical advice) then with the consent of the Employer he shall
be entitled to the Scale
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Pension, except that if in the opinion of both the Employer and the
Trustees (having taken independent medical advice) the Member is incapable
of any form of gainful employment then with the consent of the Employer
the Scale Pension shall be calculated by reference to the period of
Pensionable Service that would have been completed had the Member retired
at Normal Pension Date subject to the Employer paying to the Scheme such
additional contributions (if any) as the Trustees determine with the
advice of the Actuary to be required in respect of such increase in the
Scale Pension unless alternative financial provision is agreed between the
Trustees and the Principal Employer. The Member may, if he so wishes.
elect at retirement that Rule 18 shall apply to him in which event no
benefit shall be payable under or in relation to this sub-Rule 9.4.
PAYMENT OF PENSIONS
A pension under Rule 9 or Rule IS shall commence:
(a) in the case of a pension under Rule 9 on the first day of retirement;
(b) in the case of a pension under Rule 18, subject to sub-Rule 18.4, on
the day immediately following the Normal Pension Date;
and (subject to sub-Rule 29.4) the first instalment of such pension shall
be payable on the first day of the month coincident with or (if not
coincident with) next following the date upon which such pension commences
and shall include a proportionate payment calculated by reference to the
period from the day upon which such pension commences until the end of the
calendar month. Thereafter. the pension shall be payable by monthly
instalments in advance on the first day of each calendar month (or by
such other periodical instalments as the Trustees may in their absolute
discretion determine) throughout the lifetime of the Member and the last
instalment of pension shall fall due on the first day of the month
immediately prior to the date of death.
If the Trustees shall determine that the periodical instalments of a
pension should be payable other than monthly references in the foregoing
provisions of this Rule to a month and to instalments of pension falling
due on the first day of a month shall be construed as references to such
other period as the Trustees shall determine, by reference to which
instalments of pension shall be payable and to instalments of pension
falling due on the first day of such period, as appropriate.
COMMUTATION OF PENSION
A Member may, with the consent of the Trustees, elect to exchange at the
date of commencement of his pension part of that pension for a cash sum
not exceeding (when added to similar lump sums under all other Relevant
Schemes as defined in the Inland Revenue Limits Rules) 3/80ths of Final
Salary (as defined in sub-Rule 11.7) for each complete year of Service
together with a proportionate amount for each day in any incomplete year.
If the pension payable to any person under the Scheme (calculated before
the exercise of any option under sub-Rule 11.1 or Rule 12) is trivial the
Trustees may at their discretion commute the whole of the pension under
the Scheme at the date on which it would otherwise have commenced for a
cash sum. If the whole of a Member's pension is so commuted any pension
payable in the event of his death which is trivial shall
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also be commuted for a cash sum payable to the Member. A person's benefit
is "trivial" only if the total value of all that person's benefits from
occupational pension schemes in respect of the Member's employment with
the Employer is (in the opinion of the Trustees) less than the value of a
pension of pound sterling 260 a year (or such other amount as may be
prescribed from time to time under the Pension Schemes Act). Where a
Member has a guaranteed minimum pension this sub-Rule shall apply subject
to paragraph 1 of Section D of the Contracting-out Rules.
11.3 In the case of a Member who is in exceptional circumstances of serious ill
health, the Trustees may at their discretion commute the pension becoming
payable to him under the Scheme at the date on which it would otherwise
have commenced for a lump sum payment of an amount determined by the
Actuary to be equivalent thereto.
11.4 The exercise of the option under sub-Rule 11.1 or sub-Rule 11.3 shall be
subject to such restriction as the Trustees determine to be appropriate to
ensure that there shall remain payable to the Member a pension not less
than the guaranteed minimum pension at the later of the date of surrender
and the date of his attainment of pensionable age.
11.5 The rate of conversion of pension to cash sum for the purpose of this Rule
shall be determined by the Trustees on a basis certified as reasonable by
the Actuary and acceptable to the Board of Inland Revenue.
11.6 Any election by a Member under this Rule must be made (i) by notice in
writing to the Trustees to be given within the period of six months prior
to the date on which the pension becomes payable and (ii) not earlier than
the election of an option under Rule 12.
11.7 For the purpose of this Rule the expression "Final Salary" means the
aggregate of the following amounts:
11.7.1 the basic salary of the Member for the last complete twelve months;
and
11.7.2 the annual average of the total fluctuating cash emoluments of the
Member for the last three complete Tax Years and for the period
from the end of the last complete Tax Year to the end of the month
coincident with or, if not coincident with. next following the
relevant date of retirement or leaving Service.
11.8 The Trustees may, with the consent of the Employer, allow a Member to
exchange pension for a cash sum greater than the appropriate maximum
amount specified in sub-Rule 11.1 provided that Approval of the Scheme
would not thereby be prejudiced.
12. DEFENDANT'S PENSION OPTION
12.1 Subject to the provisions of this Rule a Member may elect by notice in
writing to the Trustees within the period of six months prior to the date
of commencement of his pension to surrender a part of such pension in
excess of the guaranteed minimum pension in order to provide for his
spouse or any other Dependant who is approved by the Trustees in the
event of his death a pension of an amount not exceeding the remaining
part of the Member's pension entitlement under the Scheme which in the
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opinion of the Trustees with the advice of the Actuary is equal in value
to the reduction in the Member's own pension.
12.2 In the event of the death of the Member before the earlier of his date of
retirement and the Normal Pension Date or of his spouse or Dependant
before the commencement of the Member's pension under the Scheme any
election made as aforesaid shall cease to have effect. An election once
made shall otherwise not be cancelled without the consent of the Trustees.
12.3 An election under this Rule may not be exercised to provide a pension for
a spouse or Dependant which is less than such minimum amount as the
Trustees may from time to time determine.
12.4 Any election under this Rule in favour of a spouse or Dependant may only
be made if the marriage or dependency (as the case may be) existed on the
date on which the notice was given.
12.5 A pension for a spouse or Dependant under this Rule shall be payable by
monthly instalments (or by such other periodical instalments as the
Trustees may in their absolute discretion determine) in advance throughout
the lifetime of the spouse or Dependant (or in the case of a Child until
such earlier date as may be appropriate under the terms of Rule 17) the
first instalment failing due on the first day of the month (or other
period) coincident with or if not coincident with next following the date
of the Member's death and the last instalment falling due on the first day
of the month (or other period) immediately prior to the date of the spouse
or Dependant's death. Provided that if the date of the Member's death is
not coincident with the first of a month the first payment of the spouse
or Dependant's pension will be made on the day following the date of the
Member's death and will be a proportion of the first full monthly
instalment of such pension.
13. LUMP SUM ON DEATH IN SERVICE OF MEMBER OR LIFE ASSURANCE MEMBER
13.1 If a Member dies while an Active Member and on or before the Normal
Pension Date there shall be paid in accordance with Rule 15 and subject to
sub-Rule 13.4 a lump sum equal to the greater of:
13.1.1 three times the amount of his basic salary at the date of death, to
which shall be added an amount equal to the Member's Normal
Contributions, and
13.1.2 three times his Pensionable Salary for the previous Tax Year
plus
any Member's Transferred Contributions.
13.2 If a Member (being an Active Member) dies while in Service after the
Normal Pension Date and before commencement of his pension there shall be
paid in accordance with Rule 15 and subject to sub-Rule 13.4 a lump sum
equal in amount to the total of:
13.2.1 the cash sum which could have been payable to him if he had retired
on the day immediately preceding the date of his death, having
exercised the option under sub-Rule 11.1, and
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13.2.2 five times the annual rate of pension which would have been payable
at the date of his death (disregarding any pension increases) after
exercising the option under sub-Rule 11. 1 as aforesaid.
13.3 If a Life Assurance Member dies on or before the Normal Pension Date there
shall be paid in accordance with Rule 15 a lump sum equal to the amount
of his basic salary at the date of death.
13.4 If a Member to whom sub-Rule 13.1 or 13.2 applies had joined the Scheme on
the Commencement Date, was a member of the BTR Scheme immediately before
that date and did not consent to the transfer of his past service rights
from the BTR Scheme to the Scheme the amount of the lump sum payable under
sub-Rule 13.1 or 13.2 (as appropriate) shall be adjusted on the terms
previously notified to the Member in writing.
14. LUMP SUM ON DEATH AFTER RETIREMENT OR LEAVING SERVICE
14.1 If a Member dies within the period of five years after commencing to
receive a pension under the Scheme there shall be paid in accordance with
Rule 15 a lump sum equal in amount to the instalments of pension which
would have been payable to the Member during the remainder of the
aforesaid period of five years, assuming the Member had survived during
such period, at the rate payable at the date of his death.
14.2 If a Member who is entitled to a deferred pension under Rule 18 dies on or
before the Normal Pension Date there shall be paid in accordance with Rule
15 a lump sum equal in amount to the Member's Normal Contributions, less
any deduction or reduction in consequence of any provisions of the Rules.
14.3 If a Member dies on or before the Normal Pension Date having commenced to
receive an enhanced Scale Pension under sub-Rule 9.4 because he was deemed
to be incapable of any form of gainful employment there shall be paid in
accordance with Rule 15 and subject to sub-Rule 13.4 the lump sum that
would have been payable under sub-Rule 13.1 had he died immediately prior
to the date of retirement.
15. APPLICATION OF LUMP SUM DEATH BENEFITS
15.1 Subject to the provisions of this Rule, in relation to any benefit payable
under the Scheme on the death of a Member or Life Assurance Member (other
than a benefit which is in the form of a pension to an ascertained person
or persons or unless otherwise expressly stated) the Trustees shall have
power to be exercised (if at all) within two years of the date of death to
determine that all or any part thereof shall be paid or applied to or for
the benefit of the beneficiaries (as hereinafter defined) of the Member or
such one or more of them to the exclusion of the others in such manner and
in such proportions as the Trustees shall at their discretion decide or at
the like discretion of the Trustees the whole or any part thereof may be
paid to the personal representatives of the Member.
15.2 "Beneficiaries" for the purpose of this Rule means such of the following
persons (being individuals) as are living at the Member's death:-
15-2.1 any of the Relatives or Dependant5 of the Member,
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15.2.2 any individual beneficially interested under any testamentary
disposition of the Member in respect of which a grant of
representation has been obtained, and
15.2.3 any individual named in any letter or other document signed by the
Member which has been deposited with the Trustees before the death
of the Member and which is in terms or to the effect that such
person shall be included as one of the beneficiaries.
15.3 If or to the extent that the Trustees have not exercised the aforesaid
power within two years of the date of death the said benefit shall be paid
to the personal representatives of the deceased Member except that if the
Trustees are satisfied after reasonable enquiry that the deceased Member
was not survived by any beneficiary as defined in sub-Rule 15.2 then
notwithstanding that a grant of representation has been or may be taken
out in respect of the deceased Member the Trustees may at their discretion
decide that the said benefit shall not be paid and the said benefit or the
assets representing the same shall thereupon be held as part of the Fund
for the general purposes of the Scheme.
15.4 In applying moneys to or for the benefit of any beneficiary under sub-Rule
15.1 the Trustees may determine that the same shall be paid by way of
settlement or otherwise to trustees for the benefit of that beneficiary
for such interests as the Trustees shall decide and may delegate to such
trustees any power or discretion which may be exercised by the Trustees
under sub-Rule 15.1 and all or any expenses fees stamp duty or other
outgoings thereby incurred may if the Trustees so decide be deducted from
or paid out of the said moneys.
15.5 The power of the Trustees under sub-Rules 15.1 and 15.4 to determine that
any benefits be paid or applied to or for the benefit of any persons shall
be exercised in such manner that all interests therein will become vested
interests within the period prescribed by Clause 16 of the Trust Deed.
15.6 Notwithstanding anything to the contrary in the foregoing provisions of
this Rule, in the case of a Special Director, if death occurs in Service
on or after the 75th birthday and before the commencement of pension any
capital sum which becomes payable under the Scheme shall instead of being
applied accordance with sub-Rule 15.1 be paid to the deceased Member's
personal representatives for the benefit of his estate.
16. SPOUSE'S PENSIONS
On the death of a Member there shall be payable in the circumstances and
subject to the provisions specified in this Rule, a spouse's pension as
follows:
16.1 On the death of a Member while an Active Member on or before the Normal
Pension Date leaving a surviving spouse, the spouse shall be entitled to
an annual pension equal to one-half of the Scale Pension calculated as at
the date of the Member's death, but so that for this purpose Pensionable
Service as referred to in the definition of Scale Pension in Rule 1 shall
be deemed to include any prospective period of Pensionable Service which
the Member would have completed if the Member had remained in Service
until the Normal Pension Date.
16.2 On the death of a Member while an Active Member after the Normal Pension
Date leaving a surviving spouse, the spouse shall be entitled to an annual
pension equal to
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one-half of the pension which would have been payable to the Member under
sub-Rule 9.2 if the Member had retired from Service on the day immediately
preceding the date of his death.
16.3 On the death of a Member while in receipt of a pension under Rule 9 or
sub-Rule 18.1 or sub-Rule 18.3 leaving a surviving spouse, the spouse
shall be entitled to an annual pension equal to one-half of the pension to
which the Member became entitled under Rule 9 or sub-Rule 18.1 or sub-Rule
18.3 at the date of retirement or ceasing to be an Active Member
(disregarding for this purpose the exercise of any option under Rule 11 or
Rule 12 and any reduction under sub-Rule 9.3 or sub-Rule 18.3 but including
any revaluation of the Member's pension in accordance with Rule 22 and any
increase in accordance with sub-Rule 30.2).
16.4 On the death of a Member after becoming entitled to a pension under
sub-Rule 18.1 but before payment thereof commences leaving a surviving
spouse, the spouse shall be entitled annual pension equal to one-half of
the pension to which the Member became entitled under sub-Rule 18.1 at the
date of ceasing to be an Active Member, including any revaluation of the
Member's pension in accordance with Rule 22 up to the date of the Member's
death.
16.5 If a spouse is more than 10 years younger than the Member, the
pension payable to the spouse under this Rule shall be reduced by such
amount as is certified by the Actuary not being greater, as a percentage
of the pension payable to the spouse under this Rule, than 2 1/2% for each
complete year by which the age difference exceeds 10 years but so that the
pension shall not in any event be reduced to an amount less than
16.5.1 in respect of the Member's Pensionable Service prior to 6th April
1997, the spouse's guaranteed minimum pension, and
16-5.2 in respect of the Member's Pensionable Service on and after 6th
April 1997, the statutory standard described in Section 12A of the
Pension Schemes Act.
16.6 A spouse's pension shall be payable by monthly instalments (or by such
other periodical instalments as the Trustees may in their absolute
discretion determine) in advance throughout the lifetime of the spouse.
The first instalment of the spouse's pension shall be payable (subject to
sub-Rule 29.4) on the first day of the month coincident with or if not
coincident with next following the date of the Member's death and if the
date of the Member's death occurs on a day other than the first day of the
month shall include a proportionate payment calculated by reference to the
period from the date of death to the end of the calendar month, and the
last instalment of the spouse's pension shall be that falling due
immediately prior to the date of the event causing its termination. If the
spouse's pension is payable other than monthly references in the foregoing
provisions of this sub-Rule to a month and to instalments of pension
falling due on the first day of the month shall be construed as references
to such other period as the Trustees shall determine, by reference to
which instalments of pension shall be payable and to instalments of
pension falling due on the first day of such period, as appropriate.
16.7 In the event of a Member who has contracted a valid polygamous marriage
being survived by more than one spouse any pension under this Rule shall
be paid to the
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spouse entitled to receive a State pension in respect of the death of the
Member or if no State pension is payable the spouse's pension may be paid
to any one of such surviving spouses or apportioned between any two or
more of them in such manner as the Trustees at their absolute discretion
think fit.
16.8 Notwithstanding the foregoing provisions of this Rule the Trustees may
determine, subject to the consent of the Employer, to pay a pension to any
Dependant of a Member who shall die in any of the circumstances referred
to in such provisions and not leave a spouse, and in the event of any such
determination the foregoing provisions of this Rule and the provisions of
Rule 17 shall apply, with such alterations as the Trustees shall deem
necessary or appropriate, to the death of such Member and the payment of
any pension determined by the Trustees as if he were a Member who died
leaving a spouse except that (i) the amount of pension payable in respect
of any such Dependant shall be as determined by the Trustees and shall not
exceed the appropriate amount calculated in accordance with the foregoing
provisions of this Rule, and (ii) the terms and conditions attaching to
the payment of any such pension may be modified by the Trustees.
