As filed with the Securities and Exchange Commission on July 19, 1999
Registration No. 333-76683
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Amendment No. 1 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>
107/8% Series B Senior
Subordinated Notes due 2009...... $215,000,000 100% $215,000,000 $59,770
========================================================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee.
(2) Previously paid on April 21, 1999.
</TABLE>
-----------------------
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 107/8% Series B Senior Subordinated
Notes due 2009 of Formica Corporation that may be exchanged for equal principal
amounts of Formica's outstanding 107/8% 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.
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<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 JULY 19, 1999
PROSPECTUS
Formica Corporation
Offer to Exchange
up to $215,000,000 of our
107/8% Series A Senior Subordinated Notes Due 2009 for
up to $215,000,000 of our
107/8% 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
107/8% Series B Senior Subordinated Notes due 2009, which have been registered
under the Securities Act of 1933 for our existing 107/8% 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 March 31, 1999, we had approximately $85.0
million of outstanding senior indebtedness and our subsidiaries had $144.4
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. We
refer to ourselves as "Formica","we," "us", "ourselves" or "our company."
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered......................... We are offering up to $215,000,000 aggregate principal
amount of 107/8% 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.
</TABLE>
2
<PAGE>
You should consider the following securities laws in considering whether to
exchange old notes in the exchange offer
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 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 unless you are a broker dealer receiving notes for your own account,
you do not have any arrangement or understanding with any person to
participate in the distribution of the new notes; and
o unless you are a broker-dealer receiving notes for your own account,
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.
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<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 March 31, 1999, we had outstanding
approximately $85.0 million of senior
indebtedness, and our subsidiaries had $144.4
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:
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<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
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<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. 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, (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)
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<PAGE>
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 lower- margin, yet still
profitable, accounts and (6) a change in the emphasis of our design program.
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
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:
<TABLE>
Cost Savings Estimated
reflected in 1999 Annual
year ended Cost Savings
December 31, Compared to
1998 1997 Levels
------------ ------------
($ in millions)
<S> <C> <C>
Excess Advertising & Sales Promotion/Other Selling & Administrative Expenses............ $ 10.5 $ 18.0
Flooring................................................................................ 5.5 6.0
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<PAGE>
Cost Savings Estimated
reflected in 1999 Annual
year ended Cost Savings
December 31, Compared to
1998 1997 Levels
------------ ------------
($ in millions)
<S> <C> <C>
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
=========== ============
</TABLE>
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, 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.
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<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, the three months ended March 31,
1998 and the four months ended April 30, 1998.
o summary historical financial data for Formica for the eight months
ended December 31, 1998 and the three months ended March 31, 1999.
o summary pro forma financial data for the year ended December 31, 1998
and for the three months ended March 31, 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 three months ended March 31,
1998 and 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>
Pre-BTR
Formica BTR-owned Formica
--------- ----------------------------------------------------------------
Eleven Four
Year Months Three Months
Ended Ended Months Ended
December December Years Ended Ended April
31, 31, December 31, March 31, 30,
-------- -------- --------- ------- ---------- ---------
1994 1995 1996 1997 1998 1998
-------- -------- --------- ------- ---------- ---------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............ $489.2 $468.2 $521.6 $533.4 $131.8 $178.3
Cost of products sold 341.8 324.0 348.3 350.1 94.0 131.1
------ ------ ------ ------ ------ ------
Gross profit......... 147.4 144.2 173.3 183.3 37.8 47.2
Selling, general and
administrative
expenses............ 108.5 145.2 186.7 202.2 42.9 60.9
Cost of terminated
acquisition......... -- -- -- -- -- --
Goodwill
impairment
charge(1)........... -- -- -- 484.4 -- --
------ ------ ------ ------ ------ ------
Operating income
(loss).............. 38.9 (1.0) (13.4) (503.3) (5.1) (13.7)
Interest expense(2).. (46.4) (31.7) (10.6) (3.1) (1.3) (1.7)
Formica Pro Forma
--------------------------- -----------------------------------
Eight Three
Months Months Year Three
Ended Ended Ended Months
December March December Ended
31, 31, 31, March 31,
-------- ------- ---------- -------------------
1998 1999 1998 1998 1999
-------- ------- ---------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............ $371.4 $139.2 $549.7 $131.8 $139.2
Cost of products sold 266.2 98.7 397.3 94.0 98.7
------ ------ ------ ------ ------
Gross profit......... 105.2 40.5 152.4 37.8 40.5
Selling, general and
administrative
expenses............ 100.5 39.9 164.6 45.3 39.9
Cost of terminated
acquisition......... 3.0 -- 3.0 -- --
Goodwill
impairment
charge(1)........... -- -- -- -- --
------ ------ ------ ------ ------
Operating income
(loss).............. 1.7 0.6 (15.2) (7.5) 0.6
Interest expense(2).. (25.7) (10.4) (35.5) (8.7) (8.6)
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<PAGE>
Pre-BTR
Formica BTR-owned Formica
--------- -----------------------------------------------------------------
Eleven Four
Year Months Three Months
Ended Ended Months Ended
December December Years Ended Ended April
31, 31, December 31, March 31, 30,
-------- -------- --------- ------- ---------- ----------
1994 1995 1996 1997 1998 1998
-------- -------- --------- ------- ---------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Other income......... 16.2 0.4 1.1 1.8 0.6 0.8
------ ------ ------ ------ ------ ------
Income (loss)
before income
taxes............... 8.7 (32.3) (22.9) (504.6) (5.8) (14.6)
Income tax
(provision)
benefit............. 7.0 5.8 (5.0) (0.2) -- --
------ ------ ------ ------ ------ ------
Net income
(loss)(3)........... $15.7 $(26.5) $(27.9) $(504.8) $(5.8) $(14.6)
====== ====== ====== ====== ====== ======
Other Data:
EBITDA:
Net Income.......... $15.7 $(26.5) $(27.9) $(504.8) $(5.8) $(14.6)
Interest expense.... 46.4 31.7 10.6 3.1 1.3 1.7
Income tax
expense
(benefit).......... (7.0) (5.8) 5.0 0.2 -- --
Depreciation and
Amortization....... 23.9 37.3 52.1 55.7 8.5 11.1
Goodwill
impairment
charge............. -- -- -- 484.4 -- --
Non-recurring
gain on
license sale....... (7.6) -- -- -- -- --
EBITDA(4).......... $71.4 $ 36.7 $ 39.8 $ 38.6 $ 4.0 $ (1.8)
1998 Charges......... -- -- -- -- -- 5.7
Adjusted
EBITDA
(4)............... $71.4 $ 36.7 $ 39.8 $ 38.6 $ 4.0 $ 3.9
Adjusted EBITDA
Margin............. 14.6% 7.8% 7.6% 7.2% 3.0% 2.2%
Net cash provided
by (used in):
Operating
activities........ (5.6) (9.9) $ 1.5 $ 5.7 $(9.2) $(11.7)
Investing
activities........ (17.5) (27.5) (44.5) (46.5) (6.2) (8.3)
Financing
activities........ 35.2 28.5 56.5 47.1 5.2 (0.1)
Depreciation and
amortization........ $23.9 $37.3 52.1 55.7 8.5 11.1
Capital expenditures. 17.5 27.5 44.5 46.5 6.2 8.3
Ratio of earnings to
fixed charges(6).... 1.20 -- -- -- -- --
Formica Pro Forma
--------------------------- -----------------------------------
Eight Three
Months Months Year Three
Ended Ended Ended Months
December March December Ended
31, 31, 31, March 31,
-------- ------- ---------- -------------------
1998 1999 1998 1998 1999
-------- ------- ---------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Other income......... 4.5 1.5 5.3 0.6 1.5
------ ------ ------ ------ ------
Income (loss)
before income
taxes............... (19.5) (8.3) (45.4) (15.6) (6.5)
Income tax
(provision)
benefit............. (2.8) (1.2) (2.8) -- (1.2)
------ ------ ------ ------ ------
Net income
(loss)(3)........... $(22.3) $(9.5) $(48.2) $(15.6) $(7.7)
====== ====== ====== ====== ======
Other Data:
EBITDA:
Net Income.......... $(22.3) $(9.5) $(48.2) $(15.6) $(7.7)
Interest expense.... 25.7 10.4 35.5 8.7 8.6
Income tax
expense
(benefit).......... 2.8 1.2 2.8 -- 1.2
Depreciation and
Amortization....... 29.3 11.2 43.6 10.9 11.2
Goodwill
impairment
charge............. -- -- -- -- --
Non-recurring
gain on
license sale....... -- -- -- -- --
EBITDA(4).......... $ 35.5 $ 13.3 33.7 4.0 13.3
1998 Charges......... 10.8(5) -- $16.5 -- --
Adjusted
EBITDA
(4)............... $46.3 $13.3 $50.2 $4.0 $13.3
Adjusted EBITDA
Margin............. 12.5% 9.6% 9.1% 3.0% 9.6%
Net cash provided
by (used in):
Operating
activities........ $ 26.7 $(14.9) -- -- --
Investing
activities........ (35.5) (19.7) -- -- --
Financing
activities........ 33.0 6.5 -- -- --
Depreciation and
amortization........ 29.3 11.2 $43.6 $10.9 $11.2
Capital expenditures. 35.5 14.2 43.8 6.2 14.2
Ratio of earnings to
fixed charges(6).... -- -- -- -- --
</TABLE>
As of
March 31, 1999
--------------
Historical
--------------
(in millions)
--------------
Balance Sheet Data (End of Period):
Working capital............................. $119.7
Total assets................................ 693.5
Net debt, net of cash and cash equivalents.. 328.5
Stockholder's equity........................ 100.9
- ---------
(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.
11
<PAGE>
(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 eight months ended December 31, 1998, the three months ended March 31,
1998 and 1999 and pro forma for the year ended December 31, 1998 and the
three months ended March 31, 1998 and 1999 interest income was $0.4, $0.5,
$1.0, $1.1, $0.3, $1.1, $0.2, $0.2, $1.4, $0.2 and $0.2, 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 and the eight months ended December 31, 1998 represents
EBITDA excluding $5.7 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 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 three months
ended March 31, 1998, the four months ended April 30, 1998, the eight
months ended December 31, 1998 and the three months ended March 31, 1999,
earnings were insufficient to cover fixed charges by $32.3, $23.1, $505.9,
$5.8, $14.6, $19.5, and 8.3, respectively. On a pro forma basis, earnings
were insufficient to cover fixed charges by $45.4, 15.6 and $6.5 for the
year ended December 31, 1998 and the three months ended March 31, 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
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 three months ended
March 31, 1999, earnings would have been insufficient to cover fixed charges by
approximately $45.4 million and $6.5 million respectively. As of March 31, 1999
we had (1) total consolidated indebtedness of approximately $331.4 million and
(2) approximately $91.8 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 may adversely
affect us
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."
14
<PAGE>
Your notes rank junior to 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 March 31, 1999, we had approximately $85.0 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 March 31, 1999, our subsidiaries had outstanding $144.4 million of
indebtedness and other liabilities, including trade payables but excluding
intercompany obligations and guarantees of the new credit facility
We may not be able to repurchase your notes upon a change of control
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 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.
14
<PAGE>
Fraudulent transfer statutes may limit your rights as a noteholder
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 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 impact your ability
to sell 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,
15
<PAGE>
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
Our cost-cutting strategy may not be successful and may 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 acquisition growth strategy is risky
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 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
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.
16
<PAGE>
We are controlled by a small group of shareholders, and 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 operations expose us to additional risks
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
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
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
17
<PAGE>
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; 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
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 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
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."
In 1996 we commenced a systems implementation project to address the Year 2000
Problem and other operational issues. Utilizing both internal and external
resources, we have defined and assessed the requirements of the project, and
are in the process of converting and replacing various programs, hardware and
instrumentation systems to make them Year 2000 compatible. We are approximately
75% complete with the implementation phase of the project. As of December 31,
1998, project costs totalled approximately $19.0 million. We currently expect
the project to be substantially completed by the fall of 1999 and to cost
approximately $25.0 million.
Our plans to complete the Year 2000 modifications are based on our best
estimates, which are based on numerous assumptions about future events,
including the continued availability of various resources and other
18
<PAGE>
factors. Estimates on the status of completion and the expected completion
dates are based on the level of effort incurred to date to total expected staff
effort. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
You may not be able to rely on forward-looking statements
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;
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.
19
<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 March 31, 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."
<TABLE>
March 31,
1999
----------
Historical
----------
(in millions)
<S> <C>
Cash and cash equivalents..................... $ 2.9
======
Long term debt, including current portion:
New credit facility revolving loans (1)..... $ 0.0
New credit facility term loan............... 85.0
Senior subordinated notes................... 215.0
Other debt.................................. 31.4
------
Total debt................................. 331.4
Total stockholder's equity.................... 100.9
------
Total capitalization.......................... $432.3
======
- ---------
(1) We have a total commitment for borrowings of $120.0 million under our new
credit facility. Approximately $28.2 million has been used as of March 31,
1999, to obtain letters of credit to provide credit enhancement for some
assumed indebtedness. See "Description of New Credit Facility."
</TABLE>
20
<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, the
three months ended March 31, 1998 and the four month period ended
April 30, 1998;
o after our acquisition by Laminates for the eight month period ended
December 31, 1998 and for the three months ended March 31, 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 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 have been derived from the
audited consolidated financial statements of BTR-owned Formica. The historical
financial data for the four months ended April 30, 1998 and for the eight
months ended December 31, 1998 have been derived from our audited consolidated
financial statements. The historical financial data for the three months ended
March 31, 1998 and 1999 have been derived from our unaudited financial data.
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>
Pre-BTR
Formica BTR-owned Formica Formica
--------- ---------------------------------------------------------- ------------------------
Eleven Four Eight Three
Year Months Three Months Months Months
Ended Ended Months Ended Ended Ended
December December Years Ended Ended April December March
31 31, December 31, March 31, 30, 31, 31,
--------- -------- --------------------- --------- ------ --------- -------
1994 1995 1996 1997 1998 1998 1998 1999
--------- -------- -------- ------- --------- ------ --------- -------
(dollars in millions)
Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $489.2 $ 468.2 $ 521.6 $ 533.4 $131.8 $178.3 $371.4 $139.2
Cost of products sold 341.8 324.0 348.3 350.1 94.0 131.1 266.2 98.7
------ -------- -------- -------- ------ ------ ------ ------
Gross profit......... 147.4 144.2 173.3 183.3 37.8 47.2 105.2 40.5
Selling, general
and adminis-
trative expenses... 108.5 145.2 186.7 202.2 42.9 60.9 100.5 39.9
Cost of terminated
acquisition........ -- -- -- -- -- -- 3.0 --
Goodwill
impairment
charge(1)........... -- -- -- 484.4 -- -- -- --
------ -------- -------- -------- ------ ------ ------ ------
Operating income
(loss)............. 38.9 (1.0) (13.4) (503.3) (5.1) (13.7) 1.7 0.6
Interest expense(2).. (46.4) (31.7) (10.6) (3.1) (1.3) (1.7) (25.7) (10.4)
Other income......... 16.2 0.4 1.1 1.8 0.6 0.8 4.5 1.5
------ -------- -------- -------- ------ ------ ------ ------
Income (loss)
before income
taxes.............. 8.7 (32.3) (22.9) (504.6) (5.8) (14.6) (19.5) (8.3)
Income tax
(provision)
benefit............ 7.0 5.8 (5.0) (0.2) -- -- (2.8) (1.2)
------ -------- -------- -------- ------ ------ ------ ------
Net income
(loss)(3)......... $ 15.7 $ (26.5) $ (27.9) $ (504.8) $ (5.8) $(14.6) $(22.3) $ (9.5)
====== ======== ======== ======== ====== ====== ====== ======
21
<PAGE>
Pre-BTR
Formica BTR-owned Formica Formica
--------- ---------------------------------------------------------- ------------------------
Eleven Four Eight Three
Year Months Three Months Months Months
Ended Ended Months Ended Ended Ended
December December Years Ended Ended April December March
31 31, December 31, March 31, 30, 31, 31,
--------- -------- --------------------- --------- ------ --------- -------
1994 1995 1996 1997 1998 1998 1998 1999
--------- -------- -------- ------- --------- ------ --------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Data:
EBITDA:
Net Income......... $ 15.7 $ (26.5) $ (27.9) $ (504.8) $ (5.8) $(14.6) $(22.3) $ (9.5)
Interest expense... 46.4 31.7 10.6 3.1 1.3 1.7 25.7 10.4
Income tax
expense
(benefit).......... (7.0) (5.8) 5.0 0.2 -- -- 2.8 1.2
Depreciation and
Amortization....... 23.9 37.3 52.1 55.7 8.5 11.1 29.3 11.2
Goodwill
impairment
charge............. -- -- -- 484.4 -- -- -- --
Non-recurring
gain on license
sale............... (7.6) -- -- -- -- -- -- --
EBITDA(4)........ $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ 4.0 $ (1.8) $ 35.5 $ 13.3
1998 Charges......... -- -- -- -- -- 5.7(5) 10.8(5) --
Adjusted
EBITDA
(4)............ $ 71.4 $ 36.7 $ 39.8 $ 38.6 $ 4.0 $3.9 $ 46.3 $ 13.3
Adjusted EBITDA
Margin............. 14.6% 7.8% 7.6% 7.2% 3.0% 2.2% 12.5% 9.6%
Net cash provided
by (used in):
Operating
activities....... (5.6) 9.9 $ 1.5 $ 5.7 $ (9.2) $(11.7) $ 26.7 $(14.9)
Investing
activities....... (17.5) (27.5) (44.5) (46.5) (6.2) (8.3) (35.5) (19.7)
Financing
activities....... 35.2 28.5 56.5 47.1 5.2 (0.1) 33.0 6.5
Depreciation and
amortization....... $ 23.9 $ 37.3 52.1 55.7 8.5 11.1 29.3 11.2
Capital expenditures. 17.5 27.5 44.5 46.5 6.2 8.3 35.5 14.2
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 $ 20.6 $ 6.9 $ 31.6 $ 2.9
Working capital........ 123.2 57.4 64.3 66.6 58.6 48.8 114.5 119.7
Total assets........... 605.5 1,110.0 1,136.8 647.7 638.2 612.0 696.8 693.5
Total debt............. 371.9 441.1 42.2 44.8 43.9 83.9 317.7 331.4
Stockholder's equity... 40.3 459.4 870.7 343.4 345.5 331.2 119.8 100.9
- ---------
(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. 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.
</TABLE>
22
<PAGE>
(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 and the eight months ended December 31, 1998 represents
EBITDA excluding $5.7 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 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 three months
ended March 31, 1998, the four months ended April 30, 1998, the eight
months ended December 31, 1998 and the three months ended March 31, 1999,
earnings were insufficient to cover fixed charges by $32.3, $23.1, $505.9,
$5.8, $14.6, $19.5 and $8.3, respectively.
23
<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
24
<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
Three months ended March 31, 1999 compared to Three months ended
March 31, 1998
Net Sales. Net sales for first quarter 1999 were $139.2 million, compared
to net sales of $131.8 million for first three months of 1998, an increase of
$7.4 million, or 5.6%. Net sales in North America increased to $88.2 million
for first quarter 1999 from $82.5 million for first quarter 1998, an increase
of $5.7 million, or 6.9%. This increase is primarily due to additional volume.
Net sales in Europe and Asia increased to $51.0 million for first quarter 1999
from $49.3 million for first quarter 1998, an increase of $1.7 million, or
3.4%. This increase results from higher sales volume in Asia offset by a weaker
European market.
Gross Profit. Gross profit for first quarter 1999 was $40.5 million,
compared to gross profit of $37.8 million for first quarter 1998, an increase
of $2.7 million, or 7.1%. Gross profit as a percentage of net sales increased
for first quarter 1999 to 29.0% from 28.7% for first quarter 1998.
Gross Profit in North America was $25.6 million for first quarter 1999 and
$23.2 million for first quarter 1998. Gross profit as a percentage of net sales
for North America increased to 29.0% for first quarter 1999 from 28.1% for
first quarter 1998. This increase is due to higher sales of flooring and solid
surfacing materials. Gross profit in Europe and Asia increased to $14.9 million
for first quarter 1999 from $14.6 million for first quarter 1998, or 2.1%. As a
percentage of net sales, gross profit in Europe and Asia decreased to 29.2% for
first quarter 1999 from 29.6% for first quarter 1998. This decrease results
from the sale of lower margin products in France and Spain in first quarter
1999 versus first quarter 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for first quarter 1999 were $39.9 million compared to
$42.9 million for first quarter 1998, a decrease of $3.0 million or 7.0%.
Selling, general and administrative expenses as a percentage of net sales
decreased to 28.7% for first quarter 1999 from 32.5% for first quarter 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
$2.7 million.
Operating Income (Loss). Operating income for first quarter 1999 was $0.6
million compared to an operating loss of $5.1 million for first quarter 1998.
The improvement was primarily due to the increase in gross profit and selling,
general and administrative expenses cost reductions discussed above.
EBITDA. EBITDA increased to $13.3 million in first quarter 1999 compared
to $4.0 million in first quarter 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 increased to $10.4 million, including
amortization of deferred financing costs amounting to $2.2 million, in first
quarter 1999 from $1.3 million for first quarter 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 $1.2 million for first
quarter 1999 from zero for first quarter 1998. The increase is due to taxable
earnings in 1999.
Net Loss. The net loss was $9.5 million for first quarter 1999 compared
with $5.8 million for first quarter 1998. The increase in the net loss is
principally due to the increase in interest expense related to the change in
the structure of ownership and debt.
25
<PAGE>
1998 compared to 1997
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 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, a reserve
of approximately one month of rebates issued to distributors was established.
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
representing two months of the average monthly amount of rebates issued to
distributors for this purpose.
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).
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.
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 $8.1 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.
27
<PAGE>
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 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
28
<PAGE>
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 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 March 31, 1999, Formica had approximately $331.4
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 $14.2 million on capital expenditures in first
quarter 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. 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 $119.7 million at March 31, 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
29
<PAGE>
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.
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 March
31, 1999 and December 31, 1998, Formica has secured approximately $30.3 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 quarter
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1999, Formica spent $0.5 million of the restructuring provision. The
restructuring plan will be substantially completed in 1999.
Cash used in operations was $14.9 million for first quarter 1999 and $9.2
million for first quarter 1998. The increase in cash used in operations is the
result of an increase in accounts receivable and inventory. Net cash used in
investing activities was $19.7 million for first quarter 1999 and $6.2 million
for first quarter 1998. Net cash provided by financing activities was $6.5
million for first quarter 1999 compared to $5.2 million first quarter 1998.
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, particularly accounting, fixed assets, inventory control,
manufacturing resource planning, distribution resource planning, transportation
and distribution systems, purchasing and receiving, customer billing and
payroll. 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. Project costs incurred to remediate
and test our systems, and evaluate and address the risks of our key customers
and vendors, totaled approximately $19.0 and $20.3 million respectively, as of
December 31, 1998 and March 31, 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 manufacturing operations and our products generally are not based upon
date-controlled machinery; our business operations and systems are not so
time-sensitive that brief interruptions, or a shift to backup paper records,
should cause significant losses. However, we have informally queried our
significant customers and suppliers. To date, we are not aware of any material
customer or vendor -related Year 2000 issues.
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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.
We have completed our assessment of year 2000 performance standards for
our information technology systems and our non-information technology systems.
Our review of third-party compliance risks from our key vendors and customers
is not yet 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 in our systems, products or supply chain that
would disrupt our operations to a material degree.
We have completed the renovation, upgrade or replacement of all of our
significant information technology systems for year 2000 performance standards,
except that during the third quarter of 1999 we will complete the installation
of some non-information technology systems which replaces existing systems not
compliant with year 2000 performance standards. All of our significant systems
which have been renovated or newly installed have been tested and are presently
operating.
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 cancelled 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.
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:
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(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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<PAGE>
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
42
<PAGE>
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 an 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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<PAGE>
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:
<TABLE>
Estimated
Annual Cost
Year ended Savings
December Compared
31, 1998 to 1997
---------- -----------
($ in millions)
<S> <C> <C>
Excess Advertising & Sales Promotion/Other Selling & Administrative Expenses........ $10.5 $18.0
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<PAGE>
Estimated
Annual Cost
Year ended Savings
December Compared
31, 1998 to 1997
---------- -----------
($ in millions)
<S> <C> <C>
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
===== =====
</TABLE>
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, 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
48
<PAGE>
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 Feet
-------- ------------------ -----------
<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
See Note 15 to our consolidated financial statements for 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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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>
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
- ---------
(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."
</TABLE>
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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(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
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<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 Pensionable Earnings 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).
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<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;
55
<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.
56
<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.
57
<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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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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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:
Percentage
Name of Beneficial Owner Number of Shares(1) of Class
------------------------ ------------------ ----------
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%
- ---------
(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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(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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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
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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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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>
(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.
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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.
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The following chart shows our corporate structure, but omitting most of
our subsidiaries, immediately before and immediately after the acquisition:
[GRAPHIC OMITTED]
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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 Amortization (%)
----- ----------------
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,
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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
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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."
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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 $1000.
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
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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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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
appropriate
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.
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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;
(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.
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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
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.
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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.
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.
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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.
"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
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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
(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;
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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
(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:
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(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;
(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
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(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,
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:
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(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;
(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:
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(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
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.
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"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 referrent 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, 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
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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 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
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(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
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:
(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
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(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 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:
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(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";
(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
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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 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;
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(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
(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
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(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;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the indenture.
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"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 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 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
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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.
THE EXCHANGE OFFER
In a registration rights agreement between Formica and the initial
purchasers of the old notes, we agreed
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(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.
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.
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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.
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.
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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.
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.
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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
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
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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 $ .
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) unless it is a broker-dealer receiving notes for its own account,
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) unless it is a broker-dealer receiving notes for its own account,
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 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.
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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."
LEGAL MATTERS
Davis Polk & Wardwell, New York, New York will opine for Formica whether
the new notes are its valid and binding obligations.
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<PAGE>
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 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
124
<PAGE>
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.
125
<PAGE>
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 three months ended March 31, 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
====== ====== ======
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet.
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)........ -- -- --
</TABLE>
See notes to unaudited pro forma condensed
consolidated statements of operations.
P-4
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 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..................................... $131.8 $131.8 $131.8
Cost of products sold......................... 94.0 94.0 94.0
------ ------ -------
Gross profit.................................. 37.8 37.8 37.8
Selling, general and administrative expenses.. 42.9 $ 2.4 (b) 45.3 45.3
------ ------ ------ ----- -------
Operating loss................................ (5.1) (2.4) (7.5) (7.5)
Interest expense.............................. 1.3 8.4 (a) 9.2 $(6.6)(d) 8.7
(0.5)(c) 6.1 (e)
Other income, net............................. 0.6 0.6 0.6
------ ------ ------ ----- ------
Loss before income taxes...................... (5.8) (10.3) (16.1) 0.5 (15.6)
Income tax (provision) benefit................ -- -- -- --
------ ------ ------ ----- ------
Net income (loss)............................. $ (5.8) $(10.3) $(16.1) $ 0.5 $(15.6)
====== ====== ====== ===== ======
Other Data
Adjusted EBITDA (f)(g)........................ $ 4.0 $ 4.0 $ 4.0
Depreciation and Amortization................. 8.5 10.9 10.9
Cash interest expense (h)..................... 1.3 7.5 8.3
Ratio of earnings to fixed charges (i)........ -- -- --
</TABLE>
See notes to unaudited pro forma
condensed consolidated statements of operations.
P-5
<PAGE>
FORMICA CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
Adjustments
for issuance
Historical of Old Notes Pro Forma
---------- ------------ ---------
<S> <C> <C> <C>
Net Sales........................................ $139.2 $139.2
Cost of products sold............................ 98.7 98.7
------ ---- ------
Gross profit..................................... 40.5 40.5
Selling, general and administrative expenses..... 39.9 39.9
------ ---- ------
Operating income................................. 0.6 0.6
Interest expense................................. 10.4 (4.7)(d) 8.6
2.9 (e)
Other income, net................................ 1.5 1.5
------ ---- ------
Loss before income taxes......................... (8.3) 1.8 (6.5)
Income tax (provision) benefit................... (1.2) (1.2)
------ ---- ------
Net income (loss)................................ $(9.5) $1.8 $(7.7)
===== ==== =====
Other Data
Adjusted EBITDA (f)(g)........................... $13.3 $13.3
Depreciation and Amortization.................... 11.2 11.2
Cash interest expense (h)........................ 7.3 7.5
Ratio of earnings to fixed charged (i)........... -- --
</TABLE>
See notes to unaudited pro forma
condensed consolidated statements of operations.
P-6
<PAGE>
FORMICA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions)
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1998 and the three months ended March 31, 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>
Three Months
Year Ended Ended
December 31, March 31,
1998 1998
------------ ------------
<S> <C> <C>
Interest on $200.0 bridge notes (at an effective interest rate
of 10.25%).............................................................. 6.8 5.1
Interest on $85.0 term loans under the new credit facility
(at an interest rate of LIBOR(5%) + 2.25%).............................. 2.1 1.6
Amortization of $6.1 of deferred financing costs related to
the bridge notes (over 1 year).......................................... 2.0 1.5
Amortization of $5.0 of deferred financing costs related to
the new credit facility (over 6 years).................................. 0.3 0.2
----- ----
$11.2 $8.4
===== ====
</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 Three Months
December 31, Ended
1998 March 31, 1998
------------ --------------
$3.2 $2.4
==== ====
(c) Represents elimination of interest expense related to loans due to
affiliates which were repaid in connection with the acquisition.
Year Ended Three Months
December 31, Ended
1998 March 31, 1998
------------ --------------
$0.6 $0.5
==== ====
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>
Three Months Three Months
Year Ended Ended Ended
December 31, March 31, March 31,
1998 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Reversal of interest on $200.0 bridge notes (at an effective
rate of 10.25%)............................................... $20.5 $5.1 $2.6
Reversal of amortization of $6.1 of deferred financing costs
related to the bridge notes (over 1 year)..................... 6.1 1.5 2.1
----- ---- ----
$26.6 $6.6 $4.7
===== ==== ====
</TABLE>
(e) Represents interest expense and amortization of deferred financing
costs related to the notes.
<TABLE>
Three Months Three Months
Year Ended Ended Ended
December 31, March 31, March 31,
1998 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Interest on $215.0 of notes at an assumed effective interest
rate of 10.875%............................................ $23.4 $5.9 $2.8
Amortization of $7.0 of deferred financing costs related to
the notes (over 10 years).................................. 0.7 0.2 0.1
----- ---- ----
$24.1 $6.1 $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 $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 three months ended March
31, 1998 and the three months ended March 31, 1999, earnings were
insufficient, on a pro forma basis, to cover fixed charges by $45.4,
$15.6 and $6.5, 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 March 31, 1999 and
December 31, 1998..................................................... F-24
Unaudited Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998......................................... F-25
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 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
------ ------
ASSETS
<S> <C> <C>
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
===== =====
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
<TABLE>
Four Year Ended
Eight Months Months December 31,
Ended Ended ------------------
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)
===== ===== ===== =====
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
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
=== ===== ===== ==== =====
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
Four Year Ended
Eight Months Months December 31,
Ended Ended --------------------
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
equipment............................................. (35.5) (8.3) (46.5) (44.5)
----- ---- ----- -----
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
===== ==== ==== ====
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
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>
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>
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.
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.
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.
F-10
<PAGE>
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. 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
===== =====
F-11
<PAGE>
(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
===== =====
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.
F-12
<PAGE>
(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.
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.
F-13
<PAGE>
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
=====
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
F-14
<PAGE>
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:
Four Year Ended
Eight Months Months December 31,
Ended Ended -----------------
December 31, April 30,
1998 1998 1997 1996
------------ --------- ------ ------
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
=== === === ===
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:
Four Year Ended
Eight Months Months December 31,
Ended Ended -----------------
December 31, April 30,
1998 1998 1997 1996
------------ --------- ------ ------
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
=== === === ===
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:
F-15
<PAGE>
<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.
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>
F-16
<PAGE>
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:
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 Year Ended
Eight Months Months December 31,
Ended Ended ---------------
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
=== === === ===
F-17
<PAGE>
Pretax income (loss) was taxed in the following jurisdictions:
Four Year Ended
Eight Months Months December 31,
Ended Ended ---------------
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
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
F-18
<PAGE>
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 Year Ended
Eight Months Months December 31,
Ended Ended ------------------
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.
(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.
F-19
<PAGE>
(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 Year Ended
Eight Months Months December 31,
Ended Ended ------------------
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)
===== ===== ===== =====
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>
F-20
<PAGE>
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 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
F-21
<PAGE>
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>
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>
<CAPTION>
March 31 December 31
1999 1998
----------- -----------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 2.9 $ 31.6
Accounts receivable, net............................................... 79.9 64.9
Inventories............................................................ 123.4 110.3
Prepaid expenses and other current assets.............................. 18.2 15.1
Deferred income taxes.................................................. 8.1 7.9
----- -----
Total current assets........................................... 232.5 229.8
Property, Plant and Equipment, Net 287.6 288.7
Other Assets:
Intangible assets, net................................................. 171.6 176.5
Other noncurrent assets................................................ 1.8 1.8
----- -----
Total assets................................................... $693.5 $696.8
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities-notes payable....................................... $ 18.8 $ 21.8
Accounts payable....................................................... 41.6 40.0
Accrued expenses....................................................... 52.4 53.5
----- -----
Total current liabilities...................................... 112.8 115.3
Notes Payable........................................................... 312.6 295.9
Deferred Income Taxes................................................... 133.5 133.7
Other Liabilities....................................................... 33.7 32.1
----- -----
Total liabilities.............................................. 592.6 577.0
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.................................................... (31.8) (22.3)
Accumulated other comprehensive income (loss).......................... (4.4) 5.0
----- -----
Total stockholder's equity..................................... 100.9 119.8
----- -----
Total liabilities and stockholder's equity.............................. $693.5 $696.8
===== =====
- ------------
See notes to unaudited condensed consolidated financial statements.
</TABLE>
F-24
<PAGE>
FORMICA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions)
Three Months Ended
------------------------
March 31 March 31
1999 1998
-------- --------
Net Sales.................................... $139.2 $131.8
Cost of Products Sold........................ 98.7 94.0
----- -----
Gross profit....................... 40.5 37.8
Selling, General and Administrative Expenses. 39.9 42.9
----- -----
Operating income (loss)............ 0.6 (5.1)
Interest Expense............................. (10.4) (1.3)
Other Income................................. 1.5 0.6
----- -----
Loss Before Income Taxes..................... (8.3) (5.8)
Income Tax Provision......................... (1.2) --
----- -----
Net loss........................... $ (9.5) $ (5.8)
===== =====
- ------------
See notes to unaudited condensed consolidated financial statements.
F-25
<PAGE>
FORMICA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Three Months Ended
----------------------
March 31 March 31
1999 1998
-------- --------
Cash Used in Operations...................................$ (14.9) $(9.2)
Investing Activities:
Capital expenditures and investments, net................ (19.7) (6.2)
----- ----
Net cash used in investing activities......... (19.7) (6.2)
Financing Activities:
Net proceeds from borrowings............................. 207.8 --
Due from affiliates...................................... -- 6.1
Payments of debt......................................... (201.3) (0.9)
----- ----
Net cash provided by financing activities..... 6.5 5.2
Effects of Exchange Rate Changes on Cash.................. (0.6) 3.6
----- ----
Decrease in Cash and Cash Equivalents..................... (28.7) (6.6)
Cash and Cash Equivalents at the Beginning of Period...... 31.6 27.2
----- ----
Cash and Cash Equivalents at the End of Period............ $ 2.9 $20.6
===== ====
- ------------
See notes to unaudited condensed consolidated financial statements.
F-26
<PAGE>
FORMICA CORPORATION
NOTES TO UNAUDITED 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 three-month period
ended March 31, 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 three-months ended March 31, 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, management of the Company formulated a plan
to restructure certain operations and provided a restructuring provision of $6.6
million. During the first quarter of 1999, the Company spent $0.5 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:
March 31 December 31
1999 1998
-------- -----------
Finished goods................... $ 87.9 $ 77.2
Work-in-process.................. 12.8 12.2
Raw materials.................... 46.3 42.6
----- -----
Total............................ 147.0 132.0
Less-Obsolescence reserve........ 23.6 21.7
----- -----
$ 123.4 $ 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 "Registration 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 Registration Statement declared effective by the SEC on or
prior to 180 days from February 22, 1999. The related Registration Rights
Agreement provides for certain liquidated damages to be paid to the holders of
the Notes if the registration timetable is not met. Management filed the
Registration 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 March 31, 1999 and December 31, 1998 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. 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.
(5) SEGMENT INFORMATION:
<TABLE>
Three Months Ended
----------------------
March 31 March 31
1999 1998
-------- --------
<S> <C> <C>
Segment revenues:
United States........................................................... $ 77.5 $ 72.0
North America - other................................................... 10.7 10.5
Europe.................................................................. 37.3 36.6
Asia.................................................................... 13.7 12.7
----- -----
Total............................................................... $139.2 $131.8
===== =====
Segment profit (loss):
North America........................................................... $ (3.5) $ (6.2)
Europe.................................................................. 3.3 2.5
Asia.................................................................... 0.8 (1.4)
----- -----
Total............................................................... $ 0.6 $ (5.1)
===== =====
F-28
<PAGE>
Three Months Ended
----------------------
March 31 March 31
1999 1998
-------- --------
Depreciation and amortization (included in segment profit (loss))
North America............................................................. $ 8.1 $ 4.6
Europe.................................................................... 2.3 2.7
Asia...................................................................... 0.8 1.2
----- -----
Total............................................................... $ 11.2 $ 8.5
===== =====
Expenditures for long-lived assets:
North America............................................................. $ 12.8 $ 3.6
Europe.................................................................... 1.2 0.9
Asia...................................................................... 0.2 1.7
----- -----
Total............................................................... $ 14.2 $ 6.2
===== =====
A reconciliation of total segment profit (loss) to income (loss) before
income taxes is as follows--
Segment profit (loss)..................................................... $ 0.6 $ (5.1)
Interest expense.......................................................... (10.4) (1.3)
Other income (expense).................................................... 1.5 0.6
----- -----
Loss before income taxes............................................ $ (8.3) $ (5.8)
===== =====
</TABLE>
As of
---------------------------
March 31 December 31
1999 1998
-------- -----------
Total assets:
United States.................. $433.5 $406.4
North America -- Other......... 33.8 36.4
Europe......................... 157.5 179.1
Asia........................... 68.7 74.9
----- -----
Total.................... $693.5 $696.8
===== =====
Long-lived assets:
United States.................. $140.6 $128.6
North America -- Other......... 14.2 14.3
Europe......................... 94.9 106.6
Asia........................... 37.9 39.2
----- -----
Total.................... $287.6 $288.7
===== =====
(6) COMPREHENSIVE INCOME (LOSS):
Total comprehensive loss was $(18.9) and ($2.2) for the three-months
ended March 31, 1999 and March 31, 1998, respectively. The difference between
comprehensive income (loss) and the net loss results from foreign currency
translation adjustments.
F-29
<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............................................20
Capitalization.............................................20
Selected Consolidated Financial Data.......................21
Management's Discussion and Analysis of
Financial Condition and Results of Operations .............24
Business...................................................34
Management.................................................51
Security Ownership of Certain Beneficial Owners
and Management of Laminates Stockholders...................60
Certain Relationships and Transactions.....................63
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.....................................123
Plan of Distribution......................................123
Legal Matters.............................................123
Change in Independent Auditors............................124
Experts...................................................124
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
=================================================================
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 an y state where the offer or sale is not permitted.
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED July 19, 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 March 31, 1999, Formica had outstanding approximately $85.0 million of
senior indebtedness, and our subsidiaries had approximately $144.4 million
of outstanding liabilities, including trade payables.
This investment involves risks. See "Risk Factors" beginning 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..........................................20
Capitalization...........................................20
Selected Consolidated Financial Data.....................21
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...........24
Business.................................................34
Management...............................................51
Security Ownership of Certain Beneficial Owners
and Management of Laminates Stockholders.................60
Certain Relationships and Transactions...................63
The Acquisition..........................................65
Description of Our Credit Facility.......................68
Description of Notes.....................................71
Plan of Distribution....................................123
Legal Matters...........................................123
Change in Independent Auditors..........................124
Experts.................................................124
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.................... *
Trustee Fees.................................... *
Legal Fees and Expenses......................... *
Accounting Fees and Expenses.................... *
Miscellaneous................................... *
------
Total.......................................... *
======
- ------------
*To be filed by amendment.
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.
(a) Exhibits
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 Employee 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
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
99.2 ** Form of Notice of Guaranteed Delivery
99.3 ** Form of Letter to Clients
II-2
<PAGE>
Exhibit No. Document
----------- --------
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.
+ To be filed by amendment.
(b) Financial Statement Schedules and Auditors' Reports thereon
Valuation and Qualifying Accounts
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------
Additions
Charged Charged to
Balance at to Costs Other Balance at
Beginning and Accounts Deductions End of
Description of Period 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 June 30, 1999.
FORMICA CORPORATION
By: /s/ David T. Schneider
----------------------------------
David T. Schneider
Vice President, Chief Financial Officer
and Secretary
The registrant and each person whose signature appears below constitutes
and appoints David T. Schneider, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign and file (1) any and all
amendments (including post- effective amendments) to this registration
statement, with all exhibits thereto, and other documents in connection
therewith, and (2) a registration statement, and any and all amendments,
thereto, relating to the offering covered hereby filed pursuant to Rule 462(b)
under the Securities Act of 1933, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
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 June 30, 1999
- ---------------------------------- Chief Executive Officer
Vincent P. Langone
* Vice President, Chief Financial Officer June 30, 1999
- ---------------------------------- and Secretary (Principal Financial and
David T. Schneider Accounting Officer)
*
- ---------------------------------- Director June 30, 1999
Thompson Dean
*
- ---------------------------------- Director June 30, 1999
Peter T. Grauer
*
- ---------------------------------- Director June 30, 1999
David Y. Howe
Alexander Donald Mackenzie Director June 30, 1999
- ----------------------------------
Alexander Donald Mackenzie
* By: /s/ David T. Schneider June 30, 1999
- ----------------------------------
David T. Schneider
Attorney-in-fact
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Exhibit 5.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
212-450-4000
July 16, 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 107/8% Series B Senior Subordinated Notes due
2009 (the "New Notes") for any and all of its outstanding 107/8% 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
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United States of America and the general corporation law of the State of
Delaware.
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 New Notes may rely upon this opinion as if it were addressed
directly to them.