17. CHILDREN'S PENSIONS
On the death of a Member there shall be payable in the circumstances and
subject to the provisions specified in this Rule a children's pension or
pensions as follows:
17.1 On the death of a Member while an Active Member on or before the Normal
Pension Date leaving a Child or Children surviving him, there shall be
payable in respect of such Child or Children an annual pension equal to
one-half of the pension payable to a surviving spouse under sub-Rule 16.1
in respect of a surviving Child or the first of his surviving Children and
if there is more than one surviving Child a further pension equal to
one-half of the spouse's pension (as aforesaid) in respect of the second
surviving Child.
17.2 On the death of a Member while an Active Member after the Normal Pension
Date leaving a Child or Children surviving him, there shall be payable in
respect of such Child or Children an annual pension equal to one-half of
the pension payable to a surviving spouse under sub-Rule 16.2 in respect
of a surviving Child or the first of his surviving Children and if there
is more than one surviving Child a further pension equal to one-half of
the spouse's pension (as aforesaid) in respect of the second surviving
Child.
17.3 On the death of a Member while in receipt of a pension under Rule 9 or
sub-Rule 18.1 or sub-Rule 18.3 leaving a Child or Children surviving him,
there shall be payable in respect of such Child or Children an annual
pension equal to one-half of the pension payable to a surviving spouse
under sub-Rule 16.3 in respect of a surviving Child or the first of his
surviving Children and if there is more than one surviving Child a
further pension equal to one-half of the spouse's pension (as aforesaid)
in respect of the second surviving Child.
17.4 On the death of a Member after becoming entitled to a pension under
sub-Rule 18.1 but before payment thereof commences leaving a Child or
Children surviving him, there shall be payable in respect of such Child or
Children an annual pension equal to one-half of the pension payable to a
surviving spouse under sub-Rule 16.4 in respect
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of a surviving Child or the first of his surviving Children and if there is
more than one surviving Child a further pension equal to one-half of the
spouse's pension (as aforesaid) in respect of the second surviving Child.
17.5 On the death of the Member's surviving spouse, or if the Member dies
leaving no surviving spouse and no pension is payable to a Dependant under
sub-Rule 16.8, the amount of pension payable under this Rule in respect of
each Child of the Member shall be doubled. If a Child is a Child of more
than one Member so that sub-Rule 17.8 of this Rule applies, the pension to
be doubled in accordance with this sub-Rule shall be that due in respect
of whichever Member produces the higher benefit.
17.6 A pension in respect of a Child shall be payable by monthly instalments (or
by such other periodical instalments as the Trustees may in their absolute
discretion determine) in advance until the date when the Child attains the
age of 16 years (or as may be relevant) 23 years if receiving full-time
education or full-time vocational training approved by the Trustees (or
such later age as referred to in proviso (2)(ii) of the definition of
Child in Rule 1) or until the date of his earlier death. The first
instalment of a Child's pension shall be payable (subject to sub-Rule
29.4) on the first day of the month coincident with or if not coincident
with next following the date of the Member's death and (unless such date is
the first day of a month) shall include a proportionate payment calculated
by reference to the period from the date of death to the end of the
calendar month. Thereafter instalments shall fall due on the first day of
each month. The last instalment of such pension shall be that falling due
immediately prior to the date of the event causing its termination.
17.7 A pension in respect of a Child may be paid by the Trustees to such person
or persons (including a parent or guardian) or institution or organisation
or to the Child, not being an infant who is under the age of 16 years, and
in such manner as the Trustees shall determine without, if payment is made
other than to the Child, the Trustees being liable to ensure that the
pension so paid in respect of the Child is in fact applied for the benefit
of the Child, and so that any payment of pension to any such person or
persons or institution or organisation or to the Child shall be a complete
discharge to the Trustees and exonerate the Trustees from all further
concern or responsibility in relation thereto.
17.8 No Child shall be entitled to receive a pension under this Rule as the
Child of more than one Member.
17.9 At the discretion of the Trustees if there are more than two Children
surviving the Member the pensions payable under this Rule may be divided
between two or more Children from time to time and in such proportions and
for such duration as the Trustees consider to be appropriate. Subject
thereto the amount of pension payable to any Child under this Rule shall,
except as otherwise provided under the Rules, be fixed at the date of the
Member's death and, notwithstanding that the entitlement to pension of any
other Child may have ceased, shall not be altered.
17.10 The amount of any pension payable under this Rule shall be subject to
such restriction as the Trustees determine to be appropriate to ensure
that the limits set out in the Inland Revenue Limits Rules are not
exceeded.
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18. LEAVING SERVICE
Subject to the provisions of this Rule in the event of a Member leaving
Service before the Normal Pension Date other than with an entitlement to
an immediate pension under sub-Rule 9.3 or 9.4 there shall be payable the
appropriate benefit or benefits as follows:
18.1 A Qualified Member who leaves Service shall be entitled to an annual
pension payable from the Normal Pension Date equal to the Scale Pension.
18.2 Subject to sub-Rule 27.1. a Member who leaves Service before becoming a
Qualified Member shall be entitled to a return of the Member's Total
Contributions less any deduction which may be necessary under sub-Rule
29.2 or sub-Rule 33.3 or paragraph 7 of Section B of the Contracting-out
Rules.
18.3 A Member who is entitled to a pension under this Rule may at any time on
or after leaving Service and before the Normal Pension Date but not
(unless he is retiring on account of Incapacity) earlier than 15 years
prior to the Normal Pension Date, apply by notice in writing to the
Trustees to receive in lieu of such pension an immediate pension of an
amount equal in value to the pension which would otherwise be payable
under this Rule. as determined by the Trustees with the advice of the
Actuary. The Trustees may in their absolute discretion accept or reject
such application. The option shall not be available in any case in which
the Trustees determine that the pension would be, or might be, less than
the Member's guaranteed minimum pension when this becomes payable at
pensionable age unless the Trustees at their discretion decide to
substitute for the immediate annual pension which would otherwise become
payable to the Member an immediate annual pension of the same actuarial
value (as determined by the Actuary) which is smaller in initial amount
but increases appropriately on the date of the Member's attainment of
pensionable age.
19. CEASING TO BE ELIGIBLE
19.1 A Member or a Life Assurance Member shall cease to be eligible for the
purposes of this Rule if, while remaining in Service and before the Normal
Pension Date:
19.1.1 in the case of a Member he ceases to be a permanent Employee; or
19.1.2 he ceases to be normally employed in the United Kingdom; or
19.1.3 he ceases to be eligible at the direction of the Principal Employer
in accordance with sub-Rule 2.3; or
19.1.4 in the cast of a Member admitted to membership of the Scheme under
sub-Rule 4.1 in pursuance of sub-Rule 2.5. the Employer determines
that such Member shall be regarded as having ceased to be eligible
for membership; or
19.1.5 he elects to withdraw from membership of the Scheme pursuant to
sub-Rule 5. 1; or
19.1.6 in the case of a Life Assurance Member he becomes a casual Employee
or a temporary Employee employed on a fixed term contract
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unless in the case of a Member to whom sub-Rule 19.1.1 or 19.1.2 applies
the Employer with the agreement of the Trustees otherwise determines.
19.2 If a Member ceases to be eligible he shall be entitled to benefit under
Rule 18 in like manner as if he had left Service at the date of ceasing to
be eligible except that the provisions of sub-Rule 18.3 shall not apply to
him unless he subsequently actually ceases to be in Service prior to
Normal Pension Date.
20. LEAVE OF ABSENCE
20.1 References in this Rule to a Member shall, where appropriate, be deemed to
include a Life Assurance Member.
20.2 If a Member is absent from work with the consent of the Employer:
20.2.1 due to incapacity for such period as the Employer may approve in
any particular case, or
20.2.2 due to any other reason, including if the Employer so determines in
any particular case secondment to another employer, for a period not
exceeding ten years (or such other period as would not prejudice
Approval of the Scheme in any particular case),
he shall (subject to sub-Rule 20.4) continue to be a Member during the
period of absence and shall continue to pay contributions in accordance
with Rule 6 except that if during such period of absence his remuneration
is in the opinion of the Employer less than it would have otherwise been
but for such absence, or if for any other reason the Trustees shall so
agree, the Member may suspend payment of such contributions until his
return to work whereupon he may pay appropriate contributions as
determined by the Trustees with the advice of the Actuary. Such part or
the whole of the period during or in respect of which payment of
contributions is continued or paid as aforesaid by the Member shall be
regarded as Pensionable Service. The part or the whole of a period of
absence as aforesaid during or in respect of which a Member shall not pay
contributions in accordance with this sub-Rule shall not be regarded as
Pensionable Service except to the extent (if any) determined by the
Employer and agreed by the Trustees. If the Member has not returned to
work at the end of the period of absence as aforesaid he shall be deemed
to have retired from or left Service, as the Employer shall in its
absolute discretion determine, and the appropriate provisions of Rule 9 or
Rule 18 shall apply.
20.3 If a Member receives no remuneration from the Employer during any period
of absence as aforesaid or receives remuneration at a lesser rate than the
rate being paid to him immediately prior to such period his Contribution
Salary, Pensionable Salary and Final Pensionable Salary during such
period shall for the purposes of determining his contribution liability
(if any) and calculating benefits under the Rules be as notified from time
to time by the Employer to the Trustees but so that his Contribution
Salary, Pensionable Salary and Final Pensionable Salary for the said
purposes shall not in any event (i) be less than the respective amounts
thereof which applied to him immediately prior to the commencement of the
period of absence as aforesaid, or (ii) exceed such amounts as in the
opinion of the Employer would have been applicable to the Member if he had
not been absent.
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20.4 Notwithstanding the foregoing provisions of this Rule, the Employer may
determine, by notice in writing to the Trustees either at the commencement
of a Member's absence from work or subsequent thereto, that the benefits
under sub-Rule 13.1 and/or Rules 16 and 17 shall, except where absence is
on account of Incapacity, either cease to apply or be reduced (as
indicated in such notice) while the Member is or continues to be (as the
cast may be) absent as aforesaid.
20.5 Unless he exercises the right referred to in sub-Rule 27.1 a person who is
treated as continuing to be a Member under sub-Rule 20.2 during any period
of absence as aforesaid shall be deemed to continue to be an Employee (and
therefore in Service) for the purposes of the Rules throughout such period
notwithstanding that, during such period, no relationship of employment
may subsist between such person and the Employer.
20.6 Notwithstanding anything to the contrary in the foregoing provisions of
this Rule a female Member who takes maternity leave shall be deemed to
remain an Active Member for the period of her maternity leave. Maternity
leave for this purpose shall mean any period of maternity absence during
which the Member has a subsisting right to return to work or to receive
pay from the Employer pursuant to statute or her contract of employment.
During such period:
20.6.1 the Member's earnings shall for the purposes of calculating the
Employer's contribution liability and benefits under the Rules be
such amounts as in the opinion of the Employer would have been
applicable to the Member if she bad not been absent from work; and
20-6.2 the Member's earnings shall for the purposes of determining the
Member's contribution liability be the amount of pay actually
received by the Member.
20.7 If at the expiry of the qualifying period of maternity leave referred to
in sub-Rule 20.6 the Member has not returned to active employment, she
shall be deemed to have left Service and the appropriate provisions of
Rule 18 shall apply. but subject to Rule 21 where the Member has a right
to return to work arising under the Employment Rights Act 1996.
21. BROKEN SERVICE
21.1 Except as otherwise provided in sub-Rule 21.2 and in the definition of
Qualifying Service, periods of a Member's Service separated by a period or
periods during which the Member is not in Service (or deemed to be in
Service pursuant to the provisions of Rule 20) shall be treated separately
under the Rules for all purposes of the Rules other than the purposes of
the Inland Revenue Limits Rules, unless the Principal Employer with the
agreement of the Trustees otherwise determines.
21.2 A Member shall not be treated as having left Service for the purposes of
the Scheme if either:
21-2.1 the Member being female is absent from work during the 14 weeks'
maternity leave period referred to in Section 73 of the Employment
Rights Act 1996 or has a right to return to work under Section 79
thereof and returns to work in exercise of that right; or
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21-2.2 a Member who is in contracted-out employment leaves employment and
is re-employed within an interval of not more than six months in
circumstances where the earlier period of employment falls to be
treated under the Pension Schemes Act as not having ceased to be
contracted-out employment
and for the purpose of calculating benefits under the Scheme the period of
employment prior to the interval shall be, treated as continuous with the
period after the return to employment but (subject to Rule 20) the said
interval shall not count towards Pensionable Service.
22. REVALUATION OF PENSIONS IN EXCESS OF GUARANTEED MINIMUM PENSIONS
22.1 This Rule applies to the pensions hereinafter specified:
22.1.1 the pension payable under sub-Rule 18.1 to a Member who has ceased
to be in Pensionable Service before Normal Pension Date;
22.1.2 the pension payable under Rule 16 or Rule 17 to a spouse or a Child
on the death of a Member as described in sub-Rule 22.1.1 above while
in receipt of a pension under sub-Rule 18.1.
22.2 Where a Member ceases to be in Pensionable Service and there are not less
than 365 days in the period commencing on the day after leaving
Pensionable Service and ending on Normal Pension Date (disregarding any
day which is 29th February) then any pension to which sub-Rule 22.1 refers
(inclusive of any increase under Rule 24 but before the exercise of any
option under Rule 11 or Rule 12) shall if necessary be increased to be at
least equal to the sum of:
22.2.1 the amount of the relevant pension, being:
(A) in the case of a pension under sub-Rule 18.1, the amount of
pension calculated in the manner specified in sub-Rule 18.1 as
at the date on which the Member ceased to be in Pensionable
Service; or
(B) in the case of a pension under Rule 16 or Rule 17, the amount of
pension calculated in the manner specified in Rule 16 or Rule 17
as appropriate to the circumstances of the Member's death but by
reference to the amount of the Member's pension as described in
(A) above; and
22.2.2 an amount equal to A x (B - C), where:
A is the revaluation percentage specified as being relevant
in an order made under Section 84 of the Pension Schemes
Act during the calendar year before the year in which the
Member reaches Normal Pension Date;
B is the amount of the relevant pension as described in
sub-Rule 22.2.1 above;
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C is the amount of any guaranteed minimum pension
disregarding any revaluation of guaranteed minimum pension
under paragraph 2 of Section B of the Contracting-out
Rules.
22.3 The foregoing provisions of this Rule are
intended to take account of the revaluation requirements of Schedule 3 to
the Pension Schemes Act and accordingly:
22.3.1 to the extent that there is any conflict between the provisions of
this Rule and the provisions of the said Schedule the latter shall
prevail; and
22.3.2 nothing in the Rule shall be taken as conferring any greater
entitlement on a Member or any other person than is necessary for
the purpose of meeting the statutory requirements.
23. ALTERNATIVES TO SHORT SERVICE BENEFIT
Where, in the case of a Member who ceases to be in Pensionable Service
before Normal Pension Date, an early retirement pension under sub-Rule
9.3. sub-Rule 9.4 or sub-Rule 18.3 or a late retirement pension under
sub-Rule 9.2 becomes payable (together with any ancillary benefits payable
to or in respect of the Member under the Rules) in either case by way of
complete or partial substitution for short service benefits (within the
meaning of the Pension Schemes Act) such benefits shall if necessary be
increased so that to the reasonable satisfaction of the Trustees on the
advice of the Actuary the total value of such benefits on the date on
which the Member's benefit becomes payable at least equals the value as
specified in regulation 11 of the Occupational Pension Schemes
(Preservation of Benefit) Regulations 1991 of the benefits or relevant
part of the benefits accrued to or in respect of the Member under the
Rules.
24. AUGMENTATION AND DISCRETIONARY BENEFITS
24.1 The Trustees may, at the request or with the consent of the Employer and
subject to the payment by the Employer to the Fund of such additional
contributions (if any) as the Trustees may determine in accordance with
sub-Rule 24.5
24.1.1 augment any pension or other benefit payable to or in respect of a
Member or Life Assurance Member or any other Beneficiary under the
Rules; or
24.1.2 provide pension or other benefits payable to or in respect of a
Member or Life Assurance Member or any other Beneficiary additional
to those specified in the Rules
provided that Approval of the Scheme would not thereby be prejudiced.
24.2 Where a Member becomes entitled on leaving Service to a pension in
accordance with sub-Rule 18.1, the amount of any augmentation or
additional pension granted pursuant to sub-Rule 24.1 shall be added to the
relevant pension payable to or in respect of the Member under the Rules
except that such amount shall be reduced so that it bears the same
proportion to its amount before reduction as the period of the Member's
Pensionable Service since the date the augmentation or additional pension
was granted bears to the period commencing on that date and ending on the
Normal
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Pension Date unless the Employer directs that a smaller reduction or no
reduction shall be made.
24.3 Pensions in payment under the Scheme shall be reviewed by the Principal
Employer and the Trustees at regular intervals (being not less frequently
than every 3 years) and subject to the limitations set out in the Inland
Revenue Limits Rules shall be increased by such amount (if any), in
addition to the increases provided under Rule 30, as the Principal
Employer and the Trustees may at their discretion determine having regard
to the availability of funds.
24.4 At the request of any of the Employers, any person who (A) is in receipt
of or has been promised the payment of a pension from the Employer or (B)
is or was, prior to his retirement from or leaving employment, in the
service of the Employer or any. predecessor in business or (C) is the
spouse or a dependant of any person who was prior to his death or earlier
retirement from or leaving employment in the service of the Employer or
any predecessor in business shall, subject to the consent of the Principal
Employer and the completion of such form or other document as the Trustees
shall from time to time determine and provided that Approval of the Scheme
will not thereby be affected, be entitled, with effect from such date as
shall be determined by the Trustees, to a pension under the Scheme of such
amount and payable on such terms and conditions as the Trustees shall
determine.
24.5 The Employer concerned shall, unless otherwise determined by the Trustees
with the advice of the Actuary and the consent of the Principal Employer
or unless alternative financial provision is agreed by the Trustees and
the Principal Employer, pay to the Scheme such additional contribution or
contributions as the Trustees shall determine with the advice of the
Actuary in respect of the pension or other benefits to which any person
becomes entitled under this Rule.
25. TRANSFER TO ANOTHER SCHEME
25.1 If a Member becomes a member of any other scheme which is approved under
Chapter I or Chapter IV of Part XIV of the Taxes Act or any other fund or
scheme or arrangement approved for the purposes of this Rule by the Board
of Inland Revenue (hereinafter called the "Receiving Scheme"), the Trustees
may at their discretion instead of paying or preserving the benefits in
relation to the Member to which there is an entitlement or prospective
entitlement under the Scheme transfer to the Receiving Scheme a cash sum or
other assets of such amount as the Trustees on the advice of the Actuary
consider appropriate having regard to the value of such benefits.
25.2 Any such transfer shall be subject to the following terms and conditions:
25.2.1 The consent of the Member shall be required except in circumstances
where such consent is not required under the Pension Schemes Act;
25.2.2 Any transfer shall be subject to the terms of any undertaking given
by the Trustees to the Board of Inland Revenue;
25.2.3 Any transfer which includes accrued rights to guaranteed minimum
pensions or the liability for the payment of guaranteed minimum
pensions or Section 9 (2B) Rights shall be subject to the terms of
paragraph 3 of Section D of the Contracting-out Rules;
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25.2.4 If the Receiving Scheme is not a contracted-out scheme or an
appropriate personal pension scheme, a transfer may be made in
respect of such Member relating to benefits other than the
guaranteed minimum pension (if any) and subject to the provisions of
the Contracting-out Rules the liability to pay the guaranteed
minimum pension will be retained by the Scheme;
25.2.5 Where a transfer is made without the Member's consent by way of
complete or partial substitution for short service benefits (within
the meaning of the Pension Schemes Act) the Trustees on the advice
of the Actuary shall ensure that to their reasonable satisfaction
the amount so transferred at least equals the value as specified in
regulation 11 of the Occupational Pension Schemes (Presentation of
Benefit) Regulations 1991 of the benefits or relevant part of the
benefits accrued to or in respect of the Member under the Rules.
25.2.6 A certificate shall be provided to a Receiving Scheme limiting or
prohibiting the provision of retirement benefits in lump sum form in
cases where this is required by Regulation.
25.3 Except to the extent that a liability to pay guaranteed minimum pensions
is retained by the Scheme, a transfer made by the Trustees in accordance
with this Rule shall be a complete discharge to the Trustees of all
liability in respect of such Member under the Scheme and the Trustees
shall be under no liability to see to the application of the amount so
transferred.
25.4 This Rule shall apply subject to the provisions of Clause 15 of the Trust
Deed where the transfer is in pursuance of arrangements made under that
Clause.
26. PURCHASE OF ANNUITIES
26.1 The Trustees may at their discretion instead of providing the whole or any
part of any entitlement or prospective entitlement to benefits under the
Scheme apply an amount not exceeding the value as determined by the
the Trustees on the advice of the Actuary of such benefits in the purchase
of an insurance policy or annuity contract in accordance with the
provisions of this Rule.
26.2 Any arrangement to purchase a policy or contract in accordance with the
provisions of this Rule shall not be made except
26.2.1 with the written consent or at the written request of the Member;
or
26.2.2 if the Member is dead, with the written consent or at the written
request of his spouse or, where the benefit is payable to a person
other than the spouse, with the written consent or at the written
request of that person
and any such policy or contract may be effected with an Insurance Office
chosen by the Member or other person concerned.
26.3 Any such policy or contract may with the Member's consent provide benefits
being relevant benefits within the meaning of Section 612(l) of the Taxes
Act different from the benefits otherwise payable under the Scheme and
payable to persons other than those persons to whom benefits are payable
under the Scheme provided that Approval would not be prejudiced.
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26.4 Any such policy or contract shall satisfy the requirements of Section 19
of the Pension Schemes Act.
26.5 Any purchase of a policy or contract which includes the transfer of
accrued rights to guaranteed minimum pensions or the liability for payment
of guaranteed minimum pensions or Section 9(2B) Rights shall be subject to
the terms of paragraph 3 of Section D of the Contracting-out Rules.
26.6 The Trustees may, subject to the Member's consent, purchase more than one
such policy or contract from one or more Insurance Offices to provide
benefits as aforesaid in a manner acceptable to the Board of Inland
Revenue.
26.7 Any such policy or contract shall be issued to the Member or other person
or to a trustee or trustees of a trust for the benefit of the Member or
such other person or be issued to the Trustees and assigned to any such
person or to the trustee or trustees of a trust for the benefit of the
same.
26.8 Any such policy or contract may be used to provide such benefits at the
maturity of the policy as the Member shall then decide and the policy
shall permit, but subject to sub-Rule 26.3.
26.9 The purchase of any policy or contract in accordance with the provisions
of this Rule shall discharge the Trustees from all liability in respect of
the benefits by reference to which the arrangements are made so that the
persons otherwise entitled to such benefits in the case of the Member or
persons prospectively or contingently entitled to benefits in respect of
his membership of the Scheme shall accordingly cease to have any rights
under the Scheme in respect of such benefits.
26.10 Where a policy or contract is purchased in accordance with the provisions
of this Rule otherwise than in pursuance of the exercise by the Member of
the right referred to in sub-Rule 28.1 and the benefits under such policy
or contract are by way of complete or partial substitution for short
service benefits (within the meaning of the Pension Schemes Act) the
Trustees on the advice of the Actuary shall ensure that to their
reasonable satisfaction the amount so applied at least equals the value as
specified in regulation 11 of the Occupational Pension Schemes
(Preservation of Benefit) Regulations 1991 of the benefits or relevant
part of the benefits accrued to or in respect of the Member under the
Rules.
26.11 Sub-Rule 26.2 shall not apply to any arrangement which the Trustees may
decide to make for the purchase of a policy or contract in respect of the
benefits of a Member who has become entitled to a pension under sub-Rule
18.1, where:
26.11.1 the Member will be able to assign or surrender the insurance
policy or annuity contract on the conditions set out in regulation
2 of the Occupational Pension Schemes (Discharge of Liability)
Regulations 1985;
26.11.2 the Member has completed less than five years' Qualifying Service;
26.11.3 there is no outstanding application by the Member to exercise the
right referred to in sub-Rule 27.1;
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26.11.4 more than twelve months have elapsed since the Member ceased to be
in Pensionable Service;
26.11.5 the Trustees have given not less than thirty days' written notice
to the Member of their intention to purchase the insurance policy
or annuity contract unless the Member exercises the right referred
to in sub-Rule 27.1
26.11.6 the Member's rights under the Scheme do not include protected
rights; and
26.11.7 any other conditions prescribed by the Occupational Pension
Schemes (Preservation of Benefit) Regulations 1991 are satisfied.
26.12. This Rule shall apply subject to the provisions of Clause 15 of the
Trust Deed where the purchase of an insurance policy or annuity contract
is in pursuance of arrangements made under that Clause.
27. R1GHT TO A TRANSFER PAYMENT
27.1 A Member who ceases to be in Pensionable Service at least one year before
Normal Pension Date shall have the right subject to the provisions of this
Rule and the provisions of Chapter IV of Part IV of the Pension Schemes Act
to have the cash equivalent (within the meaning of the said Chapter IV) of
the benefits accrued to and in respect of the Member under the Scheme
transferred to another scheme in accordance with sub-Rule 27.6 or to an
Insurance Office in accordance with sub-Rule 27.9 or to such other type or
types of pension arrangements and in such circumstances as may be
prescribed under the Pension Schemes Act.
27.2 The cash equivalent shall be determined by the Trustees on the advice of
the Actuary and shall be calculated on a basis which is certified by the
Actuary as being consistent with the requirements of the Pension Schemes
Act.
27.3 A Member may exercise the right described in sub-Rule 27.1 by application
in writing to the Trustees made not later than the date which falls
27.3.1 one year before the Normal Pension Date; or
27.3.2 six months after the date he ceases to be in Pensionable Service
whichever is the later.
27.4 A Member shall cease to have the right described in sub-Rule 27.1 if his
pension or any benefit in lieu of all or part of his pension becomes
payable before the Normal Pension Date or if the Scheme is wound up.
27.5 A Member may at any time withdraw his application by notice in writing to
the Trustees provided that at the time the Trustees have not in pursuance
of the application entered into an agreement with any third party. A
Member who withdraws an application may make another.
27.6 A transfer may be made to another scheme ("the Receiving Scheme") only if
27.6.1 the Receiving Scheme is approved under Chapter I or Chapter IV of
Part XIV of the Taxes Act or is otherwise approved for the purposes
of this Rule by the Board of Inland Revenue;
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27.6.2 the Receiving Scheme is a scheme to which the Member's accrued
rights may be transferred in accordance with the relevant conditions
specified in sub-Rule 25.2.
27.7 A Member may exercise the right described
in sub-Rule 27.1 in different ways in relation to different portions of his
cash equivalent but, subject to sub-Rule 27.8, the right must be exercised
in relation to the whole of the cash equivalent.
27.8 Where the Receiving
Scheme is not a contracted-out scheme or an appropriate personal pension
scheme, the Member may opt to have a transfer made in respect of benefits
other than any guaranteed minimum pensions, in which event, unless the
Member has opted for his and his spouse's accrued rights to guaranteed
minimum pensions to be bought out in accordance with sub-Rule 27.9, the
cash equivalent shall be reduced by such amount as the Trustees on the
advice of the Actuary determine to be sufficient to enable them to meet
their liability for such accrued rights to guaranteed minimum pension.
27.9 A transfer payment may be applied to purchase from an Insurance Office of
the Member's choice an insurance policy or annuity contract which
satisfies the requirements of regulation 12 of the Occupational Pension
Schemes (Transfer Values) Regulations 1996.
27.10 Subject to the provisions of the Pension Schemes Act the Trustees shall
be bound to do what is needed to carry out what the Member requires:
27.10.1 within twelve months of the date on which they receive the
Member's application; or
27.10.2 by Normal Pension Date; whichever is the earlier.
27.11 If the Trustees fail without reasonable excuse to do what is needed to
carry out what the Member requires within six months from the date of the
Member's application or the date of ceasing to be in Pensionable Service,
whichever is later, the cash equivalent shall be increased by such amount
as is prescribed by the Occupational Pension Schemes (Transfer Values)
Regulations 1996.
27.12 If a Member elects to withdraw from membership of the Scheme in
accordance with sub-Rule 5.1 his right to a cash equivalent so long as he
remains in Service shall be restricted, in the circumstances and in the
manner prescribed by the Occupational Pension Schemes (Transfer Values)
Regulations 1996, to the cash equivalent of the benefits accrued after 5th
April 1988.
27.13 The foregoing provisions are intended to take account of the statutory
rights conferred on members of occupational pension schemes by Chapter IV
of Part IV of the Pension Schemes Act and accordingly:
27.13.1 to the extent that there is any conflict between the provisions of
this Rule and the provisions of Chapter IV of Part IV of the
Pension Schemes Act the latter shall prevail; and
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27.13.2 nothing in this Rule shall be taken as conferring any greater
entitlement on a Member or any other person than is necessary for
the purpose of meeting the statutory requirements; and
27.13.3 a person who exercises the right described in sub-Rule 28.1 shall
be taken to be exercising the option conferred by Section 95 of
the Pension Schemes Act for all purposes including (without
limitation) for the purposes of Section 99(l) of the Pension
Schemes Act relating to the discharge of any obligation to provide
benefits to which the cash equivalent related.
28. TRANSFER FROM ANOTHER SCHEME
28.1 If any benefits are payable or prospectively payable under another
occupational pension scheme or a personal pension scheme ("the
other scheme") to or in respect of any employee or director or
former or deceased employee or director of any Employer the
Trustees may at their discretion accept from the other scheme any
cash sum or other assets (the transfer payment) which the trustees
or other persons having the necessary powers thereunder are
authorised to pay to them in substitution for such person's
entitlement thereunder and thereupon such person shall become
entitled under the Scheme to such additional benefits as the
Trustees on the advice of the Actuary shall determine. The
acceptance of the transfer payment and the provision of such
additional benefits shall be subject to the following terms and
conditions.
28.1.1 before accepting the transfer payment the Trustees shall satisfy
themselves that acceptance of the transfer payment will not
prejudice Approval and shall obtain such certificates and other
information from the trustees or administrator of the other scheme
as may be necessary to enable the requirements stated in this
sub-Rule to be satisfied;
28.1.2 if a transfer is received from another occupational pension scheme
there shall be regarded as the Member's contributions to the
Scheme only such proportion (if any) of the transfer payment as
was certified by the trustees of administrator of the other scheme
as representing contributions by the Member under the other
scheme;
28.1.3 the acceptance of the transfer payment shall be subject to the
terms of any undertaking given by the Trustees to the Board of
Inland Revenue and to any limitation of or reduction in benefit
required to ensure that the total benefits for such person
inclusive of that derived from the transfer payment do not exceed
the maximum that may be paid without prejudicing Approval;
28.1.4 the acceptance of any transfer of accrued rights to guaranteed
minimum pension or protected rights or Section 9(2B) Rights shall
be subject to the terms of paragraph 2 of Section D of the
Contracting-out Rules;
28.1.5 if a transfer is received from a personal pension scheme the
Member shall be treated for the purposes of the Scheme as having
completed a period of not less than two years' Qualifying Service.
28.2 The Trustees may accept a transfer of the proceeds of an insurance policy
or annuity contract which has been purchased for a Member by the trustees
or administrator of another retirement benefits scheme to be applied in
the same manner and subject to
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the same terms and conditions (except that any certificate shall
be obtained from the insurer) as if the sum received were a
transfer from such other retirement benefits scheme.
28.3 The Trustees may accept a transfer of the proceeds of a retirement annuity
contract belonging to a Member to be applied in such manner and subject to
such terms and conditions as may be required as a condition of Approval.
28.4 If a Member to whom this Rule applies becomes entitled to a pension in
accordance with sub-Rule 18.1 on leaving Service there shall be payable
the full amount of the pension benefits provided under sub-Rule 28.1 or
sub-Rule 28.2 or sub-Rule 28.3 unless he receives a return of the whole or
part of the Member's transferred contributions (if any) in which event the
payment of such return of contributions shall extinguish all entitlement
to any benefits in respect of the period to which such contributions
relate.
28.5 The Trustees shall accept the transfer to the Fund of the assets
representing the interests of those employees and directors of the
Principal Employer under the BTR Scheme who consent to such transfer and
join the Scheme on the Commencement Date. Sub-Rule 28.1 shall apply to the
assets so transferred only to the extent that any benefits derived
therefrom are not expressly covered under any other provisions of the
Rules.
29. GENERAL PROVISIONS
29.1 If in the opinion of the Trustees any Beneficiary is suffering from any
physical or other incapacity rendering him unable to manage his affairs or
to give a proper receipt for the pension or other moneys payable under the
Scheme the Trustees may, at their discretion make such payments to any of
his relatives or to any institution to be applied for his benefit or for
the benefit of any relative or other person who in the opinion of the
Trustees on the advice of the Employer may be dependent on the Beneficiary
and the receipt of the person or authorised officer of the institution so
paid shall be a complete discharge to the trustees for the money paid and
they shall be under no liability to see to the application thereof.
29.2 Where the Trustees are liable to account for tax on any sum paid under the
Scheme they shall be entitled to deduct from such sum an amount equal to
their tax liability. Where a payment is made without such a deduction the
payee shall be obliged to repay the amount of tax if within six months of
making the payment the Trustees so demand.