Very truly yours,
/s/ Davis Polk & Wardwell
Exhibit 10.9
Formica Corporation Employee Retirement Plan
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January 1, 1996 Restatement
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TABLE OF CONTENTS
INTRODUCTION..................................................................1
ARTICLE 1
Definitions..........................................................2
1.01 "Accrued Benefit"...........................................2
1.02 "Active Participant"........................................2
1.03 "Actuarial Equivalent"......................................2
1.04 "Actuarial Equivalent Value"................................2
1.05 "Actuary"...................................................2
1.06 "Adjustment Factor".........................................2
1.07 "Affiliated Employer".......................................2
1.08 "American Cyanamid Benefit".................................2
1.09 "Ancillary Disability Benefit"..............................2
1.10 "Beneficiary"...............................................2
1.11 "Benefit Accrual Service"...................................3
1.12 "Benefit Commencement Date".................................3
1.13 "Board" or "Board of Directors".............................3
1.14 "Code"......................................................3
1.15 "Committee".................................................3
1.16 "Compensation"..............................................3
1.17 "Deferred Vested Benefit"...................................3
1.18 "Defined Benefit Dollar Limitation".........................3
1.19 "Disability Date"...........................................3
1.20 "Early Retirement Benefit"..................................3
1.21 "Early Retirement Date".....................................3
1.22 "Earnings"..................................................3
1.23 "Effective Date of this Restatement"........................4
1.24 "Eligible Employee".........................................4
1.25 "Employee"..................................................4
1.26 "Employer"..................................................4
1.27 "Employment Commencement Date"..............................5
1.28 "ERISA".....................................................5
1.29 "Fund"......................................................5
1.30 "Funding Agent".............................................5
1.31 "Highly Compensated Employee" and
"Highly Compensated Former Employee"......................5
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1.32 "Hour of Service"...........................................5
1.33 "Joint Annuitant"...........................................6
1.34 "Joint and Survivor Annuity"................................6
1.35 "Leased Employee"...........................................6
1.36 "Maternity/Paternity Absence"...............................6
1.37 "Military Service"..........................................6
1.38 "Named Fiduciary"...........................................7
1.39 "Normal Retirement Age".....................................7
1.40 "Normal Retirement Benefit".................................7
1.41 "Normal Retirement Date" shall..............................7
1.42 "One-Year Break in Service".................................7
1.43 "Participant"...............................................7
1.44 "Plan"......................................................7
1.45 "Plan Year".................................................7
1.46 "Postponed Retirement Benefit"..............................8
1.47 "Postponed Retirement Date".................................8
1.48 "Predecessor Plan"..........................................8
1.49 "Qualified Joint and Survivor Annuity"......................8
1.50 "Reemployment Date".........................................8
1.51 "Retirement Date"...........................................8
1.52 "Service"...................................................8
1.53 "Severance from Service Date"...............................8
1.54 "Termination"...............................................9
1.55 "Total and Permanent Disability"............................9
1.56 "Trust".....................................................9
1.57 "Trustee"...................................................9
1.58 "Union Participant".........................................9
1.59 "Vesting Service"...........................................9
1.60 "Year of Service", "Year of Vesting Service", or
"Year of Benefit Accrual Service".........................9
ARTICLE 2
Service Counting Rules..............................................11
2.01 Service....................................................11
2.02 Service Spanning...........................................11
2.03 Reemployment After a Severance From Service Date...........11
2.04 Repayment of Cash-Out......................................11
2.05 Vesting Service............................................12
2.06 Benefit Accrual Service....................................12
ARTICLE 3
Eligibility for Participation and Transfers.........................13
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3.01 Eligibility to Become a Participant........................13
3.02 Reemployment...............................................13
3.03 Termination of Participant Status..........................13
3.04 Transfer to Another Plan...................................13
3.05 Transfer from Another Plan: Prohibition of Double Counting.13
ARTICLE 4
Retirement Eligibility andSuspension of Benefits....................14
4.01 Retirement.................................................14
4.02 Suspension of Benefits - Postponed Retirement..............14
4.03 Suspension of Benefits - Rehires...........................14
4.04 Suspension of Benefit Notice...............................14
4.05 Section 203(a)(3)(B) Service...............................14
4.06 Recommencement of Benefits.................................15
4.07 Required Commencement at Age 70 2..........................15
4.08 Required Commencement - Conditions.........................15
ARTICLE 5
Amount of Retirement Benefit........................................16
5.01 Normal Retirement Benefit..................................16
5.02 Postponed Retirement Benefit...............................18
5.03 Early Retirement Benefit...................................18
5.04 Disability Benefit.........................................18
5.05 Accrued Benefit............................................20
5.06 (a) Deferred Vested Benefit...........................20
(b) Deferred Vested Benefit - Early Commencement......20
5.07 Adjustment for Suspension of Benefits......................20
5.08 Special Termination Benefits...............................20
ARTICLE 6
Required Benefit Limitations........................................22
6.01 Code Section 415 Limits....................................22
6.02 Special Limitation for 25 Highest-Paid Employees...........23
6.03 Exceptions To Special Limitation...........................23
6.04 Distributions Allowed if Security Furnished................23
6.05 Plan Termination Limit.....................................24
6.06 Highly Compensated Employee or Former Employee.............24
6.07 Definitions................................................25
6.08 Family Aggregation.........................................25
6.09 Family Benefits............................................26
6.10 Family Members.............................................26
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ARTICLE 7
Vesting.............................................................27
7.01 General Rule...............................................27
7.02 Vesting at Normal Retirement Age...........................27
7.03 Vested Portion.............................................27
7.04 Vesting upon Plan Termination..............................27
ARTICLE 8
Preretirement Death Benefits........................................28
8.01 Automatic Preretirement Spousal Death Benefit..............28
8.02 Automatic Preretirement Death Benefit......................29
ARTICLE 9
Forms of Benefit....................................................30
9.01 Qualified Joint and Survivor Annuity.......................30
9.02 Involuntary Lump Sum Payment...............................30
9.03 Right to Elect.............................................30
9.04 Election of Forms..........................................30
9.05 Optional Forms of Retirement Benefit.......................31
9.06 Beneficiary................................................32
9.07 Eligible Rollover Distributions............................32
ARTICLE 10
Funding.............................................................34
10.01 Funding Agreement..........................................34
10.02 Non-Diversion of the Fund..................................34
ARTICLE 11
Plan Administration.................................................35
11.01 Appointment of Committee...................................35
11.02 Powers and Duties..........................................35
11.03 Actions by the Committee...................................36
11.04 Interested Committee Members...............................37
11.05 Indemnification............................................37
11.06 Conclusiveness of Action...................................37
11.07 Payment of Expenses........................................37
11.08 Claim Procedure............................................37
ARTICLE 12
Funding Policy and Contributions....................................39
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12.01 Employer Contributions.....................................39
12.02 Participant Contributions..................................39
12.03 Contingent Nature of Contributions.........................39
ARTICLE 13
Amendment, Termination and Merger of the Plan.......................40
13.01 Right to Amend the Plan....................................40
13.02 Right to Terminate the Plan................................40
13.03 Allocation of Assets and Surplus...........................40
13.04 Plan Mergers, Consolidations and Transfers.................40
13.05 Amendment of Vesting Schedule..............................41
ARTICLE 14
Top-Heavy Plan Provisions...........................................42
14.01 General Rule...............................................42
14.02 Vesting Provision..........................................42
14.03 Minimum Benefit Provision..................................42
14.04 Change in 415(e) Limits....................................43
14.05 Coordination with Other Plans..............................43
14.06 Top-Heavy and Super Top-Heavy Plan Definition..............43
14.07 Key Employee...............................................46
14.08 Non-Key Employee...........................................47
14.09 Collective Bargaining Rules................................47
ARTICLE 15
Miscellaneous.......................................................48
15.01 Limitation on Distributions................................48
15.02 Limitation on Reversion of Contributions...................48
15.03 Voluntary Plan.............................................48
15.04 Nonalienation of Benefits..................................49
15.05 Inability to Receive Benefits..............................49
15.06 Missing Persons............................................49
15.07 Limitation of Third Party Rights...........................49
15.08 Invalid Provisions.........................................49
15.09 One Plan...................................................50
15.10 Use and Form of Words......................................50
15.11 Headings...................................................50
15.12 Governing Law..............................................50
v
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INTRODUCTION
The Formica Corporation Employee Retirement Plan (the "Plan") as stated herein
and as in effect January 1, 1996, is an amendment and restatement of the Plan
as was in effect May 30, 1985, and subsequently restated effective January 1,
1990.
The provisions of this plan supersede Predecessor Plan provisions for all
persons in the employment of the Employer at any time on or after the
Effective Date of this Restatement and of all persons claiming through, under,
or against such persons. The provisions of the Plan as in effect immediately
prior to the Effective Date of this Restatement shall govern Participants who
ceased to be employed as Eligible Employees, by retirement or otherwise, prior
to the Effective Date of this Restatement and of all persons claiming through,
under or against such Participants. The preceding sentence shall not apply to
the extent that applying the provisions of the Plan as in effect immediately
prior to the Effective Date of this Restatement to such Participants would
violate the "Employee Retirement Income Security Act of 1974" (ERISA), or any
other applicable law, would result in disqualification of this Plan, or would
require inconsistent administrative practices, in which case the provisions of
this Plan shall apply.
The Plan is intended to qualify under Section 401(a) of the Internal Revenue
Code of 1986, as amended. It is further intended that the Plan also conform to
the requirements of Title I of ERISA, as amended from time to time.
1
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ARTICLE 1
Definitions
1.01 "Accrued Benefit" shall mean the amount of annual pension benefit,
payable as a straight life annuity, commencing at Normal Retirement
Age, as shall be considered accrued at any time for a Participant in
accordance with the provisions of Article 5.
1.02 "Active Participant" means a Participant still actively employed as
an Eligible Employee.
1.03 "Actuarial Equivalent" shall mean a benefit or amount having the same
Actuarial Equivalent Value as an Accrued Benefit or other applicable
benefit.
1.04 "Actuarial Equivalent Value" shall mean the single sum present value
of an Accrued Benefit or other applicable benefit, where values are
calculated under generally accepted actuarial methods and using the
applicable tables, interest rates and other factors described in
Appendix A of this Plan.
1.05 "Actuary" shall mean that individual who is an "enrolled actuary" as
defined in Section 7701(a)(35) of the Code or that firm of actuaries
which has on its staff such an actuary, appointed by the Committee.
1.06 "Adjustment Factor" shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of
the Code, applied to such items and in such manner as the Secretary
shall prescribe.
1.07 "Affiliated Employer" means the Formica Corporation and any other
entity which is a member of a "controlled group of corporations," a
group under "common control," or an "affiliated service group" with
the Formica Corporation, all as determined under Code Sections
414(b), (c), (m), (o), or, solely for purposes of Section 6.01, the
rules set forth in Code Section 415(h).
1.08 "American Cyanamid Benefit" shall mean the annual retirement benefit,
if any, payable to a Participant as a straight life annuity from the
American Cyanamid Company Employees Retirement Plan based on service
through May 29, 1985.
1.09 "Ancillary Disability Benefit" shall mean the benefit to which a
Participant would be entitled under the Plan in the event of his
Total and Permanent Disability, as calculated in accordance with
Article 5.
1.10 "Beneficiary" shall mean that person or persons or entity or entities
(including a trust) or estate that shall be entitled to receive
benefits payable pursuant to the provisions of this Plan by virtue of
a Participant's death, pursuant to the provisions of Article 8 or 9.
2
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1.11 "Benefit Accrual Service" shall mean the period of service of a
Participant which is used to calculate the amount of the
Participant's Accrued Benefit, determined in accordance with Article
2.
1.12 "Benefit Commencement Date" shall mean the first day of the first
period (e.g. month, quarter, year) for which a benefit is payable to
an individual, even though the first payment may not actually have
been made at that date.
1.13 "Board" or "Board of Directors" shall mean the Board of Directors of
the 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.
1.14 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.15 "Committee" shall mean the committee of individuals appointed by the
Board to be responsible for the operations and administration of the
Plan in accordance with the provisions of Article 11.
1.16 "Compensation" shall mean wages as defined in Code Section 3401 (a)
for purposes of income tax withholding at the source, but without
regard to any rules that limit the remuneration included in wages
based on the nature or location of the employment or the services
performed.
1.17 "Deferred Vested Benefit" shall mean the benefit to which a vested
Participant would be entitled after his Severance from Service Date,
as calculated in accordance with Article 5.
1.18 "Defined Benefit Dollar Limitation" shall mean the limitation set
forth in Section 415(b)(1) of the Code.
1.19 "Disability Date" shall mean the first day of the month coincident
with or next following the date on which an Active Participant meets
the requirements of Section 5.04.
1.20 "Early Retirement Benefit" shall mean the benefit to which a
Participant would be entitled in the event of retirement prior to his
Normal Retirement Date, as calculated in accordance with Article 5.
3
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1.21 "Early Retirement Date" shall mean the first day of the calendar
month coincident with or next following the Participant's Severance
from Service Date, if such date is earlier than the Participant's
Normal Retirement Date, provided that the Participant has attained
age 55 and has completed five (5) Years of Service by his Severance
from Service Date.
1.22 "Earnings" shall mean, with respect to periods on or after the
Effective Date of this Restatement, the total of all payments made by
an Employer to an Employee for services rendered to the Employer,
including bonuses or annual management incentives and quarterly,
semi-annual and annual sales incentives, commissions, overtime pay
and shift differentials and any elective deferrals made by an
Employee pursuant to a salary reduction election under Code Section
125 or 401(k), but excluding expense reimbursements, severance
awards, long-term incentive payments, special sales incentive prizes,
relocation allowances, suggestion awards, recruitment awards, tuition
assistance and any Employer contributions to any employee benefit
plan.
Earnings with respect to periods prior to the Effective Date of this
Restatement shall mean annual earnings as determined under the
Predecessor Plan for such periods.
The maximum amount of Earnings that may be taken into account in a
Plan Year shall not exceed the dollar limitation contained in Code
Section 401(a)(17) in effect for the beginning of the Plan Year.
1.23 "Effective Date of this Restatement" shall mean January 1, 1996.
1.24 "Eligible Employee" shall mean an Employee who is employed by an
Employer and who works in the United States of America but does not
include a person whose terms and conditions of employment are the
subject of a collective bargaining agreement between an Employer and
a collective bargaining agent unless and until participation in the
Plan shall have been negotiated for and agreed to in writing by the
representatives of such Employer and the collective bargaining agent.
The Administrator may from time to time make some or all of the
Employees who work outside of the United States of America, but who
otherwise would be eligible to participate in the Plan, Eligible
Employees on such terms and conditions as the Administrator may
determine in accordance with the provisions of the Code.
The term "Eligible Employee" shall not include the following: (1) a
Leased Employee; (2) an Employee who is newly employed by the
Employer on or after April 21, 1992 at the Employer's Evendale, Ohio
plant and whose terms and conditions of employment are subject to a
collective bargaining agreement between the Employer and a collective
bargaining agent; or (3) an Employee who is accruing benefits under
any other pension plans sponsored by an Affiliated Employer,
including any such plans sponsored in the
5
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United States or in any other country, as determined by the Formica
Corporation in a consistent and nondiscriminatory fashion.
1.25 "Employee" shall include any person who is a common-law employee or a
Leased Employee of an Affiliated Employer.
1.26 "Employer" shall mean the Formica Corporation and any other
Affiliated Employer which, with the consent of the Board, shall adopt
this Plan as to some or all of its Employees. "Employer" when used in
this Plan shall refer to such adopting entities either individually
or collectively, as the context may require.
1.27 "Employment Commencement Date" shall mean the date on which the
Employee first is credited with an Hour of Service.
1.28 "ERISA" shall mean the Employee Retirement Income Security Act of 1974
(Public Law #93-406), as amended from time to time.
1.29 "Fund" shall mean any fund provided for in a trust arrangement or an
insurance contract or a combination of both, which is held by a
Funding Agent, to which contributions under the Plan may be made, and
out of which benefits may be paid to the Participants or otherwise
provided for.
1.30 "Funding Agent" shall mean a Trustee or insurance company or any duly
appointed successor or successors selected to hold a Fund.
1.31 "Highly Compensated Employee" and "Highly Compensated Former
Employee" shall mean an Employee who is determined to be a Highly
Compensated Employee or Highly Compensated Former Employee under the
provisions of Article 6 of this plan.
1.32 "Hour of Service" shall mean the following:
(a) Each hour for which a person is directly or indirectly paid,
or entitled to payment, by an Affiliated Employer for the
performance of duties. These hours shall be credited to the
person during the appropriate computation period in which
the duties are performed;
(b) Each hour for which a person is directly or indirectly paid,
or entitled to payment, by an Affiliated Employer for
reasons other than for the performance of duties (such as
vacation, holiday, illness, incapacity including disability,
jury duty, military duty, leave of absence or layoff). These
hours shall be credited to the person during the computation
period in which the nonperformance of duties
6
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occurs, but the total credit for any single continuous
period during which the person performs no duties (whether
or not in a single computation period) of such hours shall
not exceed 501 hours, unless the person performs no duties
because of Military Service. The computation of non-work
hours described in this subsection will be computed in
accordance with the provisions of the Department of Labor
Regulation Section 2530.200b-2;
(c) Each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by an
Affiliated Employer. These hours will be credited to the
person for the Plan Year to which the award or agreement
pertains; and
(d) Each hour for which a person is not paid or entitled to
payment but during which he normally would have performed
duties for an Affiliated Employer during any period during
which he is on Military Service.
1.33 "Joint Annuitant" shall mean the Beneficiary who will receive
retirement benefits after the death of the Participant based on the
provisions of a Joint and Survivor Annuity, as described in Article
9.
1.34 "Joint and Survivor Annuity" shall mean a retirement benefit under
which equal monthly installments are payable during the joint
lifetimes of the retired Participant and the Joint Annuitant, and
under which, upon the earlier death of the retired Participant, the
same amount, or an amount not less than 10% nor more than 100%, in
increments of 10%, as elected by the Participant prior to his Benefit
Commencement Date, continues to be paid to the Joint Annuitant for
the Joint Annuitant's lifetime.
1.35 "Leased Employee" means any person who renders personal services to
an Affiliated Employer and who is described in Section 414(n)(2) of
the Code by reason of providing such services, other than a person
described in Section 414(n)(5) of the Code.
1.36 'Maternity/Paternity Absence" shall mean an absence (a) by reason of
the pregnancy of the Employee; (b) by reason of the birth of a child
of the Employee; (c) by reason of the placement of a child with the
Employee in connection with adoption; or (d) for purposes of caring
for such a child for a period immediately following such birth or
placement. No Service shall be granted for a Maternity/Paternity
Absence unless the Employee furnishes to the Committee such
information, as determined by the Committee, as is necessary to
substantiate that the Employee's absence from work is for one or more
of the reasons described in (a) through (d) above and the period of
time for which there was such an absence.
1.37 "Military Service" shall mean a leave of absence from active
employment during which the Eligible Employee is in the armed forces
of the United States of America under circumstances which entitle him
to reemployment and other related rights under any applicable Federal
law, provided the Eligible Employee reenters the employ of an
Affiliated Employer within the period during which his reemployment
rights are protected by such law without any intervening employment
elsewhere. In the event a person in Military Service fails to return
to the employ of an Affiliated Employer, as provided herein, he shall
be considered as having terminated his employment as of the
commencement of such Military Service.
7
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1.38 "Named Fiduciary" shall mean a fiduciary designated as such under the
provisions of Article 11.
1.39 "Normal Retirement Age" shall mean the later of (1) the time a
Participant attains age 65 or (2) the fifth anniversary of the time
the Participant commenced participation in the Plan.
1.40 "Normal Retirement Benefit" shall mean the benefit to which a
Participant would be entitled in the event of retirement on
attainment of Normal Retirement Age, as calculated in accordance with
Article 5.
1.41 "Normal Retirement Date" shall mean the first day of the calendar
month coincident with or next following the Participant's attainment
of Normal Retirement Age, provided the Participant's Severance from
Service Date has occurred as of such date.
1.42 "One-Year Break in Service" shall mean a period of at least twelve
consecutive months, beginning on a person's Severance from Service
Date or an anniversary thereof, during which a person does not
perform an Hour of Service. However, for purposes of the foregoing,
in the event a person incurs a Severance from Service Date solely
because of a Maternity/Paternity Absence, then the first 'One-Year
Break in Service' shall be a period of at least twenty-four
consecutive months beginning on the person's Severance from Service
Date and ending on the day immediately preceding the second
anniversary thereof, during which the person does not perform an Hour
of Service. Additionally, the period between the first and second
anniversaries of the first day of absence from work shall be neither
a period of Service nor a One-Year Break in Service. The second and
successive One-Year Breaks in Service shall be twelve consecutive
month periods commencing on the second, or any subsequent anniversary
of the Participant's Severance from Service Date, during which the
Participant does not perform an Hour of Service. Notwithstanding the
foregoing, no person shall incur a One-Year Break in Service because
of an absence protected under the Family and Medical Leave Act.
1.43 "Participant" shall mean any Eligible Employee who becomes a
Participant in the Plan pursuant to Article 3 and shall include any
individual who has separated from service or ceased to be an Eligible
Employee and for whom there is still a liability under the Plan.
1.44 "Plan" shall mean the Plan designated as the Formica Corporation
Employee Retirement Plan, as embodied herein, and any amendments
thereto, and shall also refer to any Predecessor Plan for which this
document is a restatement, and any Predecessor Plan which has been
merged into this Plan.
1.45 "Plan Year" shall mean the period beginning on January 1 and ending on
December 31.
1.46 "Postponed Retirement Benefit" shall mean the benefit to which a
Participant would be entitled in the event of retirement after Normal
Retirement Date, as calculated in accordance with Article 5.
1.47 "Postponed Retirement Date" shall mean the first day of the calendar
month coincident with or next following the Participant's Severance
from Service Date, if such date is later than the Participant's
Normal Retirement Date.
1.48 "Predecessor Plan" shall mean any plan for which this Plan is a
restatement, any plan which has been merged into this Plan or any
predecessor to this Plan, or any other plan sponsored by an entity
which became an Affiliated Employer by acquisition or merger, and
which adopted this Plan or a predecessor to this Plan for any of its
employees who had been participants in such other plan.
1.49 "Qualified Joint and Survivor Annuity" shall mean, for a married
Participant, a Joint and Survivor Annuity with the Participant's
spouse as Joint Annuitant and a fifty percent (50%) survivor benefit.
For a single Participant it shall mean a benefit payable in the form
of an annuity for the life of the Participant. The Qualified Joint
and Survivor Annuity for a married Participant shall be at least the
Actuarial Equivalent, determined under the applicable factors of
Appendix A, of the Participant's Accrued Benefit or, if greater in
Actuarial Equivalent Value, any optional form of benefit then
available to the Participant under the Plan.
1.50 "Reemployment Date" shall mean the first day on which an Employee
performs an Hour of Service following a Severance from Service Date.
1.51 "Retirement Date" shall mean a Participant's Normal, Early, or
Postponed Retirement Date.
8
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1.52 "Service" shall mean an Employee's period of employment with an
Affiliated Employer that is counted as "Service" in accordance with
Article 2.
1.53 "Severance from Service Date" shall mean the earlier of the date on
which a person quits, is discharged, retires or dies, or the first
anniversary of the date on which he is absent from employment and
does not perform an Hour of Service for any other reason.
Notwithstanding the foregoing, an Employee who is absent from work
because of layoff, leave of absence, or disability leave, shall be
deemed to be in active employment and shall not be considered absent
until the end of the period determined as the sum of (a) plus (b),
subject to (c) where (a), (b), and (c) are:
(a) the product of two months multiplied by the number of full
years of such Employee's continuous employment with the
Employer as of the last day actually worked; plus
(b) the product of five days multiplied by the number of full
months in any partial year of such Employee's continuous
employment with the Employer as of the last day actually
worked;
(c) provided, however, that such period (beginning the day
following the last day actually worked) shall not be (i)
less than one month, for absences because of layoff or leave
of absence, or six months, for absences because of
disability leave, nor (ii) more than 18 months, for absences
because of layoff, or 24 months, for absences because of
leave of absence or disability leave.
1.54 "Termination" shall mean the cessation of active employment with an
Affiliated Employer.
1.55 "Total and Permanent Disability" shall mean the inability to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment (whether occupational or
non-occupational) which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not
less than six (6) months and until at least age 65. The permanence
and degree of such impairment shall be supported by medical evidence.
Total and Permanent Disability shall not include a physical or mental
impairment resulting from (i) service in the Armed Forces of any
country, (ii) warfare, (iii) participation in any criminal act or
willful misconduct, (iv) intentional self-inflicted injury, or (v),
to the extent permitted by the Americans with
9
<PAGE>
Disabilities Act, addiction to the use of drugs or narcotics.
"Totally and Permanently Disabled Participant" shall mean a
Participant who is considered to have a "Total and Permanent
Disability".
1.56 "Trust" shall mean any trust established under an agreement between
the Employer and a Trustee under which any portion of the Fund is
held, and shall include any and all amendments to the Trust
agreement. The terms of any Trust agreement maintained with respect
to the Plan are hereby incorporated into the Plan.
1.57 "Trustee" shall mean any trustee holding any portion of the Fund
under a Trust agreement forming a part of the Plan.
1.58 "Union Participant" shall mean any Employee whose terms and
conditions of employment are the subject of a collective bargaining
agreement between an Employer and a collective bargaining agent, and
whose participation in the Plan was negotiated for and agreed to in
writing by the representatives of such Employer and the collective
bargaining agent.
1.59 "Vesting Service" shall mean Service for determining a Participant's
right to vest in his Accrued Benefit under Article 7, as counted
under the rules of Article 2.