29.3 The Trustees may make such arrangements for the payment of benefits and
adjusting the amounts thereof in any manner as inter alia to avoid
fractional amounts or otherwise facilitate computation or payment and as
to the place and method of payment of benefits as they think fit and
without prejudice to the generality of this power may provide for benefits
to be paid by cheque banker's draft or order credit transfer postal or
money order or in cash and the Trustees shall not be responsible for or be
bound to take any steps to recover any loss which may arise through
payment in accordance therewith.
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29.4 Payment of any benefit under the Scheme to any person shall be conditional
upon the production of any evidence or information that the Trustees may
reasonably require for the purposes of the Scheme. If such evidence or
information is not provided or is subsequently found to be incorrect the
Trustees shall have power to determine the extent (if any) to which the
benefits shall be modified. The benefits to be provided under the Rules on
the death of a Member or Life Assurance Member shall be subject to such
requirements (if any) as to his state of health as are prescribed by the
Trustees and notified to him.
29.5 Every Member or other Beneficiary shall give notice in writing to the
Trustees of his place of residence when he becomes a Member or entitled to
a pension or an annuity under the Scheme and thereafter shall give
immediate notice of any change of residence.
29.6 Any moneys payable to or in respect of a Member or other Beneficiary not
claimed within six years after they have become due shall cease to be
claimable and shall revert to the Fund to be held for the general purposes
of the Scheme.
29.7 Subject to Sections 91 to 94 of the Pensions Act regarding assignment and
forfeiture the assignment by a Member or any other Beneficiary of any
benefit under the Scheme is prohibited and if any Member or other
Beneficiary shall either wholly or partially assign or charge any present
or future benefit under the Scheme or attest or purport to do so or if any
other act shall be done or event shall happen whereby the same if
belonging absolutely to the Member or other Beneficiary would be vested in
or payable to or charged in favour of any other person he shall forfeit
all rights whatsoever to such benefit other than his right to a guaranteed
minimum pension (if any); in the event of any benefit being so forfeited
the Trustees may at their discretion pay or apply the same to or for the
benefit of such one or more of the Member or other Beneficiary concerned
and his Dependants but so that in no circumstances shall any payment be
made to an assignee.
29.8 Subject to Sections 91 to 94 of the Pensions Act regarding assignment and
forfeiture the beneficial interest of any Member under the Scheme
including any payments which may fall due to be made in respect of him on
or after his death (but excluding the amount of any guaranteed minimum
pension) shall at the Employer's discretion stand charged with the payment
of any debt or liabilities owing to the Employers or any of them and
arising out of the criminal negligent or fraudulent act or commission of
such person subject however to the following conditions:
29.8.1 any amount received by virtue of a transfer from another scheme
under Rule 28 shall be excluded
29.8.2 the amount recovered must not be greater than the amount of the
debt nor greater than the actuarial value of the Member's actual
or prospective benefits at the time
29.8.3 the Member must be given a certificate showing the amount
recovered and its effect on his benefits
29.8.4 in the event of a dispute about the amount due the lien cannot be
exercised until the debt has become enforceable under a court
order or the award of an arbitrator.
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29.9 The Employers shall not be under any liability whatsoever in connection
with the Scheme except as expressly provided in the Trust Deed and the
Rules.
29.10 No Member or other person entitled to benefits under the Scheme shall have
any claim or right to any benefit except insofar as the Scheme allows and
in accordance with the Rules.
29.11 Nothing in the Rules shall restrict the right of an Employer to terminate
the Service of any Member nor shall any expectation of benefits from the
Scheme be made the grounds for increasing damages in any action brought by
a Member against the Employer.
29.12 Every person having any rights under the Scheme shall be entitled to
inspect a copy of the Trust Deed and the Rules and all amendments thereof
and the latest statement of accounts and balance sheet and the information
referred to in Schedules I and 2 to the Occupational Pension Schemes
(Disclosure of Information) Regulations 1996 as amended from time to time.
29.13 The discretions conferred on the Trustees by the Trust Deed and the Rules
shall be absolute and unfettered discretions and the Trustees shall not be
obliged to give to any Member or any other person any reason or
justification for any exercise of such discretion.
29.14 In the event that, for any reason whatsoever, any amount paid to a
Beneficiary is in excess of that to which the Beneficiary is entitled in
accordance with or pursuant to the Trust Deeds or the Rules, then the
amount so overpaid shall, if the Trustees shall so determine, be deducted
from any subsequent payments thereafter due to that Beneficiary or
thereafter due or payable to any other Beneficiary who derives his
entitlement to benefit under the Rules through the same Member or Life
Assurance Member. The Trustees shall nevertheless have the right to
recover the sum overpaid forthwith or at any later date from the
Beneficiary or any other person to whom the amount was so overpaid or
their respective legal personal representatives.
29.15 In any case where representation has not actually been taken out to the
estate of a deceased person any sum or sums of money not exceeding in the
aggregate pounds sterling5 ,000 (or such other amount as the Trustees may
from time to time determine) payable by the Trustees to the legal personal
representatives of the deceased may at the absolute discretion of the
Trustees be paid to the spouse or other next-of-kin of the deceased or any
person entitled to any benefit from the deceased's estate and a receipt
given by the person to whom payment is so made shall operate as a valid
and effectual discharge in the like manner as if it had been given by the
legal personal representatives of the deceased.
29.16 The Trustees shall establish and maintain procedures for resolving
disagreements relating to their operation of the Scheme which satisfy the
requirements of Section 50 of the Pensions Act. Subject to such
procedures, the Trustees shall have power conclusively to determine all
questions and matters of doubt, disputes or differences relating to the
Scheme or arising under the Trust Deed or Rules.
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30. PENSION INCREASES Each pension as hereinafter specified shall be increased
periodically in accordance with the following provisions:
30.1 In the case of a pension payable to a Member under Rule 9 or Rule 18, the
amount of such pension shall be increased (subject to sub-Rules 30.4 and
30.5) on the date of the first payment due after the end of the Tax Year
in which the pension commenced and thereafter on the same date in each
year by the lesser of 5% and the annual percentage increase in the Index
(based on the Index for January in each year as published in February)
except that the increase in respect of that part of the pension relating
to Pensionable Service prior to the Commencement Date in respect of a
Member to whom sub-Rule 28.5 applies shall not be less than 3% per annum.
30.2 In the case of a pension payable under Rule 16 or Rule 17 following the
death of a Member in receipt of a pension, the initial amount of such
pension shall be as stated in Rule 16 or Rule 17 but increased (subject to
sub-Rules 30.4 and 30.5) in respect of the period from the date of
retirement of the Member to the date of his death by the same percentage
increases as applied to the Member's pension under sub-Rule 30.1 above.
and after his death the amount of such pension shall be increased on the
date of the first payment due after the end of the Tax Year in which the
Member's pension commenced and thereafter on the same date in each year by
the lesser of 5% and the annual percentage increase in the Index (based on
the Index for January in each year as published in February) except that
the increase in respect of that part of the pension relating to
Pensionable Service prior to the Commencement Date in respect of a
Member to whom sub-Rule 28.5 applies shall not be less than 3% per annum.
30.3 In the case of a pension payable under Rule 16 or Rule 17 following the
death of a Member who is not in receipt of a pension, the amount of such
pension shall be increased in the manner described in sub-Rule 30.1 above
on the date of the first payment due after the end of the Tax Year in
which the pension commenced and thereafter on the same date in each year.
30.4 The increase in any pension which commenced to be payable within the
previous 12 months shall be such proportion of the full increase under
sub-Rule 30.1, 30.2 or 30.3 above as the period during which the pension
has actually been payable bears to one complete year.
30.5 The amount of pension to which this Rule applies shall exclude any
guaranteed minimum pension and any part of the pension commuted for a cash
sum under Rule 11 or surrendered to provide a dependant's pension under
Rule 12.
30.6 The Trustees may decide to alter the Index reference period or the date on
which any pension increases under this Rule take effect and may make such
adjustments to the amount of the increases to be provided under this Rule
as they consider appropriate to take account of such alteration.
31. INLAND REVENUE LIMITS ON BENEFITS The Inland Revenue Limits Rules set out
in Appendix 1 to these Rules shall have effect and shall be deemed to be
incorporated in these Rules.
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32. CONTRACTING-OUT: PENSION SCHEMES ACT 1993 The Contracting-out Rules set
out in Appendix 2 to these Rules shall have effect and shall be deemed to
be incorporated in these Rules.
33. NATIONAL INSURANCE ACT 1965
33.1 Where by virtue of any provision of the National Insurance Act 1965 (the
"1965 Act") equivalent pension benefits are required to be assured under
the Scheme in respect of a Member who has been in non-participating
employment within the meaning of the 1965 Act in relation to a retirement
benefits scheme from which the liability for the payment of the equivalent
pension benefits has been transferred to the Scheme the Member shall be
absolutely and indefeasibly entitled under the Scheme to such equivalent
pension benefits.
33.2 The entitlement of a Member to equivalent pension benefits under the
provisions of this Rule shall be inclusive of his entitlement to any other
pension benefits under the Scheme other than his entitlement to a
guaranteed minimum pension.
33.3 If a Member who is prospectively entitled to equivalent pension benefits
under the Scheme becomes entitled to a refund of his contributions
relating to a Period of non-participating employment within the meaning of
the 1965 Act the Trustees shall be entitled to deduct therefrom such sum
as the Trustees shall consider appropriate for the Member to contribute
towards the cost of his equivalent pension benefits.
33.4 Any options in respect of a Member's pension benefits under the Rules may
be exercised in relation to any entitlement to equivalent pension benefits
under this Rule to the extent permitted in accordance with the
requirements of the 1965 Act.
34. SPECIAL PROVISIONS APPLICABLE TO PART-TIME EMPLOYEES
34.1 In relation to a Member whose Pensionable Service includes any period as a
part-time Employee, the Rules shall apply subject to the amendments and
additions set out in the following sub-Rules of this Rule.
34.2 The following definitions shall apply in addition to those set out in Rule
1: "Contracted Hours" means in relation to a part-time Employee, the
number of hours which the Employee is normally required to work by his
contract of employment. "Full-Time Equivalent Salary" means in relation to
any period during which a Member is a part-time Employee, an amount equal
to his basic salary or wage divided by the Part-Time Ratio (together with
any shift premium and overtime payments, but excluding director's fees,
commission, bonuses and any other fluctuating emoluments). "Part-Time
Ratio" means in relation to a part-time Employee, the Employee's
Contracted Hours divided by the number of hours the Employee would have
worked if he had been a full-time Employee (as determined by the
Employer).
34.3 The definitions of "Contribution Salary" and Pensionable Salary in Rule `
shall apply only in relation to a Member who is a full-time Employee; the
following definitions shall apply in relation to a Member who is a
part-time Employee:
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"Contribution Salary" means in respect of any period during which a Member
is a part-time Employee, the amount by which his Full-Time Equivalent
Salary received in the relevant pay period exceeds the equivalent for that
period of the lower earnings limit as at 6th April 1998. "Pensionable
Salary" means in relation to any period during which a Member is a
part-time Employee, his Full-Time Equivalent Salary.
34.4 The definition of "Scale Pension" in Rule 1 is replaced by the following:
"Scale Pension" means in relation to a Member (subject to sub-Rule 9.4) a
pension of such annual amount as is equal to the total of:
(1) 1.667% of his Final Pensionable Salary multiplied by the period of
Pensionable Service from and including the Commencement Date other
than as a part-time Employee plus 1.667% of his Final Pensionable
Salary multiplied by the period of Pensionable Service from and
including the Commencement Date as a part-time Employee multiplied by
the Part-Time Ratio for such period, and
(2) such percentage of his Final Pensionable Salary as is accredited to
him in respect of a transfer payment received by the Scheme in respect
of him (if any) from the BTR Scheme under sub-Rule 28.5 except that if
immediately prior to 6th April 1997 the Member had been a member of
the 1985 Scheme, and a transfer payment was subsequently made in
respect of him from the 1985 Scheme to the BTR Scheme, that part of
his Scale Pension relating to Service prior to 6th April 1997 shall
not be less than the pension that he had accrued under the 1985 Scheme
increased in respect of the period from 6th April 1997 to the date on
which his Pensionable Service is terminated by the revaluation
percentage specified as being relevant in an order made under Section
84 of the Pension Schemes Act during the calendar year before the year
in which the Member's Pensionable Service is terminated
subject to the maximum percentage of Final Pensionable Salary which would
not prejudice Approval of the Scheme.
34.5 Sub-Rule 6.1 is replaced in relation to any period of Pensionable Service
as a part-time Employee by the following:
6.1 Except as otherwise provided in the Rules, each Member shall pay
contributions to the Fund in respect of any pay period during
which he is a part-time Employee at the rate of 5 per cent of his
Contribution Salary, multiplied by the Part-Time Ratio for that
period. Such contributions shall cease to be payable if the Scale
Pension is equal to the maximum percentage of the Member's Final
Pensionable Salary which would not prejudice Approval of the
Scheme.
34.6 Rule 11 is amended as follows:
34.6.1 in calculating the period of actual Service for the purposes of
sub-Rule 11.1, any period of Service as a part-time Employee
shall be taken as the period of such Service multiplied by the
Part-Time Ratio relevant to that period; and
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34-6.2 in calculating Final Salary for the purposes of sub-Rule 11.7, the
amounts specified in sub-Rules 11.7.1 and 11.7.2 shall to the
extent they relate to any period as a part-time Employee be
divided by the Part-Time Ratio relevant to that period.
34.7 Sub-Rule 16.1 is amended by adding at the end "multiplied, in the case of
a Member who was a part-time Employee at the date of his death, by the
Part-Time Ratio applicable to him at the date of death".
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APPENDIX 1
INLAND REVENUE LIMITS RULES
CONTENTS
1. Interpretation
1.1 General
1.2 Definitions
2. The Member's Aggregate Retirement Benefit
3. The Member's Lump Sum Retirement Benefit
4. Lump Sum Benefit payable on death in Service
5. Dependants' Pensions
6. Pension Increases
7. Late Retirement
8. Modifications in respect of Special Directors
9. Limitations on Benefits
10. Compliance with Undertakings
11. Exceeding Inland Revenue Limits
12. Election to become a Class A Member
12.1 By Class B Member
12.2 By Class C Member
13. Inland Revenue Special Conditions
13.1 Voluntary Scheme Benefits
13.2 Payment of Benefits
13.3 Return of Surplus Funds
13.4 Member's Contributions
14. Simplification of Inland Revenue Practice
14.1 Introduction
14.2 Continued Life Cover
14.3 ValuaLion of Lump Sum Benefits for Limits Purposes
14.4 Special Directors
14.5 Post Retirement Pension Increases
14.6 Definition of Service
14.7 Transfers
14.8 Pension Guarantees
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APPENDIX 1
INLAND REVENUE LIMITS ON BENEFITS AND
SPECIAL CONDITIONS
1. INTERPRETATION
1.1 General
Notwithstanding anything to the contrary in any provisions of the Trust
Deed and the Rules:
(A) any term used in the Scheme as a measure of the annual earnings of
a Class A Member for the purpose of calculating benefits is to be
interpreted as though these earnings are no greater than the
permitted maximum as defined in Section 590C(2) of the Taxes Act;
the benefits so calculated may be augmented up to the maximum
limits in (B) below;
(B) the benefits payable to a Member or his spouse, Dependants or
other beneficiaries in respect of him shall not when aggregated
with all benefits of a like nature provided under all Relevant
Schemes providing benefits in respect of Service, exceed the
relevant limit or limits set out below.
1.2 Definitions
In this Appendix the following terms shall have the meanings ascribed to
them:
"Administrator" means the Trustees or other person or persons having the
management of the Scheme.
"Aggregate Retirement Benefit" means the aggregate of:
(A) the Member's pension under the Scheme and any Associated Scheme,
and
(B) the pension equivalent of the Member's Lump Sum Retirement
Benefit.
"Associated Employment" means two or more concurrent employments held by
the Member which are associated so that:
(A) there is a period during which the Member has held all of them;
(B) the period counts under the Scheme in the case of all of them as a
period in respect of which benefits are payable;
(C) during the period all the employers in question are associated.
"Associated Scheme" means:
(A) in respect of a Class A Member any Relevant Scheme which is a
Connected Scheme or which provides benefits in respect of Service;
(B) in respect of a Class B Member or a Class C Member any Relevant
Scheme providing benefits in respect of Service.
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"Class A Member" means (subject to the Transitional Regulations) any Member
who
(A) joined the Scheme on or after 1st June 1989; or
(B) elects to be treated as a Class A Member pursuant to Rule 12.1 or
12.2 of this Appendix.
"Class B Member" means (subject to the Transitional Regulations) any
Member who joined the Scheme on or after 17th March 1987 and before 1st
June 1989 and has not elected to be treated as a Class A Member under Rule
12.1 of this Appendix.
"Class C Member" means (subject to the Transitional Regulations) any
Member who joined the Scheme before 17th March 1987 and has not elected to
be treated as a Class A Member under Rule 12.2 of this Appendix.
"Connected Scheme" means any Relevant Scheme which is connected with the
Scheme in relation to the Member so that:
(A) there is a period during which the Member has been the employee of
two or more associated employers;
(B) that period counts under both schemes as a period in respect of
which benefits are payable;
(C) the period counts under one scheme for service with one employer
or several employers and under the other for service with another
employer or other employers.
For the purposes of the definitions of Associated Employment and Connected
Scheme above employers are associated if one is under the control of the
other, or both are under the control of a third party. For this purpose
control has the meaning in Section 840 of the Taxes Act, or in the case of
a close company, Section 416 of the Taxes Act.
"Dependant" has the same meaning as in Rule 1 of the Rules except that it
shall be deemed to include the Member's spouse.
"Final Remuneration" means in relation to each Member the greater of:
(A) the highest Remuneration for any one of the five years preceding
the Relevant Date being the aggregate of:
(1) the basic pay for the year in question; and
(2) the yearly average over three or more consecutive years ending
with the expiry of the corresponding basic pay year (or over
such shorter period during which fluctuating emoluments have
been receivable), of any fluctuating emoluments provided that
fluctuating emoluments of a year other than the basic pay year
may be increased in proportion to any increase in the Index
from the last day of that year up to the last day of the basic
pay year, and
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(B) the highest yearly average of the total emoluments for any three
or more consecutive years ending not earlier than ten years before
the Relevant Date.
Provided that:
(1) where Final Remuneration is computed by reference to any year
other than the last complete year ending on the Relevant Date, the
Member's Remuneration (as calculated in (A) above) or total
emoluments (for the purpose of (B) above) of any year may be
increased in proportion to any increase in the Index from the last
day of the year up to the Relevant Date but this proviso shall not
apply to the calculation of the maximum Lump Sum Retirement
Benefit in accordance with Rule 3 of this Appendix unless (and
subject in relation to any Class A Member to proviso (7) below and
to any Class B Member to proviso (6) below) the Member's Aggregate
Retirement Benefit is similarly increased beyond the maximum
amount which could have been paid but for this proviso and the
proviso to (A)(2) above and then only to the same proportionate
extent;
(2) where during the last ten years' Service prior to the Relevant
Date remuneration has been substantially reduced because of
Incapacity, the Member's Final Remuneration may be calculated as
if the date of cessation of normal pay was the Relevant Date;
(3) Remuneration and total emoluments (save in the case of a Class C
Member where the Relevant Date is before 17th March 1987) do not
include any amounts which arise from the acquisition or disposal
of shares or an interest in shares or from a right to acquire
shares (unless such shares or interest in shares or right to
acquire shares had been acquired or granted before 17th March
1987) or anything in respect of which tax is chargeable by virtue
of Section 148 of the Taxes Act;
(4) in relation to a Special Director, Final Remuneration shall
(subject in relation to any Class A Member to proviso (7) below
and to any Class B Member to proviso (6) below) be the amount
ascertained in accordance with (B) above and (A) shall not apply;
(5) in relation to any Class B Member or any Class C Member where the
Relevant Date is on or after 17th March 1987 whose Remuneration in
any year subsequent to 5th April 1987 has exceeded pound sterling
100,000 or such other sum as may be prescribed in an order made
by the Treasury (the "permitted maximum") Final Remuneration
shall, (subject to proviso (6) below) insofar as such year is
relevant to the calculation of his benefits, be the greatest of:
(a) the permitted maximum;
(b) the amount ascertained in accordance with (B) above; and
(c) if he retires prior to 6th April 1991 his Remuneration within
the meaning of Section 612(l) of the Taxes Act assessable to
income tax under Schedule E of the year of assessment 1986/87;
and (A) above shall not apply;
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(6) for the purposes of the calculation of the maximum Lump Sum
Retirement Benefit in accordance with Rule 3 of this Appendix in
respect of any Class B Member (other than such a Member who joins
the Scheme in circumstances where it is accepted by the Board of
Inland Revenue that the terms of this proviso do not apply) Final
Remuneration shall not in any event exceed pound sterling 100,000
or such other sum as may be specified in an order made by the
Treasury;
(7) in relation to a Class A Member Final Remuneration and the annual
rate of the Member' s Remuneration for the purpose of the
calculation of the maximum benefits in accordance with Rules 3 and
5(C) of this Appendix shall not exceed the permitted minimum as
defined in Section 590C(2) of the Taxes Act.
"Index" means the Government's Index of Retail Prices or any other
suitable index agreed for this purpose by the Board of Inland Revenue.
"Lump Sum Retirement Benefit" means the total value of all benefits
payable in any form other than non-commutable pension under the Scheme and
any Associated Scheme.
"Pensionable Service" for the purposes of this Appendix has the meaning
ascribed to it in the Pension Schemes Act notwithstanding the definition
of Pensionable Service in Rule 1 of the Rules.
"Relevant Date" means the date of retirement, leaving Pensionable Service
or death as the case may be.
"Relevant Scheme" means any other scheme approved or seeking approval
under Chapter I of Part XIV of the Taxes Act.
"Remuneration" in relation to any year means:
(A) as regards a Class A Member the aggregate of the total emoluments
for the year in question:
(1) from the Employer; and
(2) in respect of any Associated Employment or any Connected
Scheme
which are assessable to Income Tax under Schedule E but excluding
any amounts which arise from the acquisition or disposal of shares
or an interest in shares or a right to acquire shares (unless the
shares or interest in shares or the right to acquire shares was
granted on or before 16th March 1987) or anything in respect of
which tax is chargeable by virtue of Section 148 of the Taxes Act;
provided that in arriving at such emoluments there shall be
disregarded any emoluments in excess of the permitted maximum as
defined in Section 590C(2) of the Taxes Act
(B) as regards a Class B Member or a Class C Member whose Relevant
Date is on or after 17th March 1987 total emoluments from the
Employer in the year in question which are assessable to Income
Tax under Schedule E but excluding
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any amounts which arise from the acquisition or disposal of shares
or an interest in shares or right to acquire shares (unless such
shares or interest in shares or right to acquire shares had been
acquired or granted before 17th March 1987) or anything in respect
of which tax is chargeable by virtue of Section 148 of the Taxes
Act
(C) as regards a Class C Member whose Relevant Date is before 17th
March 1987 total emoluments from the Employer in the year in
question which are assessable to Income Tax under Schedule B.
"Service" has the same meaning as in Rule 1 of the Rules except that in
relation to a Class A Member it shall mean the aggregate of:
(A) all periods of Service with the Employer; and
(B) all other periods which count in respect of any Associated
Employment or any Connected Scheme.
"Transitional Regulations" means such Regulations as are made under
paragraph 1 (2) of Schedule 23 to the Taxes Act and paragraph 19 (2) of
Schedule 6 to the Finance Act 1989 permitting a Class A Member to be
treated as a Class B Member or Class C Member and permitting a Class B
Member to be treated as a Class C Member for the purposes of the Scheme.
2. THE MEMBER'S AGGREGATE RETIREMENT BENEFIT
The Member's Aggregate Retirement Benefit shall not exceed:
2.1 in relation to a Class A Member
2.1.1 on retirement at any time between attaining age 50 and attaining
age 75, except before Normal Pension Date on grounds of
Incapacity, a pension of 1/60th of Final Remuneration for each
year of Service (not exceeding 40 years) or such greater amount as
will not prejudice Approval of the Scheme;
2.1.2 on retirement at any time before Normal Pension Date on grounds of
Incapacity a pension of the amount which could have been provided
at Normal Pension Date in accordance with 2.1.1 above, Final
Remuneration being computed as at the actual date of retirement;
2.1.3 on leaving Pensionable Service before attaining age 75, a pension
of 1/60th of Final Remuneration for each year of that service (not
exceeding 40 years) or such greater amount as will not prejudice
Approval of the Scheme, the amount computed as aforesaid being
increased in proportion to any increase in the Index which has
occurred between the date of termination of Pensionable Service
and the date on which the pension begins to be payable together
with any further increase necessary to comply with the
requirements of the Department of Social Security;
2.1.4 benefits are further restricted to ensure that his or her total
retirement benefit from the Scheme and from any Associated Scheme
or Connected Scheme does not exceed a pension of 1/30th of the
permitted maximum for each year of service. subject to a maximum
of 20/30ths. For the purposes of this limit
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service" is the aggregate of Service and any period of service which
gives rise to benefits under a Connected Scheme provided that no period is
to be counted more than once.
2.2 in relation to a Class B Member or a Class C Member
2.2.1 on retirement at or before Normal Pension Date except on grounds
of Incapacity, a pension of 1/60th of Final Remuneration for each
year of Service (not exceeding forty years) or such greater amount
as will not prejudice Approval of the Scheme;
2.2.2 on retirement at any time before Normal Pension Date on grounds of
Incapacity, a pension of the amount which could have been provided
at Normal Pension Date in accordance with sub-Rule 2.2.1, Final
Remuneration being computed as at the actual date of retirement;
2.2.3 on retirement after Normal Pension Date, a pension of the greatest
of:
(A) the amount calculated in accordance with 2.2.1 above on the
basis that the actual date of retirement was the Member's
Normal Pension Date;
(B) the amount which could have been provided at Normal Pension
Date in accordance with 2.2.1 above increased either
actuarially in respect of the period of deferment or in
proportion to any increase in the Index during that period
whichever gives the greater increase; and
(C) where the Member's total Service with the Employer has
exceeded forty years, the aggregate of 1/60th of Final
Remuneration for each year of Service before Normal Pension
Date (not exceeding forty such years) and of a further 1/60th
of Final Remuneration for each year of Service after Normal
Pension Date, with an overall maximum of forty five reckonable
years,
Final Remuneration being computed in respect of (A) and (C) above
as at the actual date of retirement but subject always to Rule 7
of this Appendix;
2.2.4 on leaving Pensionable Service before Normal Pension Date, a
pension of 1/60th of Final Remuneration for each year of that
service (not exceeding forty years) or of such greater amount as
will not prejudice Approval of the Scheme, the amount computed as
aforesaid being increased in proportion to any increase in the
Index which has occurred between the date of termination of
Pensionable Service and the date on which the pension begins to
be payable, together with any further increase necessary to comply
with the requirements of the Department of Social Security.
3. THE MEMBER'S LUMP SUM RETIREMENT BENEFIT
The Member's Lump Sum Retirement Benefit shall not exceed:
3.1 in relation to a Class A Member:
3.1.1 on retirement at any time between attaining age 50 and attaining
age 75, except before Normal Pension Date on grounds of
Incapacity, 3/80ths of Final
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Remuneration for each year of Service (not exceeding 40 years) or
such greater amount as will not prejudice Approval of the Scheme;
3.1.2 on retirement at any time before Normal Pension Date on grounds of
Incapacity the amount which could have been provided at Normal
Pension Date in accordance with 3.1.1 above, Final Remuneration
being computed as at the actual date of retirement;
3.1.3 on leaving Pensionable Service before attaining age 75, a lump sum
of 3/80ths of Final Remuneration for each year of that service
(not exceeding 40 years) or such greater amount as will not
prejudice Approval of the Scheme, the amount computed as aforesaid
being increased in proportion to any increase in the Index which
has occurred between the date of termination of Pensionable
Service and the date on which the pension begins to be payable but
only if and to the same extent as the total benefits have been
increased under 2.1.3 above.
3.2 in relation to a Class B Member or a Class C Member:
3.2.1 on retirement at or before Normal Pension Date except on grounds
of Incapacity, 3/80ths of Final Remuneration for each year of
Service (not exceeding forty years) or such greater amount as will
not prejudice Approval of the Scheme;
3.2.2 on retirement at any time before Normal Pension Date on grounds of
Incapacity, the amount which could have been provided at Normal
Pension Date in accordance with 3.2.1 above, Final Remuneration
being computed as at the actual date of retirement;
3.2.3 on retirement after Normal Pension Date, the greatest of:
(A) the amount calculated in accordance with 3.2.1 above on the
basis that the Member's actual date of retirement was his
Normal Pension Date,
(B) the amount which could have been provided at Normal Pension
Date in accordance with 3.2.1 above together with an amount
representing interest thereon, and
(C) where the Member's total Service has exceeded forty years, the
aggregate of 3/80ths of Final Remuneration for each year of
service before Normal Pension Date (not exceeding forty such
years) and of a further 3/80ths of Final Remuneration for each
year of Service after Normal Pension Date, with an overall
maximum of forty five reckonable years,
Final Remuneration being computed in respect of (A) and (C) above
as at the actual date of retirement, but subject always to Rule 7
of this Appendix;
3.2.4 on leaving Pensionable Service before Normal Pension Date, a lump
sum of 3/80ths of Final Remuneration for each year of that service
(not exceeding forty years) or such greater amount as will not
prejudice Approval of the Scheme, the amount computed as aforesaid
being increased in proportion to any increase in the Index which
has occurred between the date of termination
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of Pensionable Service and the date on which the pension begins to
be payable but only if and to the same extent as the total
benefits have been increased under 2.2A above.
4. LUMP SUM BENEFIT PAYABLE ON DEATH IN SERVICE
The lump sum benefit (exclusive of any refund of the Member's own
contributions and any interest thereon) payable on the death of a Member
while in Service or (having left Service with a deferred pension) before
the commencement of his pension shall not, when aggregated with all like
benefits under Associated Schemes, exceed the greater of:
(A) Pound 5,000; and
(B) four times the greater of the annual rate of the Member's
Remuneration at the date of his death and his Final Remuneration
(excluding proviso (3) of that definition)
less
(1) any lump sum (other than a refund of his own contributions and any
interest thereon) payable on the death of the Member under all
Relevant Schemes in respect of service with previous employers,
and
(2) any lump sum life assurance benefit payable on the death of a
Member under a retirement annuity contract or trust scheme
approved under Chapter III of Part XIV of the Taxes Act or a
personal pension scheme approved under Chapter IV of Part XIV of
the Taxes Act
if the aggregate of such lump sums exceeds Pound 2,500.
5. DEPENDANTS' PENSIONS
Any pension for a Dependant, when aggregated with the pensions, other
than those provided by surrender of the Member's own pension, payable to
that Dependant under all Associated Schemes, shall not exceed an amount
equal to 2/3rds of the Aggregate Retirement Benefit:
(A) being paid to the Member at the date of his death (including any
pension increases given under the Rules); or
(B) (1) in respect of a Class A Member being a deferred benefit
payable to the Member at any time between attaining age 50 and
attaining age 75; and
(2) in respect of a Class B Member or a Class C Member being a
deferred benefit payable to the Member at Normal Pension Date;
or
(C) prospectively payable to the Member who dies in Service had he
remained in Service up to the Normal Pension Date at the rate of
pay in force immediately before his death, or
(D) prospectively payable to the Member who dies in Service after
Normal Pension Date on the basis that he had retired on the day
before he died.
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or such greater amount as will not prejudice Approval of the Scheme.
If pensions are payable to more than one Dependant of a Member, the
aggregate of all Dependants' pensions payable in respect of him under this
and all Associated Schemes shall not exceed the full amount of whichever
is the appropriate Aggregate Retirement Benefit under (A), (B), (C) or (D)
above or such greater sum as will not prejudice Approval of the Scheme.
6. PENSION INCREASES
The maximum amount of a pension ascertained in accordance with this
Appendix less any pension which has been commuted for a lump sum or
surrendered to provide a Dependant's pension shall be increased (A) in
proportion to the increase in the Index which has occurred since the
pension commenced to be paid or (B) by 3% for each complete year whichever
is the greater. (A pension may thus be increased up to the level of the
maximum pension (less any pension which has been commuted or surrendered)
and then further increased as stated in (A) or (B) above.)
7. LATE RETIREMENT
If a Class B Member or a Class C Member to whom sub-Rule 9.2 applies is
permitted to take any part of his benefits under the Scheme at any date
prior to actual retirement, the limits set out in 2.2 and 3.2 above shall
apply as if he had retired at such date no account being taken of
subsequent Service, save that the maximum amount of any uncommuted
pension not commencing immediately shall be increased either actuarially
in respect of the period of deferment or in proportion to any increase in
the Index during that period whichever is the greater.