1.60 "Year of Service", "Year of Vesting Service", or "Year of Benefit
Accrual Service" shall mean any twelve (12) months of Service as
determined under the appropriate Service rules of Article 2. If a
fraction of a Year of Service is involved, each calendar month or
fraction thereof shall be considered one-twelfth (1/12) of a year.
10
<PAGE>
ARTICLE 2
Service Counting Rules
2.01 Service - An Employee shall be credited with Service for periods
prior to the Effective Date of this Restatement equal to the Service
with which he was credited under the Predecessor Plan immediately
prior to the Effective Date of this Restatement. An Employee shall be
credited with Service for periods beginning on or after the Effective
Date of this Restatement for the period of time elapsed from the
later of the Effective Date of this Restatement or the Employee's
Employment Commencement Date (or most recent Reemployment Date, if
applicable) to his Severance from Service Date.
2.02 Service Spanning - For Employees who are reemployed by an Affiliated
Employer within twelve (12) months of their Severance from Service
Date, the period from such Severance from Service Date to such
Reemployment Date will be counted as uninterrupted Service under the
Plan for purposes of vesting.
2.03 Reemployment After a Severance From Service Date - Any former
Eligible Employee or Participant who is reemployed as an Eligible
Employee shall not be credited with any Service from the period prior
to the occurrence of a One-Year Break in Service in any of the
following cases:
(a) Rehire Rule - The Participant has not been credited with one
Year of Service following his date of rehire.
(b) Cash-out Rule - The Participant has previously received a
distribution of the present value of his entire
nonforfeitable benefit, following his Severance from Service
Date, unless the Participant has repaid in full the
distribution, with interest in accordance with Section 2.04
of this Plan. For the purposes of this rule, a Participant
who is not entitled to a Deferred Vested Benefit upon his
Severance from Service Date shall be considered to have been
cashed out.
(c) Rule of Parity - The Participant was not entitled to a
Deferred Vested Benefit at his Severance from Service Date
and has incurred a number of consecutive One-Year Breaks in
Service
11
<PAGE>
equal to the greater of five (5) or the number of Years of
Service credited to him prior to the first of such
consecutive One-Year Breaks in Service.
2.04 Repayment of Cash-Out - If an Employee shall have received a full
distribution of his nonforfeitable interest in this Plan following a
Severance from Service Date, he shall be entitled to repay the amount
of that distribution to the Plan together with compound interest at
the rate of five (5) percent per annum for any period prior to the
first day of the Plan Year beginning on or after January 1, 1988, and
at the rate of 120 percent of the applicable Federal mid-term rate as
in effect for the first month of the Plan Year for any Plan Year or
portion of a Plan Year that commences on or after January 1, 1988.
Any such repayment shall be made prior to the earlier of:
(a) The fifth anniversary of the date on which the Employee was
rehired by the Employer, or
(b) The close of the first period of five (5) consecutive
One-Year Breaks in Service following the Participant's
Severance from Service Date.
A Participant shall be considered to be cashed out on his Severance
from Service Date if he is not entitled to a Deferred Vested Benefit
on his Severance from Service Date. Such a Participant who is deemed
to have been cashed out shall be deemed to have properly made a
repayment upon again becoming a Participant. Such a deemed repayment
will not restore Years of Service which would not be counted under
the provisions of Section 2.02 (Serving Spanning).
If the Participant fails to make repayment in accordance with this
Section 2.04, solely for purposes of determining the Participant's
Accrued Benefit which accrued after his Reemployment Date, the Plan
shall disregard any Years of Service prior to his Reemployment Date.
2.05 Vesting Service -A Participant shall be credited with a Year of
Vesting Service for each Year of Service.
2.06 Benefit Accrual Service - A Participant shall be credited with
Benefit Accrual Service for all Years of Service during which he is
an Eligible Employee of the Employer.
13
<PAGE>
ARTICLE 3
Eligibility for Participation and Transfers
3.01 Eligibility to Become a Participant - All Participants who were
participating in this Plan on the Effective Date of this Restatement
shall continue to participate. Any other Eligible Employee shall
become a Participant as of the date he becomes an Eligible Employee.
3.02 Reemployment - A Participant who incurs a One-Year Break in Service
and is later re-employed will be treated as a new Employee and will
recommence Participation as of the date he is reestablished as an
Eligible Employee.
3.03 Termination of Participant Status - A Participant who incurs a
One-Year Break in Service at a time when he is not entitled to a
retirement benefit or to a Deferred Vested Benefit shall cease to be
a Participant at the close of the first Plan Year in which he incurs
a One-Year Break in Service. A Participant who incurs a One-Year
Break in Service and who is entitled to a retirement benefit or a
Deferred Vested Benefit shall cease to be a Participant upon receipt
of payments equal to his total benefit provided hereunder, as a lump
sum benefit under the terms of Section 9.02 or otherwise.
3.04 Transfer to Another Plan - A Participant who ceases to be an Eligible
Employee without incurring a Termination shall cease to accrue
benefits under this Plan as of the date on which he ceased to be an
Eligible Employee, and his Accrued Benefit will be frozen as of the
close of the Plan Year in which he ceases to be an Eligible Employee,
but he shall continue to be a Participant for other purposes under
the Plan and, if he continues to remain in the employ of an
Affiliated Employer, shall continue to earn Vesting Service.
3.05 Transfer from Another Plan: Prohibition of Double Counting - In the
event a Participant has previously participated in another defined
benefit plan of an Affiliated Employer and becomes entitled to a
benefit hereunder, which is calculated using Benefit Accrual Service
which includes service that is also counted for entitlement to
benefits under such other defined benefit plan, then, unless such
other plan provides an offset for benefits provided hereunder, his
benefit provided hereunder
13
<PAGE>
shall be offset by the benefits provided by such other plan (or, if
not payable in the same form, the Actuarial Equivalent of such
benefits) that are attributable to such service.
14
<PAGE>
ARTICLE 4
Retirement Eligibility and
Suspension of Benefits
4.01 Retirement - A Participant who has reached his Retirement Date shall
be entitled to retire and receive benefits in accordance with Article
5.
4.02 Suspension of Benefits - Postponed Retirement - If a Participant's
Service continues after his Normal Retirement Age and such Service
after his Normal Retirement Age constitutes Section 203(a)(3)(B)
Service (as defined in Section 4.05), such Participant's benefits
will be suspended, provided that the Committee notifies him that his
benefits have been suspended in the manner provided by Section 4.04
of this Article.
4.03 Suspension of Benefits - Rehires - If a person receiving benefits
hereunder is rehired by the Employer, payment of those benefits will
be suspended as long as the rehired Employee remains employed with
the Employer, provided such Service constitutes Section 203(a)(3)(B)
Service (as defined in Section 4.05) and provided that the Committee
notifies him that benefits have been suspended, in the manner
provided by Section 4.04 of this Article.
4.04 Suspension of Benefit Notice - The notice required under Sections 4.02
or 4.03 of this Article shall contain:
(a) a description of the specific reasons for the suspension of
benefit payments,
(b) a general description of the Plan's provisions relating to
the suspension,
(c) a copy of such provisions,
(d) a statement to the effect that applicable Department of
Labor regulations may be found in Section 2530.203-3 of the
Code of Federal Regulations, and
(e) a description of the Plan's procedure for affording a review
of such suspension.
15
<PAGE>
Such notice shall be furnished by personal delivery or first-class
mail during the first calendar month in which payments are
discontinued.
4.05 Section 203(a)(3)(B) Service - In accordance with Department of Labor
Regulations Section 2530.203-3, "Section 203(a)(3)(B) Service" shall
be determined on a monthly basis and an Employee shall be deemed to
be in Section 203(a)(3)(B) Service in any month in which he shall
perform 40 or more Hours of Service. An Employee shall have the right
to contest the determination of his status in accordance with the
procedures set forth in Section 11.08 of this Plan.
4.06 Recommencement of Benefits - Benefits which are suspended in
accordance with Section 4.02 or 4.03 of this Article shall be paid in
any month in which the Participant is not considered to be in Section
203(a)(3)(B) Service. If an Employee whose benefits are suspended
continues or recommences Participation in this Plan and thereafter
again becomes entitled to benefits hereunder by virtue of a new
Early, Normal or Postponed Retirement, previously suspended benefits
shall not be recommenced, and the Participant shall be entitled only
to his Early, Normal or Postponed Retirement Benefit, as of the
Participant's new Early, Normal or Postponed Retirement Date,
adjusted as provided in Section 5.06.
4.07 Required Commencement at Age 70 ? - A Participant not currently
receiving benefits under this Plan who attains age 70 ? shall
commence receiving benefits as if he had retired on December 31 of
the calendar year in which he attains age 70 ?, and had a Benefit
Commencement Date of April 1 of the following calendar year. Each
December 31 thereafter, and upon his later actual Postponed
Retirement Date, his benefit payment shall be recalculated using his
actual Benefit Accrual Service and actual Earnings. The recalculated
benefit payments shall be reduced by the Actuarial Equivalent of any
payments previously made to him. Any such reduction shall not cause
benefit payments to be decreased to an amount less than the amount
the Participant was receiving immediately prior to the date of
recalculation, or, in the event of a recalculation because of his
attaining his actual Postponed Retirement Date, immediately prior to
his actual Postponed Retirement Date.
4.08 Required Commencement - Conditions - Notwithstanding any provision of
this Plan to the contrary, all distributions under the Plan shall be
made in accordance with the requirements of Code Section 401(a)(9)
and
16
<PAGE>
the regulations thereunder, including the incidental death benefit
requirements of 1.401(a)(9)-2. The provisions of this Section
override any distribution options under the Plan if inconsistent with
the requirements of Section 401(a)(9).
17
<PAGE>
ARTICLE 5
Amount of Retirement Benefit
5.01 Normal Retirement Benefit - A Participant's Normal Retirement Benefit
shall be an annual annuity for the life of the Participant, payable
monthly, commencing upon the Participant's Normal Retirement Date.
(a) For a Participant who is not a Union Participant, this
Normal Retirement Benefit will be an amount equal to the sum
of (1) and (2), less (3) where:
(1) equals 1.5% of the Participant's annual Earnings
for all Benefit Accrual Service completed by the
Participant after June 30, 1992 at Normal
Retirement Date,
(2) is the Participant's total Accrued Benefit under
the Plan as of June 30, 1992, and
(3) is the Participant's American Cyanamid Benefit at
his Normal Retirement Date.
(b) For Union Participants at the Evendale, Ohio Plant, this
Normal Retirement Benefit shall be an amount equal to (1),
adjusted by (2), less (3) where:
(1) is a monthly benefit amount determined under the
following table and based upon the pay level
maintained by the Participant for the longest
period during the 36 months preceding his
Retirement Date.
18
<PAGE>
- -------------------------------------------------------------------------------
Monthly Benefit Per Year of
Benefit Accrual Service While a Union Participant
- -------------------------------------------------------------------------------
Plan Year of
Participant's
Severance From
Service Date Participant's Pay Level
- -------------------------------------------------------------------------------
1, 2 or 3 4, 5 or 6 7, 8, 9 or 10
- -------------------------------------------------------------------------------
1993 $17.25 $18.25 $20.25
- -------------------------------------------------------------------------------
1994 17.50 18.50 20.50
- -------------------------------------------------------------------------------
1995 18.00 19.00 21.00
- -------------------------------------------------------------------------------
1996 18.50 19.50 21.50
- -------------------------------------------------------------------------------
1997 18.75 19.75 21.75
- -------------------------------------------------------------------------------
1998 19.00 20.00 22.00
- -------------------------------------------------------------------------------
1999 19.25 20.25 22.25
- -------------------------------------------------------------------------------
2000 19.25 20.25 22.25
- -------------------------------------------------------------------------------
(2) if projected Years of Benefit Accrual Service at
age 65 equals at least 31, the monthly benefit
described in (b)(1) above is increased according to
the following table:
-------------------------------------------------------------
Projected Years of Additional Monthly
Benefit Accrual Benefit Per Year of Benefit
Service at Age 65 Accrual Service
-------------------------------------------------------------
31 - 34.99 $1.50
35 - 39.99 3.00
Over 40 4.00
-------------------------------------------------------------
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<PAGE>
(3) is the Participant's American Cyanamid Benefit.
(c) For Union Participants at the Sierra, California Plant, this
Normal Retirement Benefit shall be an amount equal to (1)
less (2) where:
(1) is a monthly benefit amount determined under the
following table and based upon the pay level
maintained by the Participant for the longest
period during the 36 months preceding his
Retirement Date
20
<PAGE>
----------------------------------------------------------------------
Monthly Benefit
Participant's Per Year of Benefit Accrual
Pay Level Service
----------------------------------------------------------------------
H1, H2, H3, or H4 $17.50
H5, or H6 19.50
----------------------------------------------------------------------
(2) is the Union Participant's American Cyanamid Benefit.
5.02 Postponed Retirement Benefit - If a Participant continues in Service
after his Normal Retirement Date, he shall be entitled to a Postponed
Retirement Benefit of an annual annuity for life, payable monthly,
commencing at his Postponed Retirement Date, in an amount calculated
in the same way as his Normal Retirement Benefit as determined under
Section 5.01 above calculated as of the Participant's Postponed
Retirement Date, and including Benefit Accrual Service to his
Postponed Retirement Date.
5.03 Early Retirement Benefit - A Participant who retires from Service
prior to his Normal Retirement Date but on or after attaining age 55,
and who has completed at such time five (5) Years of Benefit Accrual
Service, shall be entitled to an Early Retirement Benefit of an
annual annuity for life, payable monthly, commencing at the date
which would have been the Participant's Normal Retirement Date had he
not retired early, in an amount equal to his Normal Retirement
Benefit as determined under Section 5.01 above. At the election of
the Participant, the Participant may receive his Early Retirement
Benefit as an annuity commencing at his Early Retirement Date, or at
any date thereafter. If the Participant elects to receive his Early
Retirement Benefit prior to his Normal Retirement Date, the amount of
his Early Retirement Benefit shall be (a) less (b) where:
(a) is the amount determined under Section 5.01(a), (b), or (c),
as appropriate, without reduction for the Participant's
American Cyanamid Benefit, reduced in accordance with
Section A.02 of Appendix A to reflect the early commencement
of benefits, and
(b) is the Participant's American Cyanamid Benefit as of the date
benefits first become payable to the Participant under the
American Cyanamid Company Employees Retirement Plan, whether
or not the Participant elects to commence benefits under the
21
<PAGE>
American Cyanamid Company Employees Retirement Plan on that
date.
5.04 Disability Benefit - An Active Participant who ceases to perform
services prior to his Normal Retirement Date as a result of Total and
Permanent Disability shall be entitled to an Ancillary Disability
Benefit if he meets all of the following requirements: (i) he has
completed five (5) Years of Service; (ii) he has an age in years and
Years of Service such that the sum of his age and Years of Service is
at least 65; and (iii) he is receiving Social Security disability
benefits. The amount of the monthly Ancillary Disability Benefit
shall be equal to (a) reduced by (b), (c), and (d) where:
(a) is the amount determined under Section 5.01(a), considering
Service completed up to his Disability Date, without
reduction for the Participant's American Cyanamid Benefit,
(b) is the amount of any loss-of-time payments to which the
Participant may be entitled under any Worker's Compensation
Act,
(c) is the amount of any retirement benefit the Participant
receives under the Plan for such month, and
(d) is the Participant's American Cyanamid Benefit as of the
date benefits first become payable to the Participant under
the American Cyanamid Company Employees Retirement Plan,
whether or not the Participant elects to commence benefits
under the American Cyanamid Company Employees Retirement
Plan on that date.
Ancillary Disability Benefit payments will continue to a Participant
until the earliest of: (1) the date the Participant is no longer
Totally and Permanently Disabled; (2) the date he refuses to submit
to a medical examination requested by the Employer, in accordance
with the provisions of this Section 5.04; provided, however, that if
such Participant subsequently submits to such examination, and is
determined still to be Totally and Permanently Disabled, monthly
Ancillary Disability Benefit payments shall resume to such
Participant until otherwise discontinued hereunder; or (3) the date
the Participant reaches Normal Retirement Age.
22
<PAGE>
If a Participant continues to receive Ancillary Disability Benefit
payments until the date he reaches Normal Retirement Age, the
Participant may elect to begin receiving Retirement Benefits on his
Normal Retirement Date based on his Service to his Disability Date,
adjusted to reflect any Service credited while the Participant was on
a disability leave. A Participant who is receiving Ancillary
Disability Benefits hereunder shall furnish medical evidence
acceptable to the Employer and/or shall submit to medical
examination, in either case at the Employer's request (but not more
often than once every six (6) months), to enable the Employer to
determine whether or not such Participant is entitled to continue to
receive Ancillary Disability Benefits.
If a Participant recovers from Total and Permanent Disability and
thereupon returns to the active service of an Affiliated Employer (i)
his benefit will commence to accrue again as of the date of such
return and (ii) he will retain all credit for Service prior to his
Disability Date, adjusted to reflect any Service credited while the
Participant was on a disability leave.
5.05 Accrued Benefit - For any Participant the Accrued Benefit shall be an
annuity payable for life, commencing at the date on which the
Participant would attain his Normal Retirement Date, in an amount
equal to the benefit determined under Section 5.01 using for Benefit
Accrual Service the Years of Benefit Accrual Service the Participant
has as of the date of the calculation.
5.06 (a) Deferred Vested Benefit - A Participant who has incurred a
One-Year Break in Service and who is not entitled to an
Early, Normal, or Postponed Retirement Benefit shall be
entitled to an annual pension benefit, payable as a straight
life annuity commencing at Normal Retirement Date equal to
the Participant's Accrued Benefit on his Severance from
Service Date multiplied by the percentage vested under the
provisions of Article 7, unless such Participant has been
cashed out pursuant to Section 9.02.
(b) Deferred Vested Benefit - Early Commencement - A Participant
entitled to a Deferred Vested Benefit who has satisfied the
service requirement for entitlement to an Early Retirement
Benefit and who subsequently satisfies the age requirement
for entitlement to an Early Retirement Benefit shall be
entitled to elect to receive his Deferred Vested Benefit as
an annuity commencing at the date he
23
<PAGE>
reaches Early Retirement Age, or at any date thereafter. If
the Participant elects to receive his Deferred Vested
Benefit prior to his Normal Retirement Date, the amount of
his Deferred Vested Benefit shall be (1) less (2) where:
(1) is the amount determined under Section 5.01(a),
(b), or (c), as appropriate, without reduction for
the Participant's Cyanamid Benefit, multiplied by
the percentage vested under the provisions of
Article 7 reduced to its Actuarial Equivalent
calculated in accordance with the factors included
in Appendix A, and
(2) is the Participant's American Cyanamid Benefit
payable as of the date benefits first become
payable to the Participant under the American
Cyanamid Company Employees Retirement Plan, whether
or not the Participant elects to commence benefits
under the American Cyanamid Company Employees
Retirement Plan on that date.
5.07 Adjustment for Suspension of Benefits - The otherwise payable Early,
Normal or Postponed Retirement Benefit of any Participant who had
previously become entitled to an Early, Normal or Postponed
Retirement Benefit, but whose benefit payments were suspended
pursuant to the provisions of Article 4, shall be reduced by the
Actuarial Equivalent of any payments previously made to him.
5.08 Special Termination Benefits - Any Union Participant at the Evendale,
Ohio Plant whose age plus Years of Service, when added together,
exceeded 90, and who elected early retirement in 1996 under an early
retirement program offered by the Employer, is eligible for a Social
Security supplemental benefit. This Social Security supplemental
benefit shall be $1,000 per month, and is payable from January 1,
1997 until the last day of the month in which the Participant attains
age 62. If the Participant dies prior to age 62, the Social Security
supplemental benefit shall be payable to his spouse until the first
day of the month in which the Participant would have attained age 62.
24
<PAGE>
ARTICLE 6
Required Benefit Limitations
6.01 Code Section 415 Limits - The benefits otherwise payable to a
Participant or a Beneficiary under this Plan and, where relevant, the
Accrued Benefit of a Participant, shall be limited to the extent
required, and only to the extent required, by the provisions of
Section 415 of the Code and rulings, notices and regulations issued
thereunder. To the extent applicable, Section 415 of the Code and
rulings, notices and regulations issued thereunder are hereby
incorporated by reference into this Plan. In calculating these
limits, the following rules shall apply:
(a) Actuarial Equivalencies - Except where otherwise
specifically set forth in rulings, notices and regulations
incorporated into this Plan by reference, the limitations
applicable to alternative forms of benefit (other than a
qualified joint and survivor annuity under Section 417 of
the Code) shall be determined using the factors set forth in
Appendix A.
(b) Cost of Living Adjustments - If the applicable Code Section
415 limits are increased after a benefit is in pay status by
virtue of an adjustment to those limits reflecting a change
in the cost of living index, benefit payments to a
Participant or his Beneficiary shall be increased
automatically to the maximum extent permitted under the
revised limits. This increase shall occur only to the extent
it would not cause the benefit to exceed the benefit to
which the Participant or Beneficiary would have been
entitled in the absence of the Code Section 415 limits.
(c) Surviving Spouse Payments - If, upon the death of a
Participant whose benefits were limited under this Section
6.01, the Participant's surviving spouse shall be entitled
to a benefit payment smaller than that which was payable
while the Participant was alive, the benefit payments to the
spouse shall equal the lesser of (1) and (2) below, where
(1) is the benefit payment which would be payable to
the surviving spouse if benefits under this Plan
had not been limited by this Section 6.01, and
25
<PAGE>
(2) is the benefit payment which would be payable to
the surviving spouse if the benefit provided under
this plan had been a Joint and Survivor Annuity
with survivor benefits equal to 100% of the amount
payable while the Participant was alive, in an
amount equal to the maximum limitations provided
under this Section 6.01.
(d) Reduction for Participation in Defined Contribution
Plans - If the Participant is, or ever has been,
covered under one or more qualified defined
contribution plans maintained by the Employer or an
Affiliated Employer, the combined plan limits of
Code Section 415(e) that are applicable prior to
January 1, 2000 shall be calculated by reducing the
limits applicable to this Plan first, prior to
restricting annual additions to any such defined
contribution plan.
(e) Reduction for Participation in Defined Benefit Plan
- If the Participant is entitled to a benefit under
any defined benefit plan which is, or ever has
been, maintained by the Employer or an Affiliated
Employer, the limits under this Section 6.01 shall
be applied to the combined benefits payable and the
benefit payable hereunder shall be reduced to the
extent necessary to make the combined benefits meet
the limits under this Section 6.01.
(f) Average Compensation - To calculate average
compensation for an Employee's high 3 years of
service, compensation shall be the Employee's
Compensation as defined in Section 1.16, up to the
dollar limitation contained in Code Section
401(a)(17) in effect for the calendar year, and the
3 years average shall be calculated using
consecutive calendar years.