8. MODIFICATIONS IN RESPECT OF SPECIAL DIRECTORS
The preceding provisions of this Appendix shall be modified as follows in
their application to a Member who is a Special Director:
the amount of the maximum Aggregate Retirement Benefit in Rule 2
of this Appendix and of the maximum Lump Sum Retirement Benefit
in Rule 3 of this Appendix shall be reduced, where necessary for
Approval of the Scheme, so as to take account of any corresponding
benefits under either a retirement annuity contract or trust
scheme approved under Chapter III of Part XIV of the Taxes Act or
a personal pension scheme approved under Chapter IV of Part XIV
of the Taxes Act
and as follows in relation to a Class B Member or a Class C Member who is
a Special Director at his Normal Pension Date:
(A) where retirement takes place after Normal Pension Date but not
later than the Member's 70th birthday, 2.2.3(B) and (C) and
3.2.3(B) and (C) above shall not apply, and if retirement is later
than the attainment of that age. the said provisions shall apply
as if the Member's 70th birthday had been specified in the Rules
as his Normal Pension Date. so as not to treat as Service after
Normal Pension Date any Service before the Member reaches the age
of 70;
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(B) where Rule 7 of this Appendix applies to him, the rate of the
actuarial increase referred to therein in relation to any period
of deferment prior to his attaining the age of 70 shall not exceed
the percentage increase in the Index during that period.
9. LIMITATIONS ON BENEFITS
The Trustees shall make such adjustments to benefits and contributions or
either of them in respect of any Member or any other person who is or will
become entitled to benefit under the Scheme as is considered necessary to
give effect to the limitations which unless complied with would affect
Approval of the Scheme.
10. COMPLIANCE WITH UNDERTAKINGS
If the Board of Inland Revenue as a condition of granting Approval has
required or may require the Trustees to undertake to refer to it before
admitting or retaining certain persons as Members or before arranging to
provide benefits exceeding certain limits, the Trustees shall enforce such
restrictions as the Board advises are necessary to ensure continued
Approval.
11. EXCEEDING INLAND REVENUE LIMITS Insofar as the restrictions imposed by
this Appendix are imposed solely for the purpose of ensuring Approval the
Trustees may in applying these restrictions ignore any benefits which the
Board of Inland Revenue has indicated need not be taken into account and,
where they have received the prior consent of the Board of Inland
Revenue, may also in particular cases substitute other limits for the
amounts specified in this Appendix.
12. ELECTION TO BECOME A CLASS A MEMBER
12.1 A Class B Member may elect at any time before the date on which benefits
commence or are transferred out of the Scheme or the Member reaches the
age of 75 (whichever is earliest) to be treated as having become a Class A
Member by giving written notice to the Trustees in the form prescribed by
the Board of Inland Revenue.
12.2 A Class C Member may with the consent of the Trustees and the Employer
elect at any time before the date on which benefits commence or are
transferred out of the Scheme or the Member reaches the age of 75
(whichever is earliest) to be treated as having become a Class A Member.
13. INLAND REVENUE SPECIAL CONDITIONS
13.1 Voluntary Scheme Benefits
Where in addition to being a member of the Scheme the Member is also a
member of an approved scheme (the voluntary scheme) which provides
additional benefits to supplement those provided by the Scheme and to
which no contributions are made by any employer of his, the provisions
of the paragraph that follows shall apply in relation to any
augmentation of the benefits provided for him by the Scheme after he has
ceased to be an Active Member.
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Any provisions of this Appendix imposing a limit on the amount of a
benefit provided for the Member shall have effect (notwithstanding
anything in them to the contrary) as if they provided for the limit to be
reduced by the amount of any like benefit provided for the Member by the
voluntary scheme.
13.2 Payment of Benefits
In relation to a Class A Member the provisions of the Scheme shall have
effect (notwithstanding anything in them to the contrary) as if they
provided:
(A) that a Member's retirement benefit shall be paid no later than the
date on which he attains age 75, and
(B) subject to (A) above that no part of a Member's retirement benefit
shall be paid in advance of actual retirement or leaving Service
except to the extent necessary to comply with the requirements of
the Department of Social Security.
13.3 Return of Surplus Funds
In relation to voluntary contributions the provisions of the Scheme
shall have effect (notwithstanding anything in them to the contrary)
subject to the provisions of Part III of Schedule 6 to the Finance Act
1989 concerning the return of surplus funds. Where the application of
the limits in this Appendix requires the quantum of the Aggregate
Retirement Benefit to be restricted and the Member has paid voluntary
contributions to supplement Scheme benefits, that restriction shall
first be applied to those supplementary benefits so as to permit the
repayment of surplus voluntmy contributions subject to Section 599A of
the Taxes Act.
13.4 Member's Contributions
The total contributions paid by the Member in any Tax Year to the Scheme
and to any Relevant Scheme providing benefits by virtue of Service shall
not exceed 15% of his Remuneration for that year in respect of that
service or such higher amount as the Board of Inland Revenue may in any
particular case permit. In the case of a Class A Member, Member's
contributions shall if necessary be further restricted to ensure that the
total paid to the Scheme and all other Relevant Schemes in any Tax Year
does not exceed 15% of the Member's total Remuneration for that year.
14. SIMPLIFICATION OF INLAND REVENUE PRACTICE
14.1 Notwithstanding anything to the contrary in any provisions of the Trust
Deed and the Rules the following sub-Rules 14.2 to 14.8 of this Appendix
shall have effect except that nothing in sub-Rules 14.2 to 14.8 of this
Appendix shall be construed as conferring powers on the Trustees which
they do not otherwise have by virtue of the Trust Deed and Rules.
14.2 Continued Life Cover
Any provision for a lump sum payable on the death of a Member after
retirement on pension (other than a payment under a pension guarantee)
shall be restricted in the case of a Class A Member to exclude any
provision other than in respect of the
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Member's death occurring before Normal Pension Date and after retirement
on grounds of Incapacity. The amount of the benefit shall not exceed the
amount payable had the Member died immediately before retirement increased
in proportion to any increase in the Index between the date of the
Member's retirement and the date of the Member's death.
14.3 Valuation of Lump Sum Benefits for Limits Purposes
In calculating the amount of the Aggregate Retirement Benefit of a Class
A Member the pension equivalent of the Member's Lump Sum Retirement
Benefit shall be taken as one twelfth of the total cash value.
14.4 Special Directors
In relation to a Special Director who is a Class A Member, the definitions
of Aggregate Retirement Benefit and Lump Sum Retirement Benefit shall
additionally include any benefits under a retirement annuity contract
approved under Chapter III of Part XIV of the Taxes Act or a personal
pension scheme approved under Chapter IV of Part XIV of the Taxes Act
insofar as those benefits arise from premiums or contributions paid out of
relevant earnings from the Employer or an associated employer.
14.5 Post Retirement Pension
Increases in the pension of a Class A Member to take account of
increases in the cost of living may not be given on any part of the
pension which has been commuted for a lump Sum.
14.6 Definition of Service
In relation to a Special Director who is a Class A Member, periods of
Service with Employers who are treated as associated by virtue of a
permanent community of interest, but who are not associated within the
meaning set out in the definition of Connected Scheme in 1.2 above,
shall not be aggregated for the purposes of the limits specified in this
Appendix. Maximum benefits shall instead be calculated separately in
respect of each such period of Service.
14.7 Transfers
(A) Any benefits arising on retirement derived from a transfer payment
shall not be capable of commutation nor shall they be paid in lump
sum form if the transfer is accompanied by a certificate from the
trustees or administrator of the transferring scheme to the effect
that the transfer payment may not be used to provide benefits in
lump sum form.
(B) In respect of a Class B Member or a Class C Member pension
benefits on retirement arising from a transfer payment (other than
from another scheme of the Employer or an associated employer) may
be commuted only if and to the extent that a certificate has been
obtained from the trustees or administrator of the transferring
scheme showing the maximum lump sum which may be provided from the
transfer payment. The amount so certified may be increased
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in proportion to any increase in the Index since the date the
transfer payment was received.
(C) Where in connection with a transfer to another occupational
pension scheme the trustees or administrator of the receiving
scheme request such a certificate as is referred to in (B) above,
the Administrator shall calculate as at the date of transfer and
supply the receiving scheme with a certificate of the maximum lump
sum which may be provided on retirement from the transfer payment.
(D) When making a transfer to an approved personal pension scheme the
Administrator shall provide a certificate of the maximum lump sum
payable on retirement from the transfer payment if the
transferring Member:
(i) was aged 45 or more at the time that the transfer payment
was made, or
(ii) has at any time within the 10 years preceding the date on
which the right to the cash equivalent being transferred
arose, been, in respect of any employment to which the
transfer payment relates, either:
(a) a Special Director,
(b) in receipt of annual remuneration in excess of pound
sterling 60.000 or, if greater, the allowable maximum
(as defined in section 640A of the Taxes Act) for the
year of assessment in which the date of transfer falls,
or
(iii) is entitled to benefits included in the transfer payment
which arise from an occupational pension scheme under which
the normal retirement age is 45 or less.
14.8 Pension Guarantees
A pension may not be guaranteed for a minimum period which exceeds 10
years or which is determined by any reference to the value of the Member's
contributions.
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APPENDIX 2
CONTRACTING-OUT REQUIREMENTS
CONTENTS
Section Title
A INTRODUCTION
- Basis for Contracting-out
- Effect of Appendix
- Definitions
B GMP RULES
C SECTION 9(2B) RIGHTS
D OTHER CONTRACTING-OUT RULES
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SECTION A
INTRODUCTION
1. BASIS FOR CONTRACTING-OUT
1.1 The Scheme is intended to be contracted-out on a salary-related basis.
Members who were in contracted-out employment under the 1985 Scheme and/or
the BTR Scheme before 6th April 1997 and in respect of whom a transfer
payment is received from the BTR Scheme under sub-Rule 28.5 have accrued
rights to GMP as described in Section B of this Appendix in respect of
their membership thereof before 6th April 1997.
1.2 Members who are in Contracted-out Employment have Section 9(2B) Rights as
described in Section C of this Appendix.
2. EFFECT OF APPENDIX
2.1 This Appendix overrides any Rules which are inconsistent with it.
2.2 The provisions of this Appendix are intended to take account of the
contracting-out requirements under the Pension Schemes Act and
accordingly:
(a) nothing in this Appendix shall be taken as conferring any greater
entitlement on a Member or any other person than is necessary for
the purpose of meeting those requirements. and
(b) except to the extent that legislation otherwise requires, the
rights and benefits described in this Appendix shall be off-set
against the other rights and benefits described in the Rules.
3. DEFINITIONS
In this Appendix the following words and expressions have the following
meanings:
"Contracted-out Employment" means a Member's contracted-out employment by
reference to the Scheme (as in Section 8(l)(a)(i) and 8(l)(b) of the
Pension Schemes Act);
"GMP" means the guaranteed minimum pension of a Member, Widow or Widower
as defined in the Pension Schemes Act;
"Protected Rights" has the same meaning as in Section 10 of the Pension
Schemes Act;
"Triviality Limit" means pound sterling 260 a year or such other amount
as may be prescribed from time to time under the Pension Schemes Act;
"Widow" and "Widower" means respectively the widow and the widower of a
Member. If a Member has married under a law which allows polygamy and, on
the day of the Member's death, has more than one spouse, the Trustees must
decide which, if any, survivor is the Widow or Widower. In reaching that
decision, the
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Trustees must have regard to the practice of the Department of Social
Security and any relevant provisions of existing Social Security
legislation, in particular Section 17(5) of the Pension Schemes Act and
Regulation 2 of the Social Security and Family Allowances (Polygamous
Marriages) Regulations 1975 (SI 1975/561).
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SECTION B
GMP RULES
CONTENTS
Rule Title
1. ENTITLEMENT TO GMP
1.1 Guaranteed Minimum
1.2 Member's GMP
1.3 Widow's GMP
1.4 Payment of Widow's GMP
1.5 Widower's GMP
1.6 Payment of Widower's GMP
2. REVALUATION OF GMP
2.1 Revaluation before Pensionable Age
3. INCREASE OF GMP
3.1 Increase after Pensionable Age
3.2 Increase after Pensionable Age or Member's death
4. ANTI-FRANKING
5. SUSPENSION OF GMP
6. FORFEITURE OF GMP
7. CONTRIBUTIONS EQUIVALENT PREMIUMS
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GMP RULES
1. ENTITLEMENT TO GMP
1.1 Guaranteed Minimum
This Rule 1 applies to a Member, Widow or Widower where the Member has a
guaranteed minimum in relation to the pension provided for the Member
under the Scheme in accordance with Section 14 of the Pension Schemes Act.
1.2 Members' GMP
The Member is entitled to a pension for life paid at a rate equivalent to
a weekly rate of not less than that guaranteed minimum. The pension will
be paid from Pensionable Age but commencement of the pension may be
postponed for any period during which the Member remains in employment
after Pensionable Age:
(1) if the employment is employment to which the Plan relates and the
postponement is not for more than 5 years after Pensionable Age;
or
(2) if the Member consents to the postponement.
1.3 Widow's GMP
Where the Member is a man and dies at any time leaving a Widow, she shall
be entitled, subject to 1.4 below, to receive a pension from the Scheme at
a rate equivalent to a weekly rate of not less that half that guaranteed
minimum.
1.4 Payment of Widow's GMP
The pension shall be payable to any Widow who is eligible for payment of a
State benefit as described in Section 17(5) of the Pension Schemes Act. It
shall cease when the Widow ceases to be entitled to receive payment of
those State benefits.
1.5 Widower's GMP
Where the Member is a woman and dies at any time on or after 6th April
1989 leaving a Widower, he shall be entitled, subject to 1.6 below, to
receive a pension from the Scheme paid at a rate equivalent to a weekly
rate of not less than half of that part of the guaranteed minimum which is
attributable to earnings for the tax year 1988/1989 and subsequent tax
years.
1.6 Payment or Widower's GMP
The pension shall be payable to any Widower who is eligible for
payment of a GMP under Regulation 57 of the Occupational Pension Schemes
(Contracting-out) Regulations 1996. It shall cease when the Widower ceases
to be entitled to receive payment of that GMP under those Regulations.
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2. REVALUATION OF GMP
2.1 Revaluation before Pensionable Age
Where a Member ceases to be in Contracted-out Employment before
Pensionable Age, the Member's GMP at Pensionable Age or at the Member's
earlier death will be calculated by increasing the accrued rights to GMP
at cessation of Contracted-out Employment under one of the options (A) and
(B) below.
(A) Section 148 Revaluation
The increase will be by the percentage by which earnings factors
for the tax year in which Contracted-out Employment ceases are
increased by the last order under Section 148 of the Social
Security Administration Act 1992 to come into force before the
tax year in which the Member reaches Pensionable Age (or dies,
if earlier).
(B) Fixed Rate Revaluation
The increase will be by the rate prescribed under Regulation 62
of the Occupational Pension Schemes (Contracting-out)
Regulations 1996 and applicable at the date Contracted-out
Employment ceases, for each complete tax year after the tax year
containing that date up to and including the last complete tax
year before the Member reaches Pensionable Age (or dies, if
earlier).
The Trustees and the Principal Employer shall decide which option applies
to the Scheme. They may at any time decide that the other method shall be
used, instead of the method currently being used, for all Members ceases
to be in Contracted-out Employment after a specified date. A different
method may apply where GMP liabilities are discharged by transfer to an
Insurance Office under Rule 26 of the Rules.
3. INCREASE OF GMP
3.1 Increase after Pensionable Age
If the commencement of any Member's GMP is postponed for any period after
Pensionable Age, that GMP shall be increased to the extent, if any,
specified in Section 15 of the Pension Schemes Act.
3.2 Increase after Pensionable Age or Member's Death
Any GMP to which a Member, Widow or Widower is entitled under Rule 1 above
shall, insofar as it is attributable to earnings in the tax years from and
including 1998/1989, be increased in accordance with the requirements of
Section 109 of the Pension Schemes Act.
4. ANTI-FRANKING
Except as provided in Section 87 to 92, 109, 129, 133 to 135, 153 and 181
of the Pension Schemes Act, no part of a Member's, Widow's or Widower's
pension under
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the Scheme may be used to frank an increase in the Member's, Widow's or
Widower's GMP under Rule 2 or Rule 3 above.
5. SUSPENSION OF GMP
Payment of GMP may be suspended during any period when the person
receiving the GMP is unable to act (by reason of mental disorder or
otherwise) but the amount of the GMP must either be paid or applied for
the maintenance of the recipient or his dependants, or paid to the
recipient when that recipient is again able to act, or paid to the
recipient's estate after that recipient's death.
6. FORFEITURE OF GMP
Any instalment of a GMP may be forfeited if it is not paid within six
years of the date on which the instalment became due and the Trustees do
not know the whereabouts of the recipient.
7. CONTRIBUTIONS EQUIVALENT PREMIUMS
If a Member has accrued rights to a GMP and receives a refund of
contributions under sub-Rule 18.2 of the Rules, the Trustees may discharge
the GMP liability by paying a contributions equivalent premium in
accordance with the Pension Schemes Act. Whether or not the premium is
paid, the amount of the refund shall be reduced by the certified amount of
the premium. The GMP liability shall be discharged without payment of the
premium if the amount of the premium would be less than pounds sterling
17 (or such other amount as may be prescribed under the Pension Schemes
Act).