6.02 Special Limitation for 25 Highest-Paid Employees - The provision of
this Section 6.02 shall apply to the 25 highest paid Highly
Compensated Employees or Highly Compensated Former Employees for a
Plan Year. If a benefit becomes or is payable for a Plan Year to such
an Employee, it cannot exceed an amount equal to the payments that
would be made during the Plan Year on behalf of the Employee under a
single life annuity that is the Actuarial Equivalent of the sum of
the Employee's Accrued Benefit and any other benefits under the Plan.
26
<PAGE>
6.03 Exceptions To Special Limitation - The provisions of Section 6.02
shall not apply if: (a) the value of the benefits which would be
payable to an Employee described in Section 6.02 are less than one
percent of the value of current liabilities, or (b) the assets held
in the Fund equal or exceed, immediately after payment of a benefit
to an Employee described in Section 6.02, one hundred ten (110)
percent of the value of current liabilities. For purposes of this
Section, the value of current liabilities shall be as defined in Code
Section 412(l)(7).
6.04 Distributions Allowed if Security Furnished - A benefit that is
restricted pursuant to Section 6.02 may be nevertheless distributed
if the Employee is obligated to repay the Plan, in the event of a
termination of the Plan, any amount necessary for the distributions
of assets to satisfy the requirements of Code Section 401(a)(4). The
amount the Employee shall be obligated to repay, at any time, shall
not exceed a restricted amount, which shall equal, at any measurement
date, the excess of the distributions the Employee has received over
the amount which the Employee would have received had distributions
commenced in a manner that would have not violated the provisions of
Section 6.02, both accumulated at a reasonable rate of interest from
the date payment was (or would have been) made to the measurement
date. The Employee's obligation to repay must be secured by either:
(a) an escrow account with an initial value at the date of
distribution of at least 125% of the restricted amount, and at all
times thereafter a value of at least 110% of the restricted amount,
(b) a bond, issued by a surety approved by the U.S. Treasury as an
acceptable surety for Federal bonds, of 100% of the restricted
amount, or (c) a bank letter of credit equal to 100% of the
restricted amount.
6.05 Plan Termination Limit - In the event of plan termination the benefit
of any Highly Compensated Employee or Highly Compensated Former
Employee shall be limited to a benefit that is nondiscriminatory
under Code Section 401(a)(4).
6.06 Highly Compensated Employee or Former Employee - The term "Highly
Compensated Employee" shall mean an Employee who performs service
during the Determination Year and is described in one or more of the
following groups in accordance with IRS regulations:
27
<PAGE>
(a) An Employee who is a five percent (5%) owner as defined in
Section 416(i)(1)(B)(i) of the Code, at any time during the
Determination Year or the Look-back Year.
(b) An Employee who receives Compensation in excess of $75,000
during the Look-back Year. (The $75,000 limitation will be
adjusted annually for increases in the cost of living in
accordance with Section 415(d) of the Code.)
(c) An Employee who receives Compensation in excess of $50,000
during the Look-back Year and is a member of the top-paid
group for the Look-back Year. (The $50,000 limitation will
be adjusted annually for increases in the cost of living in
accordance with Section 415(d) of the Code.)
(d) An Employee who: (1) is an officer within the meaning of
Section 416(i) of the Code during the Look-back Year and (2)
receives Compensation in the Look-back Year greater than
fifty percent (50%) of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for the calendar year in
which the Look-back Year begins. Notwithstanding the
foregoing, no more than 50 or, if lesser, the greater of
three (3) Employees or ten percent (10%) of the Employees
shall be treated as officers; provided, however, if no
officer is described in this subsection (d), then the
highest-paid officer for such year shall be treated as
herein described.
(e) An Employee who is (1) described in subsection (b), (c) or
(d) above, and (2) one of the 100 Employees who receives the
most Compensation from the Employer during the Determination
Year, when the Determination Year is substituted for the
Look-back Year in subsection (b), (c), or (d).
The term "Highly Compensated Former Employee" shall mean a former
Employee who has a separation year prior to the Determination Year
and was a Highly Compensated active Employee for either (1) such
Employee's separation year or (2) any Determination Year ending on or
after the Employee's 55th birthday.
A separation year is the Determination Year in which the Employee
separates from service. Notwithstanding the foregoing, an Employee
who
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separated from service before January 1, 1987, is a Highly
Compensated Employee only if he was a five percent (5%) owner or
received Compensation in excess of $50,000 during (i) the Employee's
separation year (or the year preceding such separation year), or (ii)
any year ending on or after such Employee's 55th birthday (or the
last year ending before such Employee's 55th birthday).
Notwithstanding anything to the contrary in this Plan, Sections
414(b), (c), (m), (n) and (o) of the Code are applied prior to
determining whether an Employee is Highly Compensated Employee.
6.07 Definitions - For purposes of this Section and Section 6.06,
(a) "Compensation" shall mean compensation as defined in Section
414(q)(7) and the regulations thereunder.
(b) "Determination Year" shall mean the Plan Year for which the
determination of who is Highly Compensated is being made.
(c) "Look-back Year" shall mean the twelve (12) month period
preceding the Determination Year.
(d) "Top-paid Group" shall mean the top twenty percent (20%) of
Employees when rated on the basis of Compensation paid
during the year. The number of Employees in the group will
be determined in accordance with Section 414(q)(8) of the
Code.
(e) The Employer shall have the right to elect to determine
Highly Compensated Employees by reference to calendar year
Compensation, in accordance with IRS regulations. If the
Employer so elects, the Employer must make such election
with respect to all qualified plans it or any Affiliated
Employer maintains.
6.08 Family Aggregation - For Plan Years beginning before January 1, 1997,
if an Employee is a member of the family of a 5 percent owner or of a
Highly Compensated Employee in the group consisting of the ten Highly
Compensated Employees paid the greatest Compensation during a Plan
Year (or, if the calendar year election of Section 6.06(e) has been
made, calendar year), then:
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(a) such Employee shall not be considered a separate Employee
for the purpose of calculation of, and limitations on,
benefits under this plan (other than the limitations of
Section 6.01), and
(b) for such purposes, any Compensation paid to such Employee,
and any benefits on behalf of such Employee shall be treated
as if paid to, or on behalf of, the 5 percent owner or
Highly Compensated Employee.
6.09 Family Benefits - If a Participant is aggregated with another
Participant for determining limits on benefits under Section 6.08,
the benefits payable to the aggregated Participants shall be
equitably apportioned.
6.10 Family Members - For purposes of Section 6.08, a "member of the
family" shall include only a spouse, lineal ascendants and
descendants, and spouses of those lineal ascendants or descendants,
determined in accordance with IRS regulations.
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ARTICLE 7
Vesting
7.01 General Rule - A Participant who incurs a One-Year Break in Service
at a time when he is not entitled to an Early, Normal or Postponed
Retirement Benefit under the provisions of Article 5 shall not be
entitled to benefits under this Plan except as provided under the
provisions of this Article.
7.02 Vesting at Normal Retirement Age - A Participant who has attained
Normal Retirement Age shall be fully vested in his Accrued Benefit.
7.03 Vested Portion - A Participant who incurs a Termination at a time
when he is not entitled to an Early, Normal or Postponed Retirement
Benefit under the provisions of Article 5 shall be entitled to a
Deferred Vested Benefit, payable as provided under Article 5, which
shall be a portion of his Accrued Benefit calculated in accordance
with the following table:
----------------------------------------------------------------------
Percentage of
Years of Vesting Service Accrued Benefit
----------------------------------------------------------------------
Less than 5 years 0%
5 or more 100%
----------------------------------------------------------------------
7.04 Vesting upon Plan Termination - In the event of termination or
partial termination of this Plan, each affected Participant shall be
100% vested in his Accrued Benefit, but only to the extent funded.
The foregoing sentence shall not apply to a former Participant who
has been cashed out (including those deemed cashed out under Section
2.03(b)) or who has incurred five (5) consecutive One-Year Breaks in
Service after his Severance from Service Date. Such a former
Participant shall not be
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entitled to any additional vested benefit upon termination or partial
termination.
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ARTICLE 8
Preretirement Death Benefits
8.01 Automatic Preretirement Spousal Death Benefit - In the event a
Participant with a vested right to his Accrued Benefit under the Plan
dies before his Benefit Commencement Date, a death benefit shall be
provided to the Participant's spouse as follows:
(a) If the Participant at the date of death was eligible to
retire and receive a benefit under the Plan at an Early,
Normal or Postponed Retirement Date, then his surviving
spouse shall automatically receive a death benefit in an
amount equal to one-half of the amount of retirement benefit
which would have been payable to the spouse if the
Participant had retired on the earlier of (A) the day
preceding his death or (B) his Severance from Service Date,
receiving a benefit in the form of a Joint and Survivor
Annuity with a 50% survivor annuity to the spouse.
(b) If the Participant at the date of death was not eligible to
retire under the Plan and receive a benefit under the Plan
at an Early, Normal, or Postponed Retirement Date, then the
Participant's surviving spouse shall receive an automatic
spousal death benefit in an amount equal to the amount that
would have been payable to the spouse under the normal form
of payment under Section 9.01, assuming:
(1) the Participant had separated from service on the
earlier of his Severance from Service Date or date
of his death,
(2) the Participant had survived to the earliest date
he could have retired and received a benefit under
the Plan pursuant to Article 5,
(3) the Participant retired on such date with a benefit
in the form of a Joint and Survivor Annuity with a
50% survivor annuity to the spouse but calculated
using only actual Benefit Accrual Service as of the
Participant's date of death, and
(4) the Participant died on the day after his Benefit
Commencement Date.
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The automatic preretirement spousal death benefit under this Section
8.01 shall commence to be paid to the spouse, unless the spouse
elects otherwise, as of the first day of the month coinciding with or
next following the earliest date the Participant could have retired
and received a benefit under the Plan pursuant to Article 5, had he
not died, and shall be paid up to the first day of the month in which
such spouse dies. If the spouse elects to postpone commencement of
the preretirement spousal death benefit beyond such earliest date,
the amount of the preretirement spousal death benefit shall be
actuarially adjusted to reflect the postponement. The spouse may not
delay commencement of the preretirement spousal death benefit beyond
the Participant's Normal Retirement Date.
Notwithstanding any other provision of this Section 8.01, if prior to
his death the Participant elected a Joint and Survivor Annuity form
of payment with a survivor benefit greater than 50% payable to his
spouse, in determining the amount of the preretirement spousal death
benefit payable hereunder, the Joint and Survivor Annuity form of
payment elected by the Participant shall be substituted for the Joint
and Survivor Annuity form otherwise provided in subparagraph (a) or
(b).
8.02 Automatic Preretirement Death Benefit - Upon the death of a
Participant with respect to whom no benefit is payable under Section
8.01, a death benefit shall be paid to the designated Beneficiary of
such Participant. The death benefit shall be a single sum payment
equal to the Actuarial Equivalent Value of 120 monthly payments
(starting at the earliest age the Participant could have retired,
discounted to the actual date of payment) of the preretirement
spousal death benefit that would have been payable to the spouse of
the Participant, as determined under Section 8.01, assuming the
Participant had a spouse of the same age as the Participant. This
single sum payment shall be made to the Participant's designated
Beneficiary as soon after the date of death of the Participant as
practicable.
A Participant may designate a Beneficiary to receive the death
benefit provided under this Section in writing on a form acceptable
to the Committee. The Participant may elect an individual or
individuals, or any entity or entities, including corporations,
partnerships or trusts, as
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Beneficiary hereunder provided that such individuals and entities are
ascertainable, and the shares of each are clearly set forth. In the
event any Beneficiary predeceases the Participant or is not in
existence, not ascertainable, or not locatable at the date the death
benefit becomes payable to such Beneficiary, benefits shall be paid
to such contingent Beneficiary or Beneficiaries as shall have been
named by the Participant on the Participant's original Beneficiary
election, and, if none, the contingent Beneficiary shall be the
Participant's estate.
35
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ARTICLE 9
Forms of Benefit
9.01 Qualified Joint and Survivor Annuity - At the earliest time a
Participant could become entitled to commence receiving payments of
an Early, Normal or Postponed Retirement Benefit or of a Deferred
Vested Benefit, other than an involuntary lump sum payment under the
provisions of Section 9.02, benefits shall commence in the form of a
Qualified Joint and Survivor Annuity, (which, for a Participant, who
has no spouse, includes a single life annuity) unless the
Participant, with the consent of his spouse, if any, elects
otherwise. Any consent of the Participant's spouse shall be made
within 90 days of the date the Qualified Joint and Survivor Annuity
would otherwise commence, and shall be executed in accordance with
the rules of Section 9.04.
9.02 Involuntary Lump Sum Payment - If at any time a Participant has
incurred a Termination but has not begun to receive benefit payments,
and is entitled to a benefit (whether Early, Normal or Postponed) or
to a Deferred Vested Benefit, or a Beneficiary is entitled to a death
benefit hereunder, that has an Actuarial Equivalent Value of less
than $3,500 (or such larger amount as may be provided under Code
Section 411(a)(11)), the Actuarial Equivalent Value shall be paid to
such Participant in a lump sum in lieu of, and in full satisfaction
of, his benefit under this Plan. Neither the consent of the
Beneficiary, the Participant nor of his spouse shall be necessary to
make such payment. Upon the making of such payment, neither the
Beneficiary, the Participant nor his spouse shall have any further
benefit under this Plan.
Effective as of the first day of each Plan Year, the Committee shall
recalculate the Actuarial Equivalent Value of the benefit of each
Participant who has incurred a termination who is entitled to a
benefit hereunder and each Beneficiary entitled to a death benefit
hereunder, but whose benefits are not yet in pay status, to determine
whether the Actuarial Equivalent Value of the benefit is less than
$3,500 (or such larger amount as may be provided under Code Section
411(a)(11)), in which case such benefit shall be paid to the
Participant or Beneficiary in accordance with the provisions of this
Section.
9.03 Right to Elect - In lieu of the benefits provided by Section 9.01,
the Participant shall have the right to elect, prior to his Benefit
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<PAGE>
Commencement Date, an alternate form of benefit provided under the
terms of this Article 9. If the Participant is married, any such
election may be made only with the consent of his spouse, executed as
provided under Section 9.04. Any alternative form of benefit shall be
the Actuarial Equivalent of the Participant's Accrued Benefit.
9.04 Election of Forms - A Participant may make or revoke an election of
any form of benefit to which the Participant is entitled under this
Article 9 in writing to the Committee, and such election or
revocation shall be subject to the following conditions:
(a) The Committee shall furnish to each Participant a general
written explanation in nontechnical terms of the
availability of the various optional forms of payment under
the Plan within the 60-day period ending 30 days before the
Participant's Benefit Commencement Date. A Participant has a
right to receive, within 30 days after filing a written
request with the Committee, a written explanation of the
terms and conditions of the 50% Joint and Survivor Annuity
and the financial effect upon the Participant, given in
terms of dollars per annuity payment. Requests for
additional information may be made by the Participant at any
time before the 90th day prior to the Benefit Commencement
Date.
(b) An election to receive an optional form of benefit may be
made at any time during the election period. The election
period is a period of 90 days prior to the Participant's
Benefit Commencement Date. Subject to subparagraph (c)
below, a Participant may make an election not to receive the
Qualified Joint and Survivor Annuity, revoke any previous
election, and if the Participant so desires, make a new
election, until the expiration of the election period.
(c) If a Participant is married, an election of a form of
benefit other than the Qualified Joint and Survivor Annuity
will require the written consent of the spouse, and such
written consent must be witnessed by a notary public or a
representative of the Plan.
9.05 Optional Forms of Retirement Benefit - The optional forms which a
Participant may elect are any one of the following:
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<PAGE>
(a) Joint and Survivor Annuity Option - An Actuarial Equivalent
monthly benefit payable to the Participant for life, and
after his death in the same amount, or an amount not less
than 10% nor more than 100%, in increments of 10%, as
specified by the Participant, to the Joint Annuitant for
life. Should the Joint Annuitant die prior to the
Participant's Benefit Commencement Date, any election of
this option shall be automatically canceled. If the
Participant should die prior to the Benefit Commencement
Date, no payments shall be made under this option to the
Joint Annuitant, but if the Joint Annuitant is the spouse of
the Participant, such spouse will be entitled to the death
benefit provided under Article 8.
(b) Ten-Year Certain and Life Income Option - An Actuarial
Equivalent monthly benefit which provides retirement benefit
payments to the Participant for his lifetime with a
guaranteed minimum period of at least 120 monthly payments.
In the event of the death of the Participant after the
Benefit Commencement Date, but prior to the Participant's
receiving retirement benefit payments for the whole period
certain, the remaining payments for the minimum term of
years will be paid to the Participant's Beneficiary. In the
event of the death of the Participant prior to the
Participant's Benefit Commencement Date, the election of
this option shall be void and of no effect.
(c) Straight Life Annuity Option - A Participant who has a
spouse may elect to have the Participant's retirement
benefit payable in equal unreduced monthly payments during
the Participant's lifetime, with no further payments to any
other person after the Participant's death. If this option
is elected, the retirement benefit payable to the
Participant shall be the amount of retirement benefit
determined under the applicable Section(s) of Article 5.
9.06 Beneficiary - A Participant may name a Joint Annuitant who is an
individual for a Joint and Survivor Annuity option. For a years
certain and life income option, the Participant may elect, in
writing, an individual or individuals, or any entity or entities,
including corporations, partnerships or trusts, provided that such
individuals and entities are ascertainable, and the shares of each
are clearly set forth. In the event any Beneficiary predeceases the
Participant or is not in existence, not
38
<PAGE>
ascertainable, or not locatable at the date benefits become payable
to such Beneficiary, benefits shall be paid to such contingent
Beneficiary or Beneficiaries as shall have been named by the
Participant on the Participant's original Beneficiary election, and,
if none, the contingent Beneficiary shall be the Participant's
estate.
9.07 Eligible Rollover Distributions
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Definitions.
(1) Eligible rollover distribution -- An eligible
rollover distribution is any distribution of all or
any portion of the balance to the credit of the
distributee, except that an eligible rollover
distribution does not include: any distribution
that is one of a series of substantially equal
periodic payments (not less frequently than
annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life
expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not
includible in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) Eligible retirement plan -- An eligible retirement
plan is an individual retirement account described
in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of
the Code, an annuity plan described in Section
403(a) of the Code, or a qualified trust described
in Section 401(a) of the Code, that accepts the
distributee's
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<PAGE>
eligible rollover distribution. However, in the case
of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual
retirement annuity.
(3) Distributee -- A distributee includes an employee
or former employee. In addition, the employee's or
former employee's surviving spouse and the
employee's or former employee's spouse or former
spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to
the interest of the spouse or former spouse.
(4) Direct rollover -- A direct rollover is a payment
by the Plan to the eligible retirement plan
specified by the distributee.
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<PAGE>
ARTICLE 10
Funding
10.01 Funding Agreement - The Employer has entered into a funding
arrangement with one or more Funding Agents providing for the
administration of the Fund or Funds in which the assets of this Plan
are held. The Employer may at any time or from time to time appoint
one or more investment managers, as defined under Section 3(38) of
ERISA, each of which shall direct the Funding Agent in the investment
or reinvestment of all or part of the Fund.
10.02 Non-Diversion of the Fund - To the extent required by law, the
principal or income of any Fund shall be used solely for the
exclusive benefit of Participants or Beneficiaries, or to meet the
necessary expenses of the Plan, except that upon termination of the
Plan, after all the liabilities under the Plan have been satisfied,
any property remaining in a Fund after satisfaction of all
liabilities under this Plan shall be considered the result of
erroneous actuarial computation and shall be distributed by the
Funding Agent to the Employer.
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<PAGE>
ARTICLE 11
Plan Administration
11.01 Appointment of Committee - A Committee consisting of at least three
(3) members shall be appointed by the Board to administer the Plan on
behalf of the Board. Vacancies in the Committee shall be filled from
time to time by appointment of a new Committee member by the Board. A
member of the Committee shall hold office until he gives written
notice of his resignation to the Board, until death, or until removal
by the Board.
Committee members shall be Employees. Upon a member's retirement or
other termination of employment as an Employee, such member shall be
deemed to have given notice to the Board of his resignation from the
Committee.
11.02 Powers and Duties -
(a) The Committee shall have full discretionary power to
administer the Plan and to construe and apply all of its
provisions on behalf of the Employer. The Committee is the
Named Fiduciary within the meaning of Section 402(a) of
ERISA for purposes of Plan administration. The Committee's
powers and duties, unless properly delegated, shall include,
but shall not be limited to:
(1) Designating agents to carry out responsibilities
relating to the Plan, other than fiduciary
responsibilities.
(2) Deciding questions relating to eligibility,
continuity of employment, and amounts of benefits.
(3) Deciding disputes that may arise with regard to the
rights of Employees, Participants and their legal
representatives, or Beneficiaries under the terms
of the Plan. Decisions by the Committee will be
deemed final in each case.
(4) Obtaining information from the Employer with
respect to its Employees as necessary to determine
the rights and benefits of Participants under the
Plan. The Committee may rely conclusively on such
information furnished by the Employer.
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<PAGE>
(5) Compiling and maintaining all records necessary for
the Plan.
(6) Authorizing the Funding Agent to make payment of
all benefits as they become payable under the Plan.
(7) Engaging such legal, administrative, consulting,
actuarial, investment, accounting, and other
professional services as the Committee deems
proper.
(8) Adopting rules and regulations for the
administration of the Plan that are not
inconsistent with the Plan. The Committee may, in a
nondiscriminatory manner, waive the timing
requirements of any notice or other requirements
described in the Plan. Any such waiver will not
obligate the Committee to waive any subsequent
timing or other requirements for other
Participants.
(9) Interpreting and approving Qualified Domestic
Relations Orders.
(10) Making non-substantive amendments for the purposes
of maintaining the qualified status of the Plan
only.
(11) Performing other actions provided for in other parts
of this Plan.
(b) The Employer shall have responsibility for, and shall be the
Named Fiduciary for, the following purposes:
(1) Selection of the funding media for the Plan,
including the power to direct investments and to
appoint an investment manager or managers pursuant
to ERISA Section 402(c).
(2) Allocation of fiduciary responsibilities, other
than trustee responsibilities as defined in ERISA
Section 405(c), among fiduciaries, and designation
of additional fiduciaries.
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<PAGE>
(3) Selection of insurance contracts to provide
benefits hereunder, or, if all assets are not held
under insurance contracts, the Trustee.
(c) The Trustee, if any, shall have responsibility for, and
shall be the Named Fiduciary for the care and custody of,
and, to the extent investment managers are not appointed by
the Employer, management of Plan assets held by such Trustee
other than insurance contracts.
11.03 Actions by the Committee - A majority of the members composing the
Committee at any time will constitute a quorum. The Committee may act
at a meeting, or in writing without a meeting, by the vote or assent
of a majority of its members. The Committee will appoint a Committee
Chairperson and a Secretary. The Secretary will record all action
taken by the Committee. The Committee will have authority to
designate in writing one of its members or any other person as the
person authorized to execute papers and perform other ministerial
duties on behalf of the Committee.
11.04 Interested Committee Members - No member of the Committee will
participate in an action of the Committee on a matter which applies
solely to that member. Such matters will be determined by a majority
of the remainder of the Committee.
11.05 Indemnification - The Employer, by the adoption of this Plan,
indemnifies and holds the members of the Committee, jointly and
severally, harmless from the effects and consequences of their acts,
omissions, and conduct in their official capacities, except to the
extent that the effects and consequences result from their own
willful misconduct, breach of good faith, or gross negligence in the
performance of their duties. The foregoing right of indemnification
will not be exclusive of other rights to which each such member may
be entitled by any contract or other instrument or as a matter of
law.
11.06 Conclusiveness of Action - Any action on matters within the
discretion of the Committee will be conclusive, final, and binding
upon all Participants in the Plan and upon all persons claiming any
rights, including Beneficiaries.
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<PAGE>
11.07 Payment of Expenses - The members of the Committee will serve without
compensation for their services. The compensation or fees of
consultants, actuaries, accountants, counsel and other specialists
and any other costs of administering the Plan or Fund, including any
premiums due to the Pension Benefit Guaranty Corporation (PBGC), will
be paid by the Fund unless, at the discretion of the Employer, paid
by the Employer.
11.08 Claim Procedure - Any Participant or Beneficiary may submit a written
application to the Committee for payment of any benefit that may be
due him under the Plan. Such application shall set forth the nature
of the claim and any information as the Committee may reasonably
request. Upon receipt of any such application, the Committee shall
determine whether or not the Participant or Beneficiary is entitled
to the benefit hereunder. If a claim is denied, in whole or in part,
the Committee shall give written notice to any Participant or
Beneficiary of the denial of a claim for the commencement,
continuation or calculation of amount of retirement benefits under
the Plan. The notice shall be given within ninety (90) days after
receipt of the Participant's or Beneficiary's application unless
special circumstances require an extension for processing the claim.
In no event shall such extension exceed a period of ninety (90) days
from the end of such initial review period. The notice will be
delivered to the claimant or sent to the claimant's last known
address, and will include the specific reason or reasons for the
denial, a specific reference or references to pertinent Plan
provisions on which the denial is based, a description of any
additional material or information for the claimant to perfect the
claim, which will indicate why such material or information is
needed, and an explanation of the Plan's claims review procedure. If
the claimant wishes to appeal the claim's denial, the claimant or a
duly authorized representative will file a written request with the
Committee for a review. This request must be made by the claimant
within sixty (60) days after receiving notice of the claim's denial.
The claimant or representative may review pertinent documents
relating to the claim and its denial, may submit issues and comments
in writing to the Committee and may request a hearing. Within sixty
(60) days after receipt of such a request for review, the Committee
shall reconsider the claim, and if the claimant shall have so
requested, shall afford the claimant or his representative a hearing
before the Committee and make a decision on the merits of the claim.
If circumstances require an extension of time for processing the
claim, the sixty (60) day period
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<PAGE>
may be extended but in no event more than one hundred and twenty
(120) days after the receipt of a request for review. The decision on
review will be in writing and include specific reasons and references
to the pertinent Plan provisions on which the decision is based.
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<PAGE>
ARTICLE 12
Funding Policy and Contributions
12.01 Employer Contributions - The Employer intends to make contributions
to fund this Plan at such times and in such amounts as the Actuary
shall certify to the Employer as being no less than the amounts
required to be contributed under Section 412 of the Code. Any
actuarial gains arising under the Plan shall be used to reduce future
Employer contributions to the Plan and shall not be applied to
increase retirement benefits with respect to remaining Participants.
12.02 Participant Contributions - Participant contributions to the Fund are
not permitted.
12.03 Contingent Nature of Contributions - Unless the Employer notifies the
Committee and the Funding Agent in writing to the contrary, all
contributions made to this Plan are conditioned upon their
deductibility under Section 404 of the Code.
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<PAGE>
ARTICLE 13
Amendment, Termination and Merger of the Plan
13.01 Right to Amend the Plan - The Employer reserves the right to modify,
alter or amend this Plan from time to time to any extent that it may
deem advisable including, but without limiting the generality of the
foregoing, any amendment deemed necessary to ensure the continued
qualification of the Plan under Section 401 of the Code or the
appropriate provisions of any subsequent revenue law. No such
amendment shall increase the duties or responsibilities of a Funding
Agent without its consent thereto in writing. No such amendment shall
have the effect of reinvesting in the Employer the whole or any part
of the principal or income of the Fund or to allow any portion of the
principal or income of the Fund to be used for any purposes other
than for the exclusive benefit of Participants or Beneficiaries at
any time prior to the satisfaction of all the liabilities under the
Plan with respect to such persons. No amendment shall (a) reduce a
Participant's Accrued Benefit on the effective date of the Plan
amendment, (b) eliminate or reduce an early retirement benefit,
retirement-type subsidy or an optional form of benefit under the Plan
with respect to the Participant's Accrued Benefit on the date of the
amendment, or (c) reduce a retired Participant's retirement benefit
as of the effective date of the amendment.
13.02 Right to Terminate the Plan - The Employer shall have the right to
terminate this Plan at any time. In the event of such termination all
affected Participants shall be vested as provided in Section 7.04.
13.03 Allocation of Assets and Surplus - In the event the Plan shall be
terminated as provided in Section 13.02 above, the then present value
of retirement benefits vested in each Participant shall be determined
as of the discontinuance date, and the assets then held by the
Funding Agents as reserves for benefits for Participants, Joint
Annuitants or Beneficiaries under this Plan shall, subject to any
necessary approval by the Pension Benefit Guaranty Corporation, be
allocated, to the extent that they shall be sufficient, after
providing for expenses of administration, in the order of precedence
provided for under Section 4044 of ERISA, as modified by the
provisions of IRS regulations 1.414(l)-l (f) or (h) if a special
schedule of benefits (as defined in such regulations) is in effect as
a result of a plan merger within the five year period prior to the
date of termination. The retirement benefits for which funds have
been allocated in
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accordance with Section 4044 of ERISA shall be provided through the
continuance of the existing Fund arrangements or through a new
instrument entered into for that purpose and shall be paid either in
a lump sum or in equal monthly installments through the purchase of a
nontransferable annuity contract(s). After all liabilities of the
Plan have been satisfied with respect to all Participants so affected
by the Plan's termination, the Employer shall be entitled to any
balance of Plan assets which shall remain.
13.04 Plan Mergers, Consolidations and Transfers - The Plan shall not be
automatically terminated by the Employer's acquisition by or merger
into any other company, trade or business, but the Plan shall be
continued after such merger provided the successor employer agrees to
continue the Plan with respect to affected Participants herein. All
rights to amend, modify, suspend or terminate the Plan with respect
to Participants of the Employer shall be transferred to the successor
employer, effective as of the date of the merger or acquisition. The
merger or consolidation with, or transfer of the allocable portion of
the assets and liabilities of the Fund to any other qualified
retirement plan trust shall be permitted only if the benefit each
Plan Participant would receive, if the Plan were terminated
immediately after such merger or consolidation, or transfer of the
allocable portion of the assets and liabilities, would be at least as
great as the benefit he would have received had this Plan been
terminated immediately before the date of merger, consolidation or
transfer.
13.05 Amendment of Vesting Schedule - If the vesting provisions of this
Plan are amended, including an amendment caused by the expiration of
top-heavy status under the terms of Article 14, Participants with
three (3) or more Years of Service, whether or not consecutive, at
the later of the date the amendment is adopted or becomes effective,
shall automatically be vested, from that point forward, in the
greater of the amount vested under the vesting schedule as amended or
the amount vested under the vesting schedule prior to amendment.
49
<PAGE>
ARTICLE 14
Top-Heavy Plan Provisions
14.01 General Rule - For any Plan Year for which this Plan is a "Top-Heavy
Plan" as defined in Section 14.06 below this Plan shall be subject to
the provisions of this Article 14.
14.02 Vesting Provision - Each Participant who has completed an Hour of
Service during the Plan Year in which the Plan is top-heavy and has
completed the number of Years of Vesting Service specified in the
following table, shall have a vested right to the percentage of his
Accrued Benefit under this Plan, correspondingly shown in the
following table:
----------------------------------------------------------------------
Percentage of
Years of Vesting Service Accrued Benefit
----------------------------------------------------------------------
Less than 2 years 0%
2 20%
3 40%
4 60%
5 or more 100%
----------------------------------------------------------------------
Each Participant's Deferred Vested Benefit shall not be less than his
vested Accrued Benefit determined as of the last day of the last Plan
Year in which the Plan was not a Top-Heavy Plan. If the Plan ceases
to be a Top-Heavy Plan, an Employee with three or more Years of
Service shall have his Deferred Vested Benefit determined either in
accordance with this Section 14.02 or Section 7.03, as provided in
Section 13.05.
14.03 Minimum Benefit Provision - If the Plan is a Top-Heavy Plan in any
Plan Year, each Participant who is a Non-Key Employee shall, as of
the end of that Plan Year, be entitled to an Accrued Benefit that is
at least equal to the Applicable Percentage of the Participant's
Average Compensation for Years in the Testing Period. For purposes of
this Section:
50
<PAGE>
(a) "Applicable Percentage" shall mean the lesser of two (2)
percent multiplied by Years of Service of the Participant,
or twenty (20) percent;
(b) "Average Compensation for Years in the Testing Period" shall
mean average annual earnings for that period of five (5)
consecutive years that produces the highest average. In
determining consecutive years, any year not included as a
Year of Service under the provisions of Article 2 shall be
ignored. In calculating Average Compensation for Years in
the Testing Period, the amount of compensation taken into
account for each year shall not exceed the dollar limitation
contained in Section 401(a)(17) of the Code in effect at the
beginning of the year.
14.04 Change in 415(e) Limits - If the Plan is a Top-Heavy Plan the
combined plan limit of Section 415(e) of the Code shall be applied by
substituting "1.0" for "1.25" in Code Sections 415(e)(2)(b) and
415(e)(3)(b). The first sentence of this Section 14.04 will not apply
if the Plan is not a Super Top-Heavy Plan, as defined in Section
14.06, and if the Accrued Benefit of each Participant would meet the
requirements of Section 14.03 if the Applicable Percentage under that
Section were the lesser of (a) or (b) where:
(a) is three (3) percent multiplied by Years of Service
(b) is twenty (20) percent increased by one (1) percent for each
year the Plan was subject to the change in 415(e) limits
under this Section 14.04, but not to more than 30 percent.
14.05 Coordination with Other Plans - In the event that another defined
contribution or defined benefit plan maintained by the Employer or an
Affiliated Employer provides contributions or benefits on behalf of
Participants in this Plan, such other plan shall be treated as part
of this Plan pursuant to applicable principles (such as Rev. Rul.
81-202 or any successor ruling) in determining whether this Plan
satisfies the requirements of Sections 14.02 and 14.03. Such
determination shall be made upon the advice of counsel by the
Committee.
14.06 Top-Heavy and Super Top-Heavy Plan Definition - This Plan shall be a
"Top-Heavy Plan" for any Plan Year if, as of the determination date
(as defined in subsection 14.06(a)) the present value of the
cumulative
51
<PAGE>
Accrued Benefits under the Plan for Participants (including former
Participants) who are Key Employees (as defined in Section 14.07)
exceeds sixty (60) percent of the present value of the cumulative
Accrued Benefits under the Plan for all Participants, excluding
former Key Employees, or if this Plan is required to be in an
aggregation group (as defined in Section 14.06(c)) which for such
Plan Year is a top-heavy group (as defined in Section 14.06(d)). This
Plan shall be a "Super Top-Heavy Plan" for any Plan Year if it meets
the above definition after substituting "ninety (90) percent" for
"sixty (60) percent." For purposes of this Section:
(a) "Determination date" means for any Plan Year the last day of
the immediately preceding Plan Year (Except that for the
first Plan Year of this Plan the determination date means
the last day of such Plan Year.)
(b) The present value shall be determined as of the most recent
valuation date that is within the twelve (12)-month period
ending on the determination date and as described in the
regulations under the Code. Present values for purposes of
determining whether this Plan is a Top-Heavy Plan shall be
based on the following interest and mortality rates:
(1) Interest Rate: 5%
(2) Mortality Rate - 1983 Group Annuity Table for Males
(c) "Aggregation group" means the group of plans, if any, that
includes both the group of plans that are required to be
aggregated and the group of plans that are permitted to be
aggregated.
(1) The group of plans that are required to be
aggregated (the "required aggregation group")
includes:
(A) Each plan of an Affiliated Employer in
which a Key Employee is a participant,
including collectively bargained plans.
(B) Each other plan which enables a plan in
which a Key Employee is a participant to
meet the requirements of the Code
prohibiting discrimination as to
contributions
52
<PAGE>
or benefits in favor of employees who are
officers, shareholders or the highly
compensated or prescribing the minimum
participation standards.
(2) The group of plans that are permitted to be
aggregated (the "permissive aggregation group,")
includes the required aggregation group plus one or
more plans of an Affiliated Employer that is not
part of the required aggregation group and that the
Committee certifies as constituting a plan within
the permissive aggregation group. Such plan or
plans may be added to the permissive aggregation
group only if, after the addition, the aggregation
group as a whole continues not to discriminate as
to contributions or benefits in favor of officers,
shareholders or the highly-compensated and
continues to meet the minimum participation
standards under the Code.
(d) "Top-heavy group" means the aggregation group, if as of the
applicable determination date, the sum of the present value
of the cumulative accrued benefits for Key Employees under
all defined benefit plans included in the aggregation group
plus the aggregate of the accounts of key employees under
all defined contribution plans included in the aggregation
group exceeds sixty percent (60%) of the sum of the present
value of the cumulative accrued benefits for all Employees,
excluding former Key Employees, under all such defined
benefit plans plus the aggregate accounts for all Employees,
excluding former Key Employees, under such defined
contribution plans. If the aggregation group that is a
top-heavy group is a required aggregation group, each plan
in the group will be top heavy. If the aggregation group
that is a top-heavy group is a permissive aggregation group,
only those plans that are part of the required aggregation
group will be treated as top-heavy. If the aggregation group
is not a top-heavy group, no plan within such group will be
top-heavy.
(e) In determining whether this Plan constitutes a "Top-Heavy
Plan", the Committee (or its agent) shall make the following
adjustments in connection therewith:
(1) When more than one plan is aggregated, the
Committee shall determine separately for each plan
as of each plan's
53
<PAGE>
determination date the present value of the accrued
benefits or account balance. The results shall then
be aggregated by adding the results of each plan as
of the determination dates for such plans that fall
within the same calendar year.
(2) In determining the present value of the cumulative
accrued benefit or the amount of the account of any
Employee, such present value or account shall
include the amount in dollar value of the aggregate
distributions made to such Employee under the
applicable plan during the five-year period ending
on the determination date, unless reflected in the
value of the accrued benefit or account balance as
of the most recent valuation date. Such amounts
shall include distributions to Employees which
represented the entire amount credited to their
accounts under the applicable plan.
(3) Further, in making such determination, such present
value or such account shall include any rollover
contribution (or similar transfer), as follows:
(A) If the rollover contribution (or similar
transfer) is initiated by the employee and
made to or from a plan maintained by
another employer, the plan providing the
distribution shall include such
distribution in the present value or such
account; the plan accepting the
distribution shall not include such
distribution in the present value or such
account unless the plan accepted it before
December 31, 1983.
(B) If the rollover contribution (or similar
transfer) is not initiated by the employee
or made from a plan maintained by another
employer, the plan accepting the
distribution shall include such
distribution in the present value or such
account, whether the plan accepted the
distribution before or after December 31,
1983; the plan making the distribution
shall not include the distribution in the
present value or such account.
54
<PAGE>
(4) Further, in making such determination, in any case
where an individual is a "non-key employee," as
defined in Section 14.08 with respect to an
applicable plan, but was a "key employee", as
defined in Section 14.07, with respect to such plan
for any prior plan year, any accrued benefit and
any account of such employee shall be altogether
disregarded. For this purpose, to the extent that a
key employee is deemed to be a key employee if he
met the definition of key employee within any of
the four preceding plan years, this provision shall
apply following the end of such period of time.
14.07 Key Employee - The term "Key Employee" means any Employee or former
Employee under this Plan who, at any time during the Plan Year
containing the determination date or during any of the four preceding
Plan Years, is or was one of the following:
(a) An officer of the Employer having annual compensation
greater than fifty percent (50%) of the amount in effect
under Section 415(b)(1)(A) of the Code for such Plan Year.
Whether an individual is an officer shall be determined by
the Committee on the basis of all the facts and
circumstances, such as an individual's authority, duties and
term of office, not on the mere fact that the individual has
the title of an officer. For any such Plan Year, there shall
be treated as officers no more than the lesser of:
(1) 50 Employees, or
(2) the greater of three Employees or 10 percent of the
Employees.
For this purpose, the highest paid officers shall be
selected.
(b) One of the ten Employees owning (or considered as owning,
within the meaning of the constructive ownership rules of
the Code) the largest interests in an Affiliated Employer.
An Employee who has some ownership interest is considered to
be one of the top ten owners unless at least ten other
Employees own a greater interest than the Employee. However,
an Employee will not be considered a top ten owner for a
plan year if the Employee earns less than the amount in
effect under Code Section 415(c)(1)(A) as in effect for the
calendar year in which the determination date falls.
55
<PAGE>
(c) Any person who owns (or is considered as owning within the
meaning of the constructive ownership rules of the Code)
more than five percent of the outstanding stock of an
Affiliated Employer or stock possessing more than five
percent of the combined total voting power of all stock of
the employer.
(d) A one percent owner of an Affiliated Employer having an
annual compensation from the Employer of more than $150,000,
and possessing more than five percent of the combined total
voting power of all stock of an Affiliated Employer. For
purposes of this section, compensation means compensation as
defined in Section 415 of the Code.
For purposes of parts (a), (b), (c) and (d) of this definition, a
Beneficiary of a Key Employee shall be treated as a Key Employee. For
purposes of parts (c) and (d), each Affiliated Employer is treated
separately in determining ownership percentages; but, in determining
the amount of compensation, each Affiliated Employer is taken into
account.
14.08 Non-Key Employee - The term "Non-Key Employee" means any Participant
who is not a Key Employee.
14.09 Collective Bargaining Rules - The provisions of Sections 14.02, 14.03
and 14.04 do not apply with respect to any Employee included in a
unit of Employees covered by a collective bargaining agreement unless
the application of such sections has been agreed upon with the
collective bargaining agent.
56
<PAGE>
ARTICLE 15
Miscellaneous
15.01 Limitation on Distributions - Notwithstanding any provision of this
Plan regarding payment to Beneficiaries or Participants, or any other
person, the Committee may withhold payment to any person if the
Committee determines that such payment may expose the Plan to
conflicting claims for payment. As a condition for any payments, the
Committee may require such consent, representations, releases,
waivers or other information as it deems appropriate. The Committee
may, in its discretion, comply with the terms of any judgment or
other judicial decree, order, settlement or agreement including, but
not limited to, a Qualified Domestic Relations Order as defined in
Code Section 414(p).
15.02 Limitation on Reversion of Contributions - Except as provided in
subsections (a) through (c) below, Employer contributions made under
the Plan will be held for the exclusive benefit of Participants,
Joint Annuitants or Beneficiaries and may not revert to the Employer.
(a) A contribution made by the Employer under a mistake of fact
may be returned to the Employer within one (1) year after it
is contributed to the Plan, to the extent that it exceeds
the amount which would have been contributed, absent the
mistake in fact.
(b) A contribution conditioned on the Plan's initial
qualification under Sections 401(a) and 501(a) of the Code
may be returned to the Employer, if the Plan does not
qualify, within one (1) year after the date the Plan is
denied qualification.
(c) A contribution conditioned upon its deductibility under
Section 404 of the Code, may be returned, to the extent the
deduction is disallowed, to the Employer within one (1) year
after the disallowance.
Earnings attributable to amounts which may be returned to the
Employer pursuant to this Section may not be distributed, but, in the
event that there are losses attributable to such amounts, the amount
returned to the Employer shall be reduced by the amount of such
losses.
57
<PAGE>
15.03 Voluntary Plan - The Plan is purely voluntary on the part of the
Employer and neither the establishment of the Plan nor any Plan
amendment nor the creation of any fund or account, nor the payment of
any benefits will be construed as giving any Employee or any person
legal or equitable right against the Employer, any trustee or other
Funding Agent, or the Committee unless specifically provided for in
this Plan or conferred by affirmative action of the Committee or the
Employer according to the terms and provisions of this Plan. Such
actions will not be construed as giving any Employee or Participant
the right to be retained in the service of the Employer. All
Employees and/or Participants will remain subject to discharge to the
same extent as though this Plan had not been established.
15.04 Nonalienation of Benefits - Participants and Beneficiaries are
entitled to all the benefits specifically set out under the terms of
the Plan, but neither those benefits nor any of the property rights
in the Plan are assignable or distributable to any creditor or other
claimant of a Participant or Beneficiary. A Participant will not have
the right to anticipate, assign, pledge, accelerate, or in any way
dispose of or encumber any of the monies or benefits or other
property that may be payable or become payable to such Participant or
his Beneficiary provided, however, the Committee shall recognize and
comply with a valid Qualified Domestic Relations Order as defined in
Code Section 414(p).
15.05 Inability to Receive Benefits - If the Committee receives evidence
that a person entitled to receive any payment under the Plan is
physically or mentally incompetent to receive payment and to give a
valid release, and another person or any institution is maintaining
or has custody of such person, and no guardian, committee, or other
representative of the estate of such person has been duly appointed
by a court of competent jurisdiction, then any distribution made
under the Plan may be made to such other person or institution. The
release of such other person or institution will be a valid and
complete discharge for the payment of such distribution.
15.06 Missing Persons - If the Committee is unable, after reasonable and
diligent effort, to locate a Participant, Joint Annuitant, or
Beneficiary where no contingent Beneficiary is provided under the
Plan, who is entitled to a distribution under the Plan, the
distribution due such person will be forfeited after five (5) years.
If, however, such a person later files a
58
<PAGE>
claim for such benefit, it will be reinstated without any interest
earned thereon. In the event that a distribution is due to a
Beneficiary where a contingent Beneficiary is provided under the Plan
(including the situation in which the contingent Beneficiary is the
Participant's estate), and the Committee is unable, after reasonable
and diligent effort, to locate the Beneficiary, the benefit shall be
payable to the contingent Beneficiary, and such non-locatable
Beneficiary shall have no further claim or interest hereunder.
Notification by certified or registered mail to the last known
address of the Participant or Beneficiary will be deemed a reasonable
and diligent effort to locate such person.