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SECTION C
SECTI0N 9(2B) RIGHTS
1. MEANING OF SECTION 9(2B) RIGHTS
Section 9(2B) Rights are the rights to benefits under the Scheme which
accrue to or in respect of Member who has been notified that he is in
Contracted-out Employment on the basis described in this Section C. These
benefits are calculated in accordance with the Rules and payable to the
persons. at the times and subject to the terms and conditions, set out in
the Rules. They are also subject to the requirements of the Pension
Schemes Act.
2. ACTUARY'S CERTIFICATE
To enable a Member to be in Contracted-out Employment on the basis of
Section 9(2B) Rights, the Actuary must have given a certificate in
accordance with the actuarial guidance note "Retirement Benefit Schemes -
Adequacy of Benefits for Contracting-out on or after 6th April 1997
(GN28)" to the effect that the pensions payable to and in respect of the
percentage of Active Members who have Section 9(2B) Rights which is
mentioned in that actuarial guidance note are broadly equivalent to, or
better than, the pensions which would meet the statutory standard
described in Section 12A of the Pension Schemes Act.
3. CONTRIBUTIONS EQUIVALENT PREMIUMS
If a Member has Section 9(2B) Rights and receives a refund of
contributions under sub-Rule 18.2 of the Rules, the Trustees may pay a
contributions equivalent premium in accordance with the Pension Schemes
Act. The amount of the refund shall be reduced by the certified amount of
the premium. The Member shall then cease to have any Section 9(2B) Rights.
If the amount of the premium would be less than pound sterling 17 (or
such other amount as may be prescribed under the Pension Schemes Act) the
liability for Section 9(2B) Rights shall be discharged without payment of
the premium.
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SECTION D
OTHER CONTRACTING-OUT RULES
CONTENTS
Rule Title
1. COMMUTATION OF PENSION FOR CASH SUM
2. TRANSFERS TO THE SCHEME
3. TRANSFERS FROM THE SCHEME
4. AMENDMENTS
5. SCHEME CEASES TO BE A CONTRACTED-OUT SCHEME
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SECTION D
OTHER CONTRACTING-OUT RULES
1. COMMUTATION OF PENSION FOR CASH SUM
1.1 A Member's GMP and any pension derived from Protected Rights may not be
commuted under Rule 11 of the Rules except as stated in 1.2. 1.3 or 1.4
below.
1.2 The Trustees may commute a Member's pension which includes GMP or
Protected Rights for a cash sum where the pension would be below the
Triviality Limit. If the pension includes GMP, commutation may take place
before Pensionable Age only if the Member is retiring from Service or the
Scheme is being wound up and a state scheme premium has been (or is
treated as having been) paid. If the pension includes Protected Rights
commutation may take place; only between the Member's 60th and 65th
birthdays (or later than the 65th birthday with the Member's consent).
Otherwise the pension may be commuted when it would have come into payment
or at such other time as would not prejudice Approval.
1.3 Unless the Member has Protected Rights the Trustees may at the same time
as the commute the Member's pension under 1.2 above also commute any
pension prospectively payable on the Member's death and the cash sum may
be paid, as the Trustee decide, to the Member or to the person who would
otherwise have been entitled to the pension.
1.4 If a Member has died and a pension below the Triviality Limit is payable
on the Member's death the Trustees may commute it for a cash sum.
1.5 The rate of conversion of pension to a cash sum for the purpose of this
Rule must be certified as reasonable by the Actuary and must also be such
that the Secretary of State can be satisfied that it is reasonable.
2. TRANSFERS TO THE SCHEME
2.1 The Trustees may accept a transfer payment under Rule 28 which includes an
amount representing GMP, Protected Rights or Section 9(2B) Rights provided
that they comply with the relevant requirements of the Pension Schemes
Act. The Trustees must apply the transfer payment (or such part of it as
represents GMP, Protected Rights or Section 9(2B) Rights) in one of the
following ways:
(a) Transfer of GMP
The Trustees may accept the liability to pay the GMP or apply the
transfer to provide Protected Rights. If the Trustees accept the
liability to pay the GMP, they may decide to apply a basis of
revaluation other than Section 148 Revaluation during the Member's
Contracted-out Employment and the GMP Rules will apply if that
Contracted-out Employment subsequently ceases.
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(b) Transfer of Protected Rights
The Trustees may apply the transfer to provide Protected Rights or
Section 9(2B) Rights or, if the transfer is in respect of pre-6th
April 1997 Protected Rights, a GMP under the Scheme. Any GMP
provided will be revalued as described in (a) above.
(c) Transfer of Section 9(2B) Rights
The Trustees may apply the transfer to provide Section 9(2B)
Rights or Protected Rights under the Scheme.
2.2 If required under the Pension Schemes Act the Trustees must obtain the
consent of the person in respect of whom the transfer is made.
3. TRANSFERS FROM THE SCHEME
Where a transfer payment under Rule 25, Rule 26 or Rule 27 includes a
person's GMP, Protected Rights or Section 9(2B) Rights the Trustees must
comply with the relevant requirements of the Pension Schemes Act.
4. AMENDMENTS
The provisions of this Appendix may be amended in accordance with Clause 7
of the Trust Deed but any amendments must comply with Section 37 of the
Pension Schemes Act as long as that section is in force and applies to the
Scheme.
5. SCHEME CEASES TO BE A CONTRACTED-OUT SCHEME
If the Scheme ceases to be a contracted-out scheme the Trustees must make
arrangements in relation to GMPs, Protected Rights (if any) and Section
9(2B) Rights which comply with the requirements of Section 50 of the
Pension Schemes Act. The Trustees must also notify Members and other,
beneficiaries in the manner, and at the times, required by the Pension
Schemes Act. The Trustees may pay State Scheme Premiums in accordance
with the Pension Schemes Act. If State Scheme Premiums are paid or deemed
to have been paid, the Trustees shall reduce or adjust benefits in the
manner which they think appropriate, after consulting the Actuary, and
which complies with the requirements of the Pension Schemes Act.
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EXHIBIT 10.12
LAMINATES ACQUISITION CO. 1999
STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of Laminates
Acquisition Co. (the "Corporation"), or to increase such interest, by
purchasing Shares of the Corporation's Stock.
Capitalized terms are defined in Section 11.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more
members of the Board of Directors who have been appointed by the
Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned
to it. If no Committee has been appointed, the entire Board of
Directors shall administer the Plan. Any reference to the Board of
Directors in the Plan shall be construed as a reference to the
Committee (if any) to whom the Board of Directors has assigned a
particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion
to take any actions it deems necessary or advisable for the
administration of the Plan. All decisions, interpretations and other
actions of the Board of Directors shall be final and binding on all
Purchasers and all persons deriving their rights from a Purchaser.
SECTION 3. ELIGIBILITY.
Only Employees shall be eligible for the sale of Shares.
SECTION 4. STOCK SUBJECT TO PLAN.
Shares offered under the Plan may be authorized but unissued Shares
or treasury Shares.
SECTION 5. TERMS AND CONDITIONS.
(a) Stock Purchase Agreement. Each sale of Shares under the Plan shall be
evidenced by a Stock Purchase Agreement between the Purchaser and the
Corporation. Such sale shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and
conditions which are not inconsistent with the Plan and which the
Board
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of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase
Agreements entered into under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan shall automatically expire if not
exercised by the Purchaser within 30 days after the grant of such
right was communicated to the Purchaser by the Corporation. Such
right shall not be transferable and shall be exercisable only by the
Purchaser to whom such right was granted.
(c) Purchase Price. The Purchase Price shall be determined by the Board
of Directors at its sole discretion. The Purchase Price shall be
payable in a form described in Section 6.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such
purchase.
(e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Purchase
Agreement and shall apply in addition to any restrictions that may
apply to holders of Shares generally.
SECTION 6. PAYMENT FOR SHARES.
The entire Purchase Price of Shares issued under the Plan shall be
payable in cash or cash equivalents at the time when such Shares are purchased.
SECTION 7. CHANGES TO SHARES.
A Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class.
SECTION 8. SECURITIES LAW REQUIREMENTS.
(a) General. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from)
all applicable requirements of law, including (without limitation)
the Securities Act of 1933, as amended, the rules and regulations
promulgated
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thereunder, state securities laws and regulations, and
the regulations of any stock exchange or other securities market on
which the Corporation's securities may then be traded.
(b) Financial Reports. Upon request, the Corporation shall furnish to
Purchasers and stockholders who have received Stock under the Plan
Formica Corporation's balance sheet and income statement. Such
balance sheet and income statement need not be audited.
SECTION 9. NO RETENTION RIGHTS.
Nothing in the Plan or in any right granted under the Plan shall
confer upon the Purchaser any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Corporation (or any Parent or Subsidiary) employing or retaining the
Purchaser or of the Purchaser, which rights are hereby expressly reserved by
each, to terminate his or her Service at any time and for any reason, with or
without cause.
SECTION 10. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors. The
Plan shall terminate automatically 10 years after its adoption by the
Board of Directors and may be terminated on any earlier date pursuant
to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason.
(c) Effect of Amendment or Termination. No Shares shall be sold under the
Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Share previously issued.
SECTION 11. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(d) "Corporation" shall mean Laminates Acquisition Co., a Delaware
corporation.
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(e) "Employee" shall mean any individual who is a common-law employee of
the Corporation, a Parent or a Subsidiary.
(f) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such
determination shall be conclusive and binding on all persons.
(g) "Parent" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, if
each of the corporations other than the Corporation owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the
adoption of the Plan shall be considered a Parent commencing as of
such date.
(h) "Plan" shall mean this Laminates Acquisition Co. Stock Plan.
(i) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan, as specified by the Board of Directors.
(j) "Purchaser" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan.
(k) "Service" shall mean service as an Employee.
(l) "Share" shall mean one share of Stock.
(m) "Stock" shall mean the Common Stock of the Corporation, with a par
value of $0.01 per Share, and/or the Preferred Stock of the
Corporation, with a par value of $0.01 per Share.
(n) "Stock Purchase Agreement" shall mean the agreement between the
Corporation and a Purchaser who acquires Shares under the Plan which
contains the terms, conditions and restrictions pertaining to the
acquisition of such Shares.
(o) "Subsidiary" shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation,
if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of
a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
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SECTION 12. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Corporation has caused its authorized officer to execute the same.
LAMINATES ACQUISITION CO.
By:__________________________________
Title:_______________________________
EXHIBIT 10.13
LAMINATES ACQUISITION CO. 1999
STOCK PLAN:
STOCK PURCHASE AGREEMENT
SECTION 1. ACQUISITION OF SHARES.
(a) Transfer. On the terms and conditions set forth in the Summary of
Stock Purchase and this Agreement, the Corporation agrees to transfer
to the Purchaser the number of Shares set forth in the Summary of
Stock Purchase. The transfer shall occur at the offices of the
Corporation on the date of purchase set forth in the Summary of Stock
Purchase or at such other place and time as the parties may agree.
(b) Consideration. The Purchaser agrees to pay the Purchase Price set
forth in the Summary of Stock Purchase for each Purchased Share. The
Purchase Price is agreed to be at least 100% of the Fair Market Value
of the Purchased Shares. Payment shall be made on the transfer date
in cash or cash equivalents.
(c) Stock Plan and Defined Terms. The transfer of the Purchased Shares is
subject to the Plan, a copy of which the Purchaser acknowledges
having received. The provisions of the Plan are incorporated into
this Agreement by this reference. Capitalized terms are defined in
Section 12 of this Agreement.
SECTION 2. RIGHT OF REPURCHASE FOR PURCHASED SHARES.
(a) Scope of Repurchase Right. All Purchased Shares shall be subject to a
right (but not an obligation) of repurchase by the Corporation. The
Purchaser shall not transfer, assign, encumber or otherwise dispose
of any Purchased Shares, except as provided in the following
sentence. The Purchaser may transfer Purchased Shares (i) by
beneficiary designation, will or intestate succession or (ii) to the
Purchaser's spouse, children or grandchildren or to a trust
established by the Purchaser for the benefit of the Purchaser or the
Purchaser's spouse, children or grandchildren, provided in either
case that the Transferee agrees in writing on a form prescribed by
the Corporation to be bound by all provisions of this Agreement. If
the Purchaser transfers any Purchased Shares, then this Section 2
shall apply to the Transferee to the same extent as the Purchaser.
(b) Condition Precedent to Exercise. The Right of Repurchase for
Purchased Shares shall be exercisable at any time following the date
when
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the Purchaser's Service terminates for any reason, with or
without cause, including (without limitation) death or disability.
(c) Repurchase Cost. If the Corporation exercises the Right of Repurchase
for Purchased Shares, it shall pay the Purchaser an amount equal to
the Fair Market Value for each of the Purchased Shares being
repurchased.
(d) Exercise of Repurchase Right. The Right of Repurchase for Purchased
Shares shall be exercisable by written notice delivered to the
Purchaser. The notice shall set forth the date on which the
repurchase is to be effected. Such date shall not be more than 30
days after the date of the notice. The certificate(s) representing
the Purchased Shares to be repurchased shall, prior to the close of
business on the date specified for the repurchase, be delivered to
the Corporation properly endorsed for transfer. The Corporation
shall, concurrently with the receipt of such certificate(s), pay to
the Purchaser the Fair Market Value for each of the Purchased Shares
being repurchased. Payment shall be made in cash or cash equivalents.
(e) Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of any extraordinary
dividend payable in a form other than stock, a spin-off, a stock
split, an adjustment in conversion ratio, a recapitalization or a
similar transaction affecting the Corporation's outstanding
securities without receipt of consideration, any new, substituted or
additional securities or other property (including money paid other
than as an ordinary cash dividend) which are by reason of such
transaction distributed with respect to any Purchased Shares or into
which such Purchased Shares thereby become convertible shall
immediately be subject to the Right of Repurchase for Purchased
Shares. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of
the Purchased Shares.
(f) Termination of Rights as Stockholder. If the Company, makes
available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be
repurchased in accordance with this Section 2, then after such time
the person from whom such Purchased Shares are to be repurchased
shall no longer have any rights as a holder of such Purchased Shares
(other than the right to receive payment of such consideration in
accordance with this Agreement). Such Purchased Shares shall be
deemed to have been repurchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have
been delivered as required by this Agreement.
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(g) Escrow. Upon issuance, the certificates for Purchased Shares shall be
deposited in escrow with the Company to be held in accordance with
the provisions of this Agreement. Any new, substituted or additional
securities or other property described in Subsection (f) above shall
immediately be delivered to the Corporation to be held in escrow. All
regular cash dividends on Purchased Shares (or other securities at
the time held in escrow) shall be paid directly to the Purchaser and
shall not be held in escrow. Purchased Shares, together with any
other assets or securities held in escrow hereunder, shall be
surrendered to the Corporation for repurchase and cancellation upon
the Corporation's exercise of its Rights of Repurchase of Purchased
Shares.
SECTION 3. RIGHT OF REPURCHASE FOR RESTRICTED SHARES.
(a) Scope of Repurchase Right. All Restricted Shares shall be subject to
a right (but not an obligation) of repurchase by the Corporation.
(b) Condition Precedent to Exercise. The Right of Repurchase for
Restricted Shares shall be exercisable at any time following the date
when the Purchaser's Service terminates for any reason, with or
without cause, including (without limitation) death or disability.
(c) Lapse of Repurchase Right for Restricted Shares. The Right of
Repurchase for Restricted Shares contained in this Section 3 shall
lapse with respect to the Restricted Shares in accordance with the
vesting schedule set forth in the Summary of Stock Purchase .
(d) Repurchase Cost. If the Corporation exercises the Right of Repurchase
for Restricted Shares, it shall pay the Purchaser an amount equal to
the Purchase Price for each of the Restricted Shares being
repurchased.
(e) Exercise of Repurchase Right. The Right of Repurchase shall be
exercisable by written notice delivered to the Purchaser. The notice
shall set forth the date on which the repurchase is to be effected.
Such date shall not be more than 30 days after the date of the
notice. The certificate(s) representing the Restricted Shares to be
repurchased shall, prior to the close of business on the date
specified for the repurchase, be delivered to the Corporation
properly endorsed for transfer. The Corporation shall, concurrently
with the receipt of such certificate(s), pay to the Purchaser the
Purchase Price for each of the Restricted Shares being repurchased.
Payment shall be made in cash or cash equivalents.
(f) Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of any extraordinary
dividend payable in a form other than stock, a spin-off, a stock
split, an adjustment in conversion ratio, a recapitalization or a
similar transaction
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affecting the Corporation's outstanding securities without receipt of
consideration, any new, substituted or additional securities or other
property (including money paid other than as an ordinary cash
dividend) which are by reason of such transaction distributed with
respect to any Restricted Shares or into which such Restricted Shares
thereby become convertible shall immediately be subject to the Right
of Repurchase for Restricted Shares. Appropriate adjustments to
reflect the distribution of such securities or property shall be made
to the number and/or class of the Restricted Shares. Appropriate
adjustments shall also, after each such transaction, be made to the
price per share to be paid upon the exercise of the Right of
Repurchase for Restricted Shares in order to reflect any change in
the Corporation's outstanding securities effected without receipt of
consideration therefor; provided, however, that the aggregate
purchase price payable for the Restricted Shares shall remain the
same.
(g) Termination of Rights as Stockholder. If the Company, makes
available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Restricted Shares to be
repurchased in accordance with this Section 3, then after such time
the person from whom such Restricted Shares are to be repurchased
shall no longer have any rights as a holder of such Restricted Shares
(other than the right to receive payment of such consideration in
accordance with this Agreement). Such Restricted Shares shall be
deemed to have been repurchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have
been delivered as required by this Agreement.
(h) Escrow. Upon issuance, the certificates for Restricted Shares shall
be deposited in escrow with the Company to be held in accordance with
the provisions of this Agreement. Any new, substituted or additional
securities or other property described in Subsection (f) above shall
immediately be delivered to the Corporation to be held in escrow. All
regular cash dividends on Restricted Shares (or other securities at
the time held in escrow) shall be paid directly to the Purchaser and
shall not be held in escrow. Restricted Shares, together with any
other assets or securities held in escrow hereunder, shall be
surrendered to the Corporation for repurchase and cancellation upon
the Corporation's exercise of its Rights of Repurchase for Restricted
Shares.
SECTION 4. OTHER RESTRICTIONS ON TRANSFER.
(a) Purchaser Representations. In connection with the issuance and
acquisition of Shares under this Agreement, the Purchaser hereby
represents and warrants to the Corporation as follows:
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i. The Purchaser is acquiring and will hold the Purchased Shares
for investment for his or her account only and not with a view
to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
ii. The Purchaser understands that the Purchased Shares have not
been registered under the Securities Act by reason of a specific
exemption therefrom and that the Purchased Shares must be held
indefinitely, unless they are subsequently registered under the
Securities Act or the Purchaser obtains an opinion of counsel,
in form and substance satisfactory to the Corporation and its
counsel, that such registration is not required. The Purchaser
further acknowledges and understands that the Corporation is
under no obligation to register the Purchased Shares.
iii. The Purchaser is aware of the adoption of Rule 144 by the
Securities and Exchange Commission under the Securities Act,
which permits limited public resales of securities acquired in a
non-public offering, subject to the satisfaction of certain
conditions, including (without limitation) the availability of
certain current public information about the issuer, the resale
occurring only after the holding period is required by Rule 144
has been satisfied, the sale occurring through an unsolicited
"broker's transaction", and the amount of securities being sold
during any three-month period not exceeding specified
limitations. The Purchaser acknowledges and understands that the
conditions for resale set forth in Rule 144 have not been
satisfied and that the Corporation has no plans to satisfy these
conditions in the foreseeable future.
iv. The Purchaser will not sell, transfer or otherwise dispose of
the Purchased Shares in violation of the Securities Act, the
Securities Exchange Act of 1934, or the rules promulgated
thereunder, including Rule 144 under the Securities Act. The
Purchaser agrees that he or she will not dispose of the
Purchased Shares unless and until he or she has complied with
all requirements of this Agreement applicable to the disposition
of Purchased Shares and he or she has provided the Corporation
with written assurances, in substance and form satisfactory to
the Corporation, that (A) the proposed disposition does not
require registration of the Purchased Shares under the
Securities Act or all appropriate action necessary for
compliance with the registration requirements of the Securities
Act or with any exemption from registration available under the
Securities Act (including Rule 144) had been taken and (B) the
proposed disposition will not result in the contravention of any
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transfer restrictions applicable to the Purchased Shares under
the Rules of the California Corporations Commissioner.
v. The Purchaser has been furnished with, and has had access to,
such information as he or she considers necessary or appropriate
for deciding whether to invest in the Purchased Shares, and the
Purchaser has had an opportunity to ask questions and receive
answers from the Corporation regarding the terms and conditions
of the issuance of the Purchased Shares.
vi. The Purchaser is aware that his or her investment in the
Corporation is a speculative investment which has limited
liquidity and is subject to the risk of complete loss. The
Purchaser is able, without impairing his or her financial
condition, to hold the Purchased Shares for an indefinite period
and to suffer a complete loss of his or her investment in the
Purchased Shares.
(b) Securities Law Restrictions. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the
Securities Act or have been registered or qualified under the
securities laws of any state, the Corporation at its discretion may
impose restrictions upon the sale, pledge or other transfer of the
Purchased Shares (including the placement of appropriate legends on
stock certificates or the imposition of stop-transfer instructions)
if, in the judgment of the Corporation, such restrictions are
necessary or desirable in order to achieve compliance with the
Securities Act, the securities laws of any state or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the
Corporation's initial public offering, the Purchaser shall not
directly or indirectly sell, make any short sale of, loan,
hypothecate, pledge, offer, grant or sell any option or other
contract for the purchase of, purchase any option or other contract
for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any
Purchased Shares without the prior written consent of the Corporation
or its underwriters. Such restrictions (the "Market Stand-Off") shall
be in effect for such period of time following the date of final
prospectus for the offering as may be requested by the Corporation or
such underwriters. In no event, however, shall such period exceed 180
days. The Market Stand-Off shall in any event terminate two years
after the date of the Corporation's initial public offering. In the
event of the declaration of a stock dividend, a spin-off, a stock
split, an adjustment in conversion ratio, a recapitalization or a
similar transaction affecting the Corporation's outstanding
securities without receipt of consideration, any new, substituted or
additional securities which are by reason of such transaction
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distributed with respect to any Shares subject to the Market
Stand-Off, or into which such Shares thereby become convertible,
shall immediately be subject to the Market Stand-Off. In order to
enforce the Market Stand-Off, the Corporation may impose
stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period. The Corporation's
underwriters shall be beneficiaries of the agreement set forth in
this Subsection (c). This Subsection (c) shall not apply to Shares
registered in the public offering under the Securities Act, and the
Purchaser shall be subject to this Subsection (c) only if the
directors and officers of the Corporation are subject to similar
arrangements.
(d) Rights of the Corporation. The Corporation shall not be required to
(i) transfer on its books any Purchased Shares that have been sold or
transferred in contravention of this Agreement or (ii) treat as the
owner of Purchased Shares, or otherwise to accord voting, dividend or
liquidation rights to, any transferee to whom Purchased Shares have
been transferred in contravention of this Agreement.
SECTION 5. SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided to the contrary, the
provisions of this Agreement shall inure to the benefit of, and be binding
upon, the Corporation and its successors and assigns and be binding upon the
Purchaser and the Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person has become a party to this Agreement or has agreed in writing to
join herein and to be bound by the terms, conditions and restrictions hereof.
SECTION 6. NO RETENTION RIGHTS.
Nothing in this Agreement or in the Plan shall confer upon the
Purchaser any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining the Purchaser)
or of the Purchaser, which rights are hereby expressly reserved by each, to
terminate his or her Service at any time and for any reason, with or without
cause.
SECTION 7. TAX ELECTION.
The acquisition of the Purchased Shares may result in adverse tax
consequences that may be avoided or mitigated by filing an election under Code
Section 83(b). Such election may be filed only within 30 days after the date of
purchase set forth in the Summary of Stock Purchase. The form for making the
Code Section 83(b) election is attached to this Agreement as an Exhibit. The
Purchaser should consult with his or her tax advisor to determine the tax
consequences of acquiring the Purchased Shares and the advantages and
disadvantages of filing the Code Section 83(b) election. The Purchaser
acknowledges that it is his or her sole responsibility, and
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not the Corporation's, to file a timely election under Code Section 83(b), even
if the Purchaser requests the Corporation or its representatives to make this
filing on his or her behalf.
SECTION 8. LEGENDS.
All certificates evidencing Purchased Shares shall bear the following
legends:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO
THE CORPORATION CERTAIN RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS
UPON TERMINATION OF SERVICE WITH THE CORPORATION. THE SECRETARY
OF THE CORPORATION WILL UPON WRITTEN REQUEST FURNISH A COPY OF
SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
If required by the authorities of any state in connection with the issuance of
the Purchased Shares, the legend or legends required by such state authorities
shall also be endorsed on all such certificates.
SECTION 9. NOTICE.
Any notice required by the terms of this Agreement shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit
with the United States Postal Service, by registered or certified mail, with
postage and fees prepaid. Notice shall be addressed to the
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Corporation at its principal executive office and to the Purchaser at the
address that he or she most recently provided to the Corporation.
SECTION 10. ENTIRE AGREEMENT.
The Summary of Stock Purchase, this Agreement and the Plan constitute
the entire contract between the parties hereto with regard to the subject
matter hereof. They supercede any other agreements, representations or
understandings (whether oral or written and whether express or implied) which
relate to the subject matter hereof.
SECTION 11. CHOICE OF LAW.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without application of the conflicts
of law principles thereof), as such laws are applied to contracts entered into
and performed in such State.
SECTION 12. DEFINITIONS.
(a) "Agreement" shall mean this Stock Purchase Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted from time to time or, if a Committee has
been appointed, such Committee.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean a committee of the Board of Directors, as
decribed in Section 2 of the Plan.
(e) "Corporation" shall mean Laminates Acquisition Co., a Delaware
corporation.
(f) "Employee" shall mean any individual who is a common-law employee of
the Corporation, a Parent or a Subsidiary.
(g) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such
determination shall be conclusive and binding on all persons.
(h) "Parent" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending
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with the Corporation, if each of the corporations other than the
Corporation owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations
in such chain.
(i) "Plan" shall mean the Laminates Acquisition Co. 1999 Stock Plan, as
amended.
(j) "Purchased Shares" shall mean the Shares purchased by the Purchaser
pursuant to this Agreement.
(k) "Purchase Price" shall mean the amount for which one Share may be
purchased pursuant to this Agreement, as specified in the Summary of
Stock Purchase.
(l) "Purchaser" shall mean the individual named in the Summary of Stock
Purchase.
(m) "Restricted Share" shall mean a Purchased Share that is subject to
vesting requirements.
(n) "Right of Repurchase for Purchased Shares" shall mean the
Corporation's right of repurchase described in Section 2.
(o) "Right of Repurchase for Restricted Shares" shall mean the
Corporation's right of repurchase described in Section 3.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended.
(q) "Service" shall mean service as an Employee.
(r) "Share" shall mean one share of Stock.
(s) "Stock" shall mean the Common Stock of the Corporation, with a par
value of $0.01 per Share, and/or the Preferred Stock of the
Corporation, with a par value of $0.01 per Share.
(t) "Subsidiary" shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation,
if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total
combined voting
10
<PAGE>
power of all classes of stock in one of the other corporations in
such chain.
(u) "Summary of Stock Purchase" shall mean the document so entitled to
which this Agreement is attached.
(v) "Transferee" shall mean any person to whom the Purchaser has directly
or indirectly transferred any Purchased Share.
(w) "Transfer Notice" shall mean the notice of a proposed transfer of
Purchased Shares described in Section 3.
<TABLE>
EXHIBIT 12.1
FORMICA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio data)
Eleven Four Two Eight Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
12/31/94 12/31/95 12/31/96 12/31/97 4/30/98 6/30/98 12/31/98 6/30/99
-------- -------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (Loss) from continuing operations
before income taxes per statement of
operations $ 8.7 (32.3) (22.9) (504.6) (14.6) (2.5) (19.5) (11.2)
Add:
Portion of rents representative
of the interest factor 2.5 2.6 2.5 2.6 0.8 0.4 1.8 1.2
Interest on indebtedness and
amortization of debt expense 46.4 31.7 10.6 3.1 1.7 5.5 25.7 19.0
---- ---- ---- ----- ---- ---- ---- ----
Income as adjusted $ 57.6 2.0 (9.8) (498.9) (12.1) 3.4 8.0 9.0
==== ==== ==== ===== ==== ==== ==== ====
Fixed charges:
Interest on indebtedness and
amortization of debt expense (1) 46.4 31.7 10.6 3.1 1.7 5.5 25.7 19.0
---- ---- ---- ----- ---- ---- ---- ----
Capitalized interest (2) -- -- 0.2 1.3 -- -- -- --
---- ---- ---- ----- ---- ---- ---- ----
Rents 7.6 7.8 7.6 7.8 2.4 1.2 5.3 3.8
Portion of rents representative
of the interest factor (3) 2.5 2.6 2.5 2.6 0.8 0.4 1.8 1.2
---- ---- ---- ----- ---- ---- ---- ----
Fixed charges (1)+(2)+(3) $ 48.9 34.3 13.3 7.0 2.5 5.9 27.5 20.2
==== ==== ==== ===== ==== ==== ==== ====
Ratio of earnings to fixed charges 1.2 -- -- -- -- -- -- --
==== ==== ==== ===== ==== ==== ==== ====
</TABLE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Roseland, New Jersey
August 6, 1999
Exhibit 23.3
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated May 7, 1998 (except for Note 3 - "Reclassifications" as
to which the date is March 3, 1999) with respect to the consolidated financial
statements as of December 31, 1997 and for each of the two years in the period
then ended and with respect to the Financial Statement Schedule as of December
31, 1997 and 1996 and for each of the two years in the period ended December 31,
1997 included in Amendment No. 2 to the Registration Statement (Form S-1
No. 333-76683) of Formica Corporation dated August 9, 1999.
/s/ Ernst & Young, LLP
White Plains, NY
August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 814241
<NAME> Formica Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 8-MOS 4-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-1-1999 MAY-1-1998 JAN-1-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998 APR-30-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 7,200 31,600 0
<SECURITIES> 0 0 0
<RECEIVABLES> 92,800 69,100 0
<ALLOWANCES> 4,200 4,200 0
<INVENTORY> 129,000 110,300 0
<CURRENT-ASSETS> 251,100 229,800 0
<PP&E> 313,100 305,900 0
<DEPRECIATION> 25,400 17,200 0
<TOTAL-ASSETS> 707,500 696,800 0
<CURRENT-LIABILITIES> 126,200 115,300 0
<BONDS> 319,900 295,900 0
0 0 0
0 0 0
<COMMON> 100 100 0
<OTHER-SE> 94,800 119,700 0
<TOTAL-LIABILITY-AND-EQUITY> 707,500 696,800 0
<SALES> 294,600 371,400 178,300
<TOTAL-REVENUES> 294,600 371,400 178,300
<CGS> 209,900 266,200 131,100
<TOTAL-COSTS> 209,900 266,200 131,100
<OTHER-EXPENSES> 78,500 103,500 60,900
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 19,000 25,700 1,700
<INCOME-PRETAX> (11,200) (19,500) (14,600)
<INCOME-TAX> 1,900 2,800 0
<INCOME-CONTINUING> (13,100) (22,300) (14,600)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (13,100) (22,300) (14,600)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 814241
<NAME> Formica Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 2-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1996 MAY-1-1998
<PERIOD-END> DEC-31-1997 DEC-31-1996 JUN-30-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 27,200 26,300 22,100
<SECURITIES> 0 0 0
<RECEIVABLES> 69,900 76,100 79,600
<ALLOWANCES> 1,500 1,400 4,200
<INVENTORY> 119,000 112,600 114,300
<CURRENT-ASSETS> 243,400 234,200 222,700
<PP&E> 333,200 289,100 286,500
<DEPRECIATION> 53,200 34,200 6,800
<TOTAL-ASSETS> 647,700 1,136,800 689,300
<CURRENT-LIABILITIES> 176,800 174,700 153,800
<BONDS> 11,400 3,100 284,000
0 0 0
0 0 0
<COMMON> 100 100 100
<OTHER-SE> 343,300 870,660 116,600
<TOTAL-LIABILITY-AND-EQUITY> 647,700 1,136,800 689,300
<SALES> 533,400 521,600 98,300
<TOTAL-REVENUES> 533,400 521,600 98,300
<CGS> 350,100 348,300 67,600
<TOTAL-COSTS> 350,100 348,300 67,600
<OTHER-EXPENSES> 686,600 186,700 28,100
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,100 10,600 5,500
<INCOME-PRETAX> (504,600) (22,900) (2,500)
<INCOME-TAX> 200 5,000 0
<INCOME-CONTINUING> (504,800) (27,900) (2,500)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (504,800) (27,900) (2,500)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