15.07 Limitation of Third Party Rights - Nothing expressed or implied in
the Plan is intended or will be construed to confer upon or give to
any person, firm, or association other than the Employer, the
Participants or Beneficiaries, and their successors in interest, any
right, remedy, or claim under or by reason of this Plan except
pursuant to a Qualified Domestic Relations Order as defined in Code
Section 414(p).
15.08 Invalid Provisions - In case any provision of this Plan is held
illegal or invalid for any reason, the illegality or invalidity will
not affect the remaining parts of the Plan. The Plan will be
construed and enforced as if the illegal and invalid provisions had
never been included.
15.09 One Plan - This Plan may be executed in any number of counterparts,
each of which will be deemed an original and the counterparts will
constitute one and the same instrument and may be sufficiently
evidenced by any one counterpart.
15.10 Use and Form of Words - Whenever any words are used herein in the
masculine gender, they will be construed as though they were also
used in the feminine gender in all cases where that gender would
apply, and vice versa. Whenever any words are used herein in the
singular form, they will be construed as though they were also used
in the plural form in all cases where the plural form would apply,
and vice versa.
15.11 Headings - Headings to Articles and Sections are inserted solely for
convenience and reference, and in the case of any conflict, the text,
rather than the headings, shall control.
59
<PAGE>
15.12 Governing Law - The Plan will be governed by and construed according
to the Federal laws governing employee benefit plans qualified under
the Code and according to the laws of the state of Delaware where
such laws are not in conflict with the Federal laws.
60
<PAGE>
IN WITNESS WHEREOF, the Formica Corporation has adopted this Plan effective as
of January 1, 1996.
By:______________________________
ATTEST: Title:______________________________
By___________________________
Title:_______________________ Date:____________________
61
<PAGE>
FORMICA CORPORATION EMPLOYEE RETIREMENT PLAN
APPENDIX A
A.01 For purposes of determining the amount of any optional form of
retirement income payable, the following interest rate and mortality
rates shall be used:
Interest rate: 6 1/2% per year, compounded annually
Mortality rates: 1971 TPF&C Forecast Mortality Table on a
unisex basis with Employee ages set back one year
and Joint Annuitant ages set back five years,
unless otherwise provided in this Appendix A.
A.02 If benefits become payable to a Participant as of a date prior to his
Normal Retirement Date, such Participant's Accrued Benefit shall be
reduced as follows:
(a) For Participants the sum of whose age and Service (in whole
years) is at least 65 and who have completed less than 20
Years of Service, a reduction at a rate of 0.25% for each
full month that his Benefit Commencement Date precedes
attainment of age 65, unless the employee was hired after
the attainment of age 60, in which case the reduction will
be based on each full month his Benefit Commencement Date
precedes his Normal Retirement Age.
(b) For Participants with at least 20 Years of Service at
retirement, a reduction at a rate of 0.25% for each full
month his Benefit Commencement Date precedes the attainment
of age 62.
(c) No reduction shall be made for Participants who retire on or
after age 62 with 20 or more Years of Service.
(d) For Participants the sum of whose age and Service (in whole
years) is less than 65, an actuarial reduction in accordance
with Section A.01 above.
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<PAGE>
A.03 For purposes of Section 6.01(a), Actuarial Equivalent shall mean the
lesser of the adjusted benefit as determined in A.01 or in accordance
with the 1983 Group Annuity Table for Males mortality table with 5%
annual interest.
A.04 Notwithstanding the above, for purposes of Section 9.02, Actuarial
Equivalent shall be calculated using the interest rate which would be
used, as of the beginning of the Plan Year in which distribution
occurs, by the Pension Benefit Guaranty Corporation in determining
the present value of a lump sum distribution on plan termination.
63
<PAGE>
FIRST AMENDMENT
TO
FORMICA CORPORATION EMPLOYEE RETIREMENT PLAN
WHEREAS, Formica Corporation (the "Sponsor") adopted the
Formica Corporation Employee Retirement Plan (the "Plan"), most recently
amended and restated effective January 1, 1996; and
WHEREAS, the Sponsor desires to amend the Plan;
NOW, THEREFORE, the Sponsor amends the Plan as follows:
1. Section 1.16 of the Plan is amended by the addition of
the following to the end thereof, effective January 1, 1996:
For purposes of the Plan, (i) prior to 1994, an Employee's
Compensation for any Plan Year shall not be deemed to exceed
$200,000 or such greater amount as may be permitted for such
Plan Year under section 401(a)(17) of the Code and (ii)
after 1993, an Employee's Compensation for any Plan Year
shall not be deemed to exceed $150,000 or such greater
amount as may be permitted for such Plan Year under section
401(a)(17) of the Code. For Plan Years beginning prior to
January 1, 1997, in determining the Compensation of a
Participant for purposes of the foregoing limitation, the
rules of section 414(q)(6) of the Code shall apply, except
in applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal decedents of
the Participant who have not attained age 19 before the
close of the Plan Year. If, as a result of the application
of such rules, either of the foregoing limitations is
exceeded, then the limitation shall be prorated among the
affected individuals in proportion to each such individual's
Compensation as determined under this paragraph prior to the
application of the limitation.
2. The last paragraph of Section 1.22 of the Plan is amended
and restated to read as follows, effective January 1, 1996:
For purposes of the Plan, (i) prior to 1994, an Employee's
Earnings for any Plan Year shall not be deemed to exceed
$200,000 or such greater amount as may be permitted for such
Plan Year under section 401(a)(17) of the Code and (ii)
after 1993, an Employee's Earnings for any Plan Year shall
not be deemed to exceed $150,000 or such greater amount as
may be permitted for such Plan Year under section 401(a)(17)
of the Code. For Plan Years beginning prior to January 1,
1997, in determining the Earnings of a Participant for
purposes of the foregoing limitation, the rules of section
414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of
the Participant and any lineal decedents of the Participant
who have not attained
<PAGE>
age 19 before the close of the Plan Year. If, as a result of
the application of such rules, either of the foregoing
limitations is exceeded, then the limitation shall be
prorated among the affected individuals in proportion to
each such individual's Earnings as determined under this
paragraph prior to the application of the limitation.
3. Section 1.24 of the Plan is amended and restated to read
as follows, effective January 1, 1996:
"Eligible Employee" shall mean an Employee who is employed
by an Employer and who works in the United States of America
but does not include a person whose terms and conditions of
employment are the subject of a collective bargaining
agreement between an Employer and a collective bargaining
agent unless and until participation in the Plan shall have
been negotiated for and agreed to in writing by the
representatives of such Employer and the collective
bargaining agent.
The term "Eligible Employee" shall not include the
following: (1) a Leased Employee; (2) an Employee who is
newly employed by the Employer on or after April 21, 1992 at
the Employer's Evendale, Ohio plant and whose terms and
conditions of employment are subject to a collective
bargaining agreement between the Employer and a collective
bargaining agent; (3) an Employee who is accruing benefits
under any other pension plans sponsored by an Affiliated
Employer, including any such plans sponsored in the United
States or in any other country; or (4) an Employee who is
newly employed by the Employer on or after September 16,
1997 at the Employer?s Sierra, California plant and whose
terms and conditions of employment are subject to a
collective bargaining agreement between the Employer and a
collective bargaining agent.
4. Section 1.35 of the Plan is amended and restated to read
as follows, effective January 1, 1996:
"Leased Employee" means any person who performs services for
the Employer (the "recipient") (other than an employee of
the recipient) pursuant to an agreement between the
recipient and any other person (the "leasing organization")
on a substantially full-time basis for a period of at least
one year, provided that (i) effective prior to January 1,
1997, such services are of a type historically performed, in
the business field of the recipient, by employees or (ii)
effective January 1, 1997, such services are performed under
the primary direction and control of the recipient. An
"excludable leased employee" means any leased employee of
the recipient who is covered by a money purchase pension
plan maintained by the leasing organization which provides
for (i) a nonintegrated employer contribution on behalf of
each participant in the plan
2
<PAGE>
equal to at least ten percent of compensation, (ii) full and
immediate vesting, and (iii) immediate participation by
employees of the leasing organization (other than employees
who perform substantially all of their services for the
leasing organization or whose compensation from the leasing
organization in each plan year during the four-year period
ending with the plan year is less than $1,000); provided,
however, that leased employees do not constitute more than
20 percent of the recipient's nonhighly compensated work
force. For purposes of this Section 1.35, contributions or
benefits provided to a leased employee by the leasing
organization that are attributable to services performed for
the recipient shall be treated as provided by the recipient.
5. Section 2.04(b) of the Plan is amended and restated to
read as follows, effective January 1, 1996:
(b) he close of the first period of five (5) consecutive
One-Year Breaks in Service following the date
distribution is made to the Participant.
6. The chart contained in Section 5.01(c) of the Plan shall
be replaced with the following chart, effective January 1, 1998:
-------------------------------------------------------------
Monthly Benefit Per Year of
Benefit Accrual Service While a Union Participant
-------------------------------------------------------------
Plan Year of
Participant's
Severance From
Service Date Participant's Pay Level
-------------------------------------------------------------
H-1, H-2,
H-3, H-4, Warehouse & H-5, H-6 &
Service Employees Maintenance
-------------------------------------------------------------
Prior to 1998 $17.50 $19.50
-------------------------------------------------------------
1998 - 2000 18.50 20.50
-------------------------------------------------------------
2001 19.50 21.50
-------------------------------------------------------------
2002 20.50 22.50
-------------------------------------------------------------
3
<PAGE>
7. Section 6.01(f) of the Plan is amended and restated to
read as follows, effective January 1, 1996:
(f) Average Compensation - To calculate average compensation
or an Employee's high 3 years of service, compensation
shall be the Employee's Compensation as defined in
Section 1.16 and the 3 years average shall be calculated
using consecutive calendar years.
8. Section 9.04(c) of the Plan is amended and restated to
read as follows, effective January 1, 1996:
(c) If a Participant is married, an election of a form of
benefit other than the Qualified Joint and Survivor
Annuity will require the written consent of the spouse
which written consent must (i) be witnessed by a notary
public or a representative of the Plan, (ii) state the
specific nonspouse beneficiary (including any class of
beneficiaries or contingent beneficiaries) and the
particular optional form of benefit, neither of which
may be further modified (except back to a Qualified
Joint and Survivor Annuity) without subsequent spousal
consent (unless expressly permitted by the spouse), and
(iii) acknowledge the effect of the election.
9. Section 14.06(c)(1)(A) of the Plan is amended and
restated to read as follows, effective Janaury 1, 1996:
(A) Each plan of an Affiliated Employer in which a Key
Employee is a participant or was a participant at
any time during the 5-year period ending on the
Determination date (regardless of whether the plan
has terminated), including collectively bargained
plans.
10. Section 14.06(e) of the Plan is amended by the addition
of the following to the end thereof, effective January 1, 1996:
(5) In making such determination, the account balances and
accrued benefits of a Participant who has not been
credited with at least one hour of service with any
employer maintaining the plan at any time during the
5-year period ending on the Determination date will be
disregarded.
11. Section 14.06(b) of the Plan is amended by the addition
of the following to the end thereof, effective January 1, 1996:
If an Aggregation group includes two or more defined benefit
plans, the actuarial assumptions specified above shall be
used with respect to all such plans.
4
<PAGE>
12. Section A.04 in the Addendum to the Plan document is
amended and restated to read as follows, effective January 1, 1998:
Notwithstanding the above, for purposes of Section 9.02,
Actuarial Equivalent shall be calculated using the following
mortality table and interest rate:
(a) Mortality - The applicable mortality table in effect
under Section 417(e)(3)(A)(ii)(I) of the Code; and
(b) Interest Rate - The annual rate of interest on 30-year
Treasury securities for the November preceding the Plan
Year in which the distribution is made.
IN WITNESS WHEREOF, the Sponsor has executed this instrument
this day of , 1998.
FORMICA CORPORATION
By:___________________________
Title:________________________
63140
Exhibit 10.10
KRVP ENGLISH TRANSLATION
DECEMBER 23, 1986
EMPLOYEE RETIREMENT PLAN OF
FORMICA TAIWAN CORPORATION
Article 1
The retirement of the employees of Formica Taiwan Corporation (the
"Company") shall be administered according to the provisions of this Plan.
Article 2
The term "employee" as used in this Plan refers to permanent employees
of the Company, not including those temporary employees.
Article 3
The retirement of the employees of the Company shall be handled
pursuant to the Labor Standards Law and applicable laws and regulations.
Article 4
Voluntary Retirement: An employee who meets either of the following
requirements may voluntarily request retirement:
1. He or she has worked with the Company 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 the Company for a period of not less
than twenty-five years.
Article 5
Mandatory Retirement: Where an employee falls into either of the
following criteria, the Company may require him or her to retire:
1. He or she has reached the age of sixty; or
2. He or she is mentally or physically disabled and thus
incompetent to perform his or her job.
<PAGE>
Article 6
A retiree's service period before the effective date of the Labor
Standard Law (i.e. August 1, 1984) ("Non LSL Service Period") and service period
thereafter ("LSL Service Period") shall be combined for calculation of
retirement benefits. The criteria for retirement benefits are as follows:
1. The retirement benefits for the LSL Service Period shall be
calculated pursuant to the following rules:
(a) Two points are given for each year's service during the LSL
Service Period for the initial fifteen (15) years, and one
point per year is given for the service period subsequent to
the initial fifteen years of the LSL Service Period, provided
that the maximum points shall not exceed a total of forty-five
points. A partial year of service shall be deemed half a year
if it is less than half a year and deemed one year if it is
not less than half a year.
(b) An employee taking mandatory retirement under Subparagraph 2
of Article 5 shall be entitled to the payments under
Subparagraph 1(a) of this article plus an additional twenty
percent of such amount if his mental or physical disability
was caused by the performance of his duties.
(c) A "point" of retirement benefit as referred to in Subparagraph
1(a) of this article means one month's average pay at the time
of retirement approval. Average pay shall be calculated
pursuant to Item 4 of Article 2 of the Labor Standards Law.
2. The retirement benefits for the Non-LSL Service Period shall be
calculated according to the following rules:
(a) An employee having Non-LSL Service Period service of not less
than fifteen years shall be paid thirty points for the initial
fifteen years' service period and 0.5 points for each
subsequent year's service period. A partial year of service
shall be deemed one year if it is not less than half a year or
disregarded if it is less than half a year. The maximum
payment shall be limited to thirty-five points.
2
<PAGE>
(b) An employee taking mandatory retirement under Subparagraph 1
of Article 5 who has a Non-LSL Service Period service of less
than fifteen years shall be paid two points for each year's
service. A partial year of service shall be deemed one year if
it is not less than half a year and paid one point if it is
less than half a year.
(c) An employee taking mandatory retirement under Subparagraph 2
of Article 5 who has a Non-LSL Service Period service of less
than fifteen years shall be paid two points for each year's
service. A partial year of service period shall be calculated
as one year.
(d) A "point" of retirement benefit as referred to in
Subparagraphs 2(a) - (c), above, shall be equal to the average
pay of the retiring employee during the three month period
prior to the retirement approval.
3. If an employee's service period includes LSL Service Period and
Non-LSL Service Period, his total and maximum retirement benefit as
calculated pursuant to Subparagraphs 1 and 2 of this article
respectively shall be limited to forty-five points. If the points
as calculated are more than forty-five, the point(s) in excess of
forty-five shall be deducted from the number of points for the LSL
Service Period.
Article 7
The service period under this Plan shall be determined according to the
following rules:
1. An employee's service period shall commence from the date of first
employment. His continuous service period with the Company shall
include the period for military service, provided that any other
non-paid suspension period shall not be counted. If an employee was
transferred from Cyanamid Taiwan Corporation ("Cyanamid") to the
Company at the beginning of the Company's establishment, his
service period with Cyanamid will be included for calculation
purposes.
2. If an employee resigns from the Company without receiving any
severance pay or termination pay and then returns to work with the
Company within two years, and if such subsequent service
3
<PAGE>
continues for three years, his past service period will be included
for calculation purposes, but the suspension periods shall be
excluded.
3. Subject to the provisions of the preceding article on divided or
constructive service periods, service periods must be computed as a
single, unbroken period based on actual time employed in order to
compute retirement eligibility and retirement benefits.
Article 8
An employee's age shall be based on his household registration records.
Article 9
An employee who retires either on a voluntary or mandatory basis shall
submit an application together with relevant documents to his direct superior(s)
for relay to the General Manager of the Company for approval.
Article 10
Retirement benefits shall be paid in principle in one lump sum. If the
employee retirement pension fund as contributed pursuant to law is inadequate
for payment of retirement benefits, the Company shall make up the difference or
obtain the approval of the authority in charge for installment payments.
Article 11
The contribution to and management of the Company's employee retirement
pension fund shall be handled pursuant to the Regulations for Contributions to
and Management of an Employee Retirement Pension Fund, as approved by the
Executive Yuan and promulgated by the Ministry of Interior ("Regulations"). The
portion of the employee retirement fund which Cyanamid agreed to transfer to the
Company at the time of the incorporation of the Company because of the Company's
takeover of part of Cyanamid's business and employees, shall be transferred to
the special account of the Company's employee retirement pension fund as soon as
possible pursuant to applicable laws and regulations and contracts, to
constitute a part of the Company's employee retirement pension fund, pooled for
payment of retirement benefits or severance pay to all the employees of the
Company (not limited to those employees transferred from Cyanamid) pursuant to
law.
4
<PAGE>
The Company may from time to time make adjustments to the percentage of
contribution to the Company's employee retirement pension fund on the basis of
the factors included in the Regulations (including the portion of the employee
retirement fund Cyanamid will transfer to the Company under the preceding
paragraph), business revenue and other relevant facts, provided, however, that
the provisions for floor and ceiling rates under the Regulations shall be
followed.
Article 12
For purposes of making contributions to the employee retirement pension
fund, the total payroll to which the contribution rate applies shall be based
upon the payroll figure as reported to the tax collection authority.
Article 13
The department or Company personnel in charge of making
contributions to the employee retirement pension fund shall deposit such
contributions with the designated banking institution each month and shall, on
or prior to the first business day following the date of deposit, provide
evidence of such deposit to the Company's Retirement Pension Fund Supervisory
Committee for its review.
Deposit of contributions to the employee retirement pension fund shall
be handled only through a collection bank designated by the Company.
Operational guidelines regarding contributions to and deposit of the
employee retirement pension fund shall be as prescribed by the Company.
Article 14
In case of the retirement of any employee, the Company's personnel and
accounting executives shall calculate the amount of his retirement benefit and
then submit such amount to the General Manager of the Company so that he may
approve the amount and issue notice for payment of retirement benefit or
applicable documents. Such notice or documents shall then be signed by the
chairman and vice chairman of the Company's Retirement Pension Fund Supervisory
Committee before receiving payment from the banking institution concerned.
Article 15
The right to receive retirement benefit may not be assigned, nor made
subject to attachment, provisional attachment, provisional measure, or
disposition.
5
<PAGE>
Unless otherwise provided by law, any assignment, hypothecation, encumbrance, or
promise to a third person in connection with the retirement benefit shall not be
recognized by the Company.
Article 16
An employee's right to claim his or her retirement benefit shall be
extinguished as of the date falling five years from the month following the
month of retirement.
Article 17
In paying retirement benefits, the Company shall comply with the Income
Tax Law and applicable laws and regulations in withholding income tax or
handling relevant matters.
Article 18
In the event of closure of the Company, the then existing employee
retirement pension fund may be used for payment of severance pay for employees,
in addition to payments of retirement benefits pursuant to this Plan. The
balance thereof after such payments, if any, shall belong to the Company.
Article 19
This Plan and its amendments must be adopted by the General Manager and
the Board of Directors of the Company and shall become effective upon report to
and approval by the competent authority.
6
<TABLE>
Exhibit 12.1
FORMICA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio data)
Eleven Three Four Eight Three
Months Months Months Months Months
Ended Ended Ended Ended Ended
12/31/94 12/31/95 12/31/96 12/31/97 3/31/98 4/30/98 12/31/98 3/31/99
-------- -------- -------- -------- ------- ------- -------- --------
<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) (5.8) (14.6) (19.5) (8.3)
Add:
Portion of rents representative
of the interest factor 2.5 2.6 2.5 2.6 0.6 0.8 1.8 0.6
Interest on indebtedness and
amortization of debt expense 46.4 31.7 10.6 3.1 1.3 1.7 25.7 10.4
---- ---- ---- ----- ---- ---- ---- ----
Income as adjusted $ 57.6 2.0 (9.8) (498.9) (3.9) (12.1) 8.0 2.7
==== ==== ==== ===== ==== ==== ==== ====
Fixed charges:
Interest on indebtedness and
amortization of debt expense (1) 46.4 31.7 10.6 3.1 1.3 1.7 25.7 10.4
---- ---- ---- ----- ---- ---- ---- ----
Capitalized interest (2) -- -- 0.2 1.3 -- -- -- --
---- ---- ---- ----- ---- ---- ---- ----
Rents 7.6 7.8 7.6 7.8 1.8 2.4 5.3 1.9
Portion of rents representative
of the interest factor (3) 2.5 2.6 2.5 2.6 0.6 0.8 1.8 0.6
---- ---- ---- ----- ---- ---- ---- ----
Fixed charges (1)+(2)+(3) $ 48.9 34.3 13.3 7.0 1.9 2.5 27.5 11.0
==== ==== ==== ===== ==== ==== ==== ====
00tio 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
July 16, 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 the Amendment No. 1 to the Registration Statement (Form S-1
No. 333-76683) of Formica Corporation dated July 19, 1999.
/s/ Ernst & Young, LLP
White Plains, NY
July 16, 1999
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
(Name of Trustee)
SUMMIT BANK
(I.R.S. Employer Identification No.)
22-0834947
(Address of Principal Executive Offices)
Corporate Trust Administration
210 Main Street 6th Floor
Hackensack, NJ
07601
(Name of Obligor)
Formica Corporation
(State of Incorporation)
Delaware
(I.R.S. Employer Identification No.)
34-1046753
(Address of Principal Executive Offices)
15 Independence Boulevard
Warren, NJ 07059
(Title of Indenture Securities)
10 7/8% Senior Subordinated Notes due 2009
<PAGE>
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject:
Name Address
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New Jersey Department of Banking Trenton, NJ
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. Affiliations with obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None (See Note on Page 6)
3. Voting securities of the trustee
Furnish the following information as to each class of voting securities of
the trustee: As of March 31, 1999
Col. A Col. B
------ ------
Summit Bank, New Jersey Common Stock* 34,590,561 shares
Summit Bank, New Jersey Preferred Stock* 120,000 shares
All stock is owned by Summit Bancorp
4. Trusteeships under other indentures
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following
information:
None
<PAGE>
5. Interlocking directorates and similar relationships with the obligor or
underwriters
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the nature
of each such connection.
Vincent Langone, Chairman of the Board and CEO of Formica Corporation,
serves as a director of Summit Bank, New Jersey, a wholly-owned subsidiary
of Summit Bancorp.
6. Voting securities of the trustee owned by the obligor or its officials
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner, and
executive officer of the obligor:
Not applicable - see answer to item 13
7. Voting securities of the trustee owned by underwriters or their officials
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner, and executive officer of each such underwriter:
None
8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by
the Trustee:
Not applicable - see answer to item 13
9. Securities of underwriters owned or held by the trustee
If the trustee owned beneficially or holding as collateral security for
obligations in default any securities or an underwriter for the obligor,
furnish the following information as to each class of securities of such
underwriter any of which are owned or held by the trustee:
Not applicable - see answer to item 13
<PAGE>
10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge
of the trustee (1) owns 10 percent or more of the voting stock of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities of such
person:
Not applicable - see answer to item 13
11. Ownership or holdings by the trustee of any securities of a person owning
50 percent or more of the voting securities of the obligor
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of
the trustee, owns 50 percent or more of the voting securities of the
obligor, furnish the following information as to each class of securities
of such person any of which are owned or held by the trustee:
12. Indebtedness of the obligor to the trustee
Col. A Col. B Col. C
-------------------------------------------------------------
Nature of Amount Date Due
Indebtedness O/S
Revolving Credit $5,714,286 05/01/2004
Term Loan $2,000,000 05/01/2004
Term Loan $2,285,714 05/01/2004
13. Defaults by the obligor
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the nature of any
such default.
None
<PAGE>
14. Affiliations with the underwriters
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
None
15. Foreign trustee
Identify the order or rule pursuant to which the trustee is authorized to
act as sole trustee under indenture qualified or to be qualified under the
Act.
Not applicable
16. List of Exhibits
List below all exhibits filed as part of this statement of eligibility
1. *Copy of Articles of Association of the Trustee as now in effect.
2. No certificate of authority of the Trustee to commence business is
furnished since this authority is contained in the Articles of
Association of the Trustee.
3. No copy of the authorization of the trustee to exercise corporate
trust powers is furnished since this authorization is contained in
the Articles of Association of the Trustee.
4. *Copy of the existing By-Laws of the Trustee as now in effect.
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act.
7. A copy of the latest report of Condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
*Exhibits thus designated have heretofore been filed with the Securities
and Exchange Commission, have not been amended since filing and are
incorporated herein by reference (see Exhibits TIA(i) and TIA(ii) File No.
285667)
<PAGE>
NOTE
The Trustee disclaims responsibility for the accuracy or completeness of
information contained in this Statement of Eligibility and Qualification not
known to the trustee and not obtained by it through reasonable investigation
and as to which information it has obtained from the obligor and has had to
rely or will obtain from the principal underwriters and will have to rely.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Summit Bank, a corporation organized and existing under the laws of
the State of New Jersey, has duly caused this Statement of Eligibility and
Qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Hackensack and State of New Jersey on the 15th
day of April, 1999.
SUMMIT BANK
By:_______________________________
H. Lewis Stone
Vice President
<PAGE>
CONSENT OF TRUSTEE
Summit Bank, as trustee (the "Trustee") under an indenture to be entered
into between itself and Formica Corporation. hereby consents to Section 321(b)
of the Trust Indenture Act of 1939, as amended, to the furnishing by Federal
State, Territorial or District Authorities to the Securities and Exchange
Commission of all reports, records or other information relating thereto.
SUMMIT BANK
By:_______________________________
H. Lewis Stone
Vice President
Dated: April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 814241
<NAME> Formica Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 3-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> MAR-31-1999 DEC-31-1998 APR-30-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 2,900 31,600 0
<SECURITIES> 0 0 0
<RECEIVABLES> 83,700 69,100 0
<ALLOWANCES> 3,800 4,200 0
<INVENTORY> 123,400 110,300 0
<CURRENT-ASSETS> 232,500 229,800 0
<PP&E> 308,000 305,900 0
<DEPRECIATION> 20,400 17,200 0
<TOTAL-ASSETS> 693,500 696,800 0
<CURRENT-LIABILITIES> 112,800 115,300 0
<BONDS> 312,600 295,900 0
0 0 0
0 0 0
<COMMON> 100 100 0
<OTHER-SE> 100,500 119,700 0
<TOTAL-LIABILITY-AND-EQUITY> 693,500 696,800 0
<SALES> 139,200 371,400 178,300
<TOTAL-REVENUES> 140,700 371,400 178,300
<CGS> 98,700 266,200 131,100
<TOTAL-COSTS> 98,700 266,200 131,100
<OTHER-EXPENSES> 39,900 103,500 60,900
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 10,400 25,700 1,700
<INCOME-PRETAX> (8,300) (19,500) (14,600)
<INCOME-TAX> 1,200 2,800 0
<INCOME-CONTINUING> (9,500) (22,300) (14,600)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (9,500) (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 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1996 JAN-1-1998
<PERIOD-END> DEC-31-1997 DEC-31-1996 MAR-31-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 27,200 26,300 20600
<SECURITIES> 0 0 0
<RECEIVABLES> 69,900 76,100 83400
<ALLOWANCES> 1,500 1,400 1500
<INVENTORY> 119,000 112,600 123300
<CURRENT-ASSETS> 243,400 234,200 234200
<PP&E> 333,200 289,100 341750
<DEPRECIATION> 53,200 34,200 57950
<TOTAL-ASSETS> 647,700 1,136,800 638200
<CURRENT-LIABILITIES> 176,800 174,700 175600
<BONDS> 11,400 3,100 11400
0 0 0
0 0 0
<COMMON> 100 100 100
<OTHER-SE> 343,300 870,660 345400
<TOTAL-LIABILITY-AND-EQUITY> 647,700 1,136,800 638200
<SALES> 533,400 521,600 131800
<TOTAL-REVENUES> 533,400 521,600 131800
<CGS> 350,100 348,300 94000
<TOTAL-COSTS> 350,100 348,300 94000
<OTHER-EXPENSES> 686,600 186,700 42900
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,100 10,600 1300
<INCOME-PRETAX> (504,600) (22,900) (5800)
<INCOME-TAX> 200 5,000 0
<INCOME-CONTINUING> (504,800) (27,900) (5800)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (504,800) (27,900) (5800)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
Exhibit 99.1
LETTER OF TRANSMITTAL
FORMICA CORPORATION
Offer to Exchange Its
10 7/8% Series B Senior Subordinated Notes due 2009
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
10 7/8% Series A Senior Subordinated Notes due 2009
Pursuant to the Prospectus
Dated June _, 1999
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1999, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
SUMMIT BANK, N.A.
By Registered or Certified Mail: By Overnight Delivery or Hand:
Summit Bank Summit Bank
210 Main Street 210 Main Street
Hackensack, NJ 07602 Hackensack, NJ 07602
Contact: H. Lewis Stone Contact: H. Lewis Stone
To Confirm by Telephone Facsimile Transmissions:
or for Information: (201-646-0087)
(201-646-5000)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) if Old Notes are to be forwarded herewith. If tenders of Old
Notes are to be made by book-entry transfer to an account maintained by Summit
Bank, N.A. (the "Exchange Agent") at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer" in the Prospectus and in accordance with the Automated Tender Offer
Program ("ATOP") established by DTC, a tendering holder will become bound by
the terms and conditions hereof in accordance with the procedures established
under ATOP.
<PAGE>
Holders of Old Notes whose certificates (the "certificates") for such Old
Notes are not immediately available or who cannot deliver their certificates
and all other required documents to the Exchange Agent on or prior to the
expiration date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. SEE
INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and address(es) of Registered Holder(s) Old Notes Tendered
(Please fill in, if blank) (attach additional list if necessary)
- -------------------------------------------------------------------------------------------------------------------
Principal Amount of
Certificate Principal Amount Old Notes Tendered
Number(s)* of Old Notes* (if less than all)**
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Total Amount
Tendered
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed
tendered unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution______________________________________________
DTC Account Number_________________________________________________________
Transaction Code Number____________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s)_______________________________________________
Window Ticket Number (if any)______________________________________________
Date of Execution of Notice of Guaranteed Delivery_________________________
Name of Institution which Guaranteed_______________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution______________________________________________
DTC Account Number_________________________________________________________
Transaction Code Number____________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
3
<PAGE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
___________________________________________________________________
4
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Formica Corporation, a Delaware
corporation (the "Company"), the principal amount of the Company's 10 7/8%
Series A Senior Subordinated Notes due 2009 (the "Old Notes") specified above
in exchange for a like aggregate principal amount of the Company's 10 7/8%
Series B Senior Subordinated Notes due 2009 (the "New Notes"), upon the terms
and subject to the conditions set forth in the Prospectus dated June _, 1999
(as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer"). The Exchange Offer has been registered under the Securities Act of
1933, as amended (the "Securities Act").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with
the Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED
HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the certificates representing such Old Notes. The
certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if certificates are submitted for more Old Notes than are
tendered or accepted for exchange, certificates for such unaccepted or
nonexchanged Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly following
the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. In all cases in which a
Participant elects to accept the Exchange Offer by transmitting an express
acknowledgment in accordance with the established ATOP procedures, such
Participant shall be bound by all of the terms and conditions of this Letter of
Transmittal. The undersigned recognizes that, under certain circumstances set
forth in the Prospectus, the Company may not be required to accept for exchange
any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account indicated
above maintained at DTC. If applicable, substitute certificates representing
Old Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Notes, will be
credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver New
Notes to the undersigned at the address shown below the undersigned's
signature.
5
<PAGE>
By tendering Old Notes and executing, or otherwise becoming bound by, this
letter of transmittal, the undersigned hereby represents and agrees that
(i) the undersigned is not an "affiliate" of the Company,
(ii) any New Notes to be received by the undersigned are being acquired in
the ordinary course of its business,
(iii) the undersigned, unless it is a broker-dealer tendering for its own
account, has no arrangement or understanding with any person to participate in
a distribution (within the meaning of the securities act) of such New Notes and
(iv) the undersigned, unless it is a broker-dealer tendering for its own
account, is not engaged in, and does not intend to engage in, a distribution of
the New Notes.
By tendering Old Notes pursuant to the exchange offer and executing, or
otherwise becoming bound by, this letter of transmittal, a holder of Old Notes
which is a broker-dealer represents and agrees, consistent with certain
interpretive letters issued by the staff of the Division of Corporation Finance
of the Securities and Exchange Commission to third parties, that (a) such Old
Notes held by the broker-dealer are held only as a nominee, or (b) such Old
Notes were acquired by such broker-dealer for its own account as a result of
market-making activities or other trading activities and (I) it has no
arrangement or understanding with the Company or any of its affiliates to
participate in a distribution of the New Notes and (II) it will deliver the
prospectus (as amended or supplemented from time to time) meeting the
requirements of the securities act in connection with any resale of such New
Notes (provided that, by so acknowledging and by delivering a prospectus, such
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the securities act).
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the prospectus, as it may be amended or supplemented from
time to time, may be used by a participating broker-dealer (as defined below)
in connection with resales of New Notes received in exchange for Old Notes,
where such Old Notes were acquired by such participating broker-dealer for its
own account as a result of market-making activities or other trading
activities, for a period ending 90 days after the expiration date (subject to
extension under certain limited circumstances) or, if earlier, when all such
New Notes have been disposed of by such participating broker-dealer. In that
regard, each broker dealer who acquired Old Notes for its own account as a
result of market-making or other trading activities (a "participating
broker-dealer"), by tendering such Old Notes and executing, or otherwise
becoming bound by, this letter of transmittal, agrees that, upon receipt of
notice from the Company of the occurrence of any event or the discovery of any
fact which makes any statement contained in the prospectus untrue in any
material respect or which causes the prospectus to omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such participating broker-dealer will suspend the sale of New Notes
pursuant to the prospectus until the Company has amended or supplemented the
prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to the participating broker-dealer or
the Company has given notice that the sale of the New Notes may be resumed, as
the case may be. If the Company gives such notice to suspend the sale of the
New Notes, it shall extend the 90-day period referred to above during which
participating broker-dealers are entitled to use the prospectus in connection
with the resale of New Notes by the number of days during the period from and
including the date of the giving of such notice to and including the date when
participating broker-dealers shall have received copies of the supplemented or
amended prospectus necessary to permit resales of the New Notes or to and
including the date on which the Company has given notice that the sale of New
Notes may be resumed, as the case may be.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
6
<PAGE>
- -------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(See Instructions 2, 5 and 6)
(Note: Signature(s) Must be Guaranteed if Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith. If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity, please
set forth the signer's full title. See Instruction 5.
________________________________________________________________________________
(Signature(s) of Holder(s))
Date______________________________________________________________________, 1998
Name(s)_________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
(Include Full Title)
Address_________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number__________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number(s))
GUARANTEE OF SIGNATURE(S)
(See Instructions 2 and 5)
Authorized Signature____________________________________________________________
Name____________________________________________________________________________
________________________________________________________________________________
(Please Print)
Date______________________________________________________________________, 1998
Capacity or Title_______________________________________________________________
Name of Firm____________________________________________________________________
Address_________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number__________________________________________________
- -------------------------------------------------------------------------------
7
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if the New Notes are to
be issued in the name of someone other than the
registered holder of the Old Notes whose
name(s) appear(s) above.
Issue New Notes to:
Name__________________________________________
(Please Print)
_______________________________________________
Address________________________________________
_______________________________________________
_______________________________________________
(Include Zip Code)
_______________________________________________
(Taxpayer Identification or
Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if the New Notes are to
be sent to someone other than the holder of the Old
Notes whose name(s) appear(s) above, or to such
registered holder(s) at an address other than that
shown above.
Mail New Notes to:
Name__________________________________________
(Please Print)
_______________________________________________
Address________________________________________
_______________________________________________
_______________________________________________
(Include Zip Code)
_______________________________________________
(Taxpayer Identification or
Social Security Number)
8
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if certificates are
to be forwarded herewith. If tenders are to be made pursuant to the procedures
for tender by book-entry transfer set forth in "The Exchange Offer--Book- Entry
Transfer" in the Prospectus and in accordance with ATOP established by DTC, a
tendering holder will become bound by the terms and conditions hereof in
accordance with the procedures established under ATOP. Certificates, or timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), if required, properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at one of its addresses set
forth herein on or prior to the expiration date. Old Notes may be tendered in
whole or in part in the principal amount of $1,000 and integral multiples of
$1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent on or
prior to the expiration date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Letter of
Transmittal (or facsimile) thereof and Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by
the Exchange Agent on or prior to the expiration date; and (iii) the
certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Old Notes, in proper form for transfer, together with
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Notes to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on
or prior to the expiration date. As used herein and in the Prospectus,
"Eligible Institution" means a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, 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 THE COMPANY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), or any Agent's Message in lieu thereof, waives any right to
receive any notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
9
<PAGE>
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)."
In such case, new certificate(s) for the remainder of the Old Notes that were
evidenced by your old certificate(s) will only be sent to the holder of the Old
Note, promptly after the expiration date. All Old Notes represented by
certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the expiration date. In order for a withdrawal to be
effective on or prior to that time, a written notice of withdrawal must be
timely received by the Exchange Agent at one of its addresses set forth above
or in the Prospectus on or prior to the expiration date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes) and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for the Old
Notes have been delivered or otherwise identified to the Exchange Agent, then
prior to the release of such certificates, the withdrawing holder must submit
the serial numbers of the particular certificates for the Old Notes to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution, unless such holder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedures for book-entry transfer set
forth in the Prospectus under "The Exchange Offer--Book-Entry Transfer," any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Old Notes and otherwise comply with the
procedures of such facility. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any time on or prior to the expiration date by following one of the procedures
described in the Prospectus under "The Exchange Offer--Procedures for Tendering
Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry procedures described in the Prospectus under
"The Exchange Offer--Book-Entry Transfer" such Old Notes will be credited to an
account maintained with DTC for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of certificates.
10
<PAGE>
If this Letter of Transmittal or any certificates or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
such persons' authority to so act must be submitted.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of
certificate(s) or written instrument or instruments of transfer or exchange are
required unless New Notes are to be issued in the name of a person other than
the registered holder(s). Signature(s) on such certificate(s) or written
instrument or instruments of transfer or exchange must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by the Company in its sole discretion and
executed by the registered holder(s), in either case signed exactly as the name
or names of the registered holder(s) appear(s) on the certificates. Signatures
on such certificates or written instrument or instruments of transfer or
exchange must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form, validity, eligibility (including time of receipt)
and acceptance for exchange of any tender of Old Notes, which determination
shall be final and binding. The Company reserves 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 the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right, in its sole discretion, 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). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the expiration date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with the tender of Old Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, 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 such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its
address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen certificate(s) have been
followed.
10. SECURITY 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 the Company 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.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF),
11
<PAGE>
OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
12
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
For Tender Of
10 7/8% Series A Senior Subordinated Notes due 2009
of
Formica Corporation
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 10 7/8% Series A Senior
Subordinated Notes due 2009 (the "Old Notes") are not immediately available,
(ii) Old Notes and any other documents required by the Letter of Transmittal
cannot be delivered to Summit Bank, N.A. (the "Exchange Agent") on or prior to
the Expiration Date (as defined in the Prospectus referred to below) or (iii)
the procedures for book-entry transfer cannot be completed on a timely basis.
This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission, overnight courier, telex, telegram or mail to the
Exchange Agent. See "The Exchange Offer - Guaranteed Delivery Procedures" in
the Prospectus dated June _, 1999 (which, together with the related Letter of
Transmittal, constitutes the "Exchange Offer") of Formica Corporation, a
Delaware corporation (the "Company").
The Exchange Agent for the Exchange Offer is:
SUMMIT BANK, N.A.
By Hand or Overnight Facsimile Transmissions: By Registered Or
Delivery: (Eligible Institutions Only) Certified Mail:
Summit Bank, N.A. Summit Bank, N.A.
210 Summit Bank (201-646-0087) 210 Summit Bank
Hackensack, NJ 07602 Hackensack, NJ 07602
Contact: H. Lewis Stone To Confirm by Telephone Contact: H. Lewis Stone
or for Information Call:
(201-646-5000)
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DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL.
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THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for Signature Guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the
certificates for all physically tendered Old Notes, in proper form for
transfer, or confirmation of the book-entry transfer of such Old Notes to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with any other documents required by the Letter of Transmittal,
within five New York Stock Exchange trading days after the date of execution of
this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Old Notes tendered
hereby to the Exchange Agent within the time period set forth above and that
failure to do so could result in a financial loss to the undersigned.
Name of Firm:______________________ __________________________________
(Authorized Signature)
Address:___________________________ Title:____________________________
___________________________________ Name:_____________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:_____________________________
___________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
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Exhibit 99.3
Offer to Exchange
10 7/8% Series B Senior Subordinated Notes due 2009
(Registered Under The Securities Act of 1933)
for Any and All Outstanding
10 7/8% Series A Senior Subordinated Notes due 2009
of
FORMICA CORPORATION
To Our Clients:
Enclosed is a Prospectus, dated June _, 1999, of Formica Corporation, a
Delaware corporation (the "Company"), and a related Letter of Transmittal
(which together constitute the "Exchange Offer") relating to the offer by the
Company to exchange its 10 7/8% Series B Senior Subordinated Notes due 2009 (the
"New Notes"), pursuant to an offering registered under the Securities Act of
1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 10 7/8% Series A Senior Subordinated Notes due 2009 (the
"Old Notes") upon the terms and subject to the conditions set forth in the
Exchange Offer.
Please note that the Exchange Offer will expire at 5:00 p.m., New York
City time, on ______, 1999, unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the
book-entry transfer facility and pursuant to your instructions. The Letter of
Transmittal is furnished to you for your information only and cannot be used by
you to tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes to be received by the holder are being acquired in
the ordinary course of its business, (iii) unless the holder is a broker-dealer
buying for its own
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account, the holder has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Notes and (iv) unless the holder is a broker-dealer buying for its own
account, the holder is not engaged in or intends to participate in a
distribution of the New Notes. If the tendering holder is a broker-dealer that
will receive New Notes for its own account in exchange for Old Notes, we will
represent on behalf of such broker-dealer that (i) it has no arrangement or
understanding with the Company or any of its affiliates to participate in a
distribution of the New Notes and (ii) the Old Notes to be exchanged for the
New Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Very truly yours,
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Exhibit 99.4
Offer to Exchange
10 7/8% Series B Senior Subordinated Notes due 2009
(Registered under the Securities Act of 1933)
for Any and All Outstanding
10 7/8% Series A Senior Subordinated Notes due 2009
of
FORMICA CORPORATION
To Registered Holders and The Depository
Trust Company Participants:
Enclosed are the materials listed below relating to the offer by Formica
Corporation, a Delaware corporation (the "Company"), to exchange its 10 7/8%
Series B Senior Subordinated Notes due 2009 (the "New Notes"), pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding
10 7/8% Series A Senior Subordinated Notes due 2009 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Company's Prospectus,
dated June _, 1999, and the related Letter of Transmittal (which together
constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated June _, 1999;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire at 5:00 p.m., New York City time, on _______, 1999
unless extended.
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The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes to be received by it are being acquired in the
ordinary course of its business, (iii) unless the holder is a broker-dealer
buying for its own account, the holder has no arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of such New Notes and (iv) unless the holder is a broker-dealer
buying for its own account, the holder is not engaged is or intends to
participate in a distribution of the New Notes. If the tendering holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, you will represent on behalf of such broker- dealer that (i) it has
no arrangement or understanding with the Company or any of its affiliates to
participate in a distribution of the New Notes and (ii) the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities, and acknowledge on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, such broker-dealer is not deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of
the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Old Notes to it, except as otherwise provided in Instruction 10 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
SUMMIT BANK, N.A.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF FORMICA CORPORATION OR SUMMIT BANK, N.A. OR AUTHORIZE YOU TO USE ANY
DOCUMENT OR MAKE ANY
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STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
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Exhibit 99.5
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
FORMICA CORPORATION
10 7/8% Series A Senior Subordinated Notes due 2009
(the "Old Notes")
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated June
_, 1999 (the "Prospectus") of Formica Corporation, a Delaware corporation (the
"Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of the 10 7/8% Series A Senior Subordinated Notes due 2009
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if any):
$___________ of the 10 7/8% Series A Senior Subordinated Notes due 2009
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
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If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the holder is not an "affiliate" of the Company, (ii) any New Notes to be
received by the holder are being acquired in the ordinary course of its
business, (iii) unless the holder is a broker-dealer buying for its own
account, the holder has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Notes and (iv) unless the holder is a broker- dealer buying for its
own account, the holder is not engaged in or intends to participate in a
distribution of the New Notes. If the undersigned is a broker- dealer that will
receive New Notes for its own account in exchange for Old Notes, it represents
that (i) it has no arrangement or understanding with the Company or any of its
affiliates to participate in a distribution of the New Notes and (ii) such Old
Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, such broker-dealer is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933, as amended.
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SIGN HERE
Name of beneficial owner(s):____________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Telephone Number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
________________________________________________________________________________
Date:___________________________________________________________________________
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