As filed with the Securities and Exchange Commission on April 10, 2001.
Registration No. 333-76683
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Post-Effective Amendment No. 2 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
Formica Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1046753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
David T. Schneider
Vice President, Chief Financial Officer and Secretary
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------------
-------------------------
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. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed
Proposed Maximum
Title of Each Class Maximum Aggregate Amount of
of Securities to Amount to be Offering Offering Registration
be Registered Registered Price(1) Price(1) Fee(2)
- --------------------------------------------------------------------------------
10 7/8% 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.
-------------------------
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.
================================================================================
SUBJECT TO COMPLETION, DATED APRIL 10, 2001
PROSPECTUS
FORMICA CORPORATION
10 7/8% Series B Senior Subordinated Notes due 2009
------------
Interest on the notes is payable every March 1 and September 1. The notes are
redeemable on or after March 1, 2004 at the prices specified in this
prospectus. Up to 35% of the notes will be redeemable on or prior to March 1,
2002 at a price equal to 110.875% of the principal amount, plus accrued
interest, with the net proceeds of a public equity offering. You will have the
right to require us to purchase your notes upon a "change of control" at a
price of 101% of principal amount, plus accrued interest.
The notes are general unsecured obligations of Formica, subordinated to all of
our senior obligations, including borrowings under our credit facility. Our
subsidiaries have not guaranteed the notes, and therefore the notes will
effectively be junior to all liabilities of our subsidiaries. As of December
31, 2000, we had approximately $255.6 million of senior indebtedness and our
subsidiaries had $165.5 million of outstanding liabilities, including trade
payables.
This investment involves risks. See "Risk Factors" on page 9
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 Credit Suisse First Boston 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.
Credit Suisse First Boston 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. Credit Suisse First Boston 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.
-----------------------------------------------------
Credit Suisse First Boston
The date of this Prospectus is April 10, 2001
PROSPECTUS SUMMARY
The following summarizes the more detailed information in this prospectus and
you should read the entire prospectus carefully and in its entirety.
SUMMARY DESCRIPTION OF THE 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 59, 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 December 31, 2000, we had outstanding
approximately $255.6 million of senior
indebtedness, and our subsidiaries had $165.5
million of outstanding liabilities, including
trade payables.
Restrictive Covenants...........The indenture governing the notes contains
restrictive covenants limiting or prohibiting
our ability and our subsidiaries' ability to:
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 sale
of notes offered hereby.
2
OUR COMPANY
Overview
What we do
We believe that 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 cabinet, a countertop
or a floor, and include everything from inexpensive vinyl flooring to marble
countertops. We produce:
o high-pressure decorative laminates, our primary product:
o we design, manufacture and distribute Formica(R) brand high
pressure decorative laminates, which are made of decorative
surface papers (solid colors, patterns and woodgrains) treated
with resins and laminated along with resin treated kraft papers
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 work surfaces
o we believe that we are one of the largest producers of
high-pressure decorative laminates in the world, which we market
under the Formica(R)brand name
o solid surfacing materials
o unlike high-pressure laminate, 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(R)", "Fountainhead(R)"and "Soliq(R)"
o laminate flooring
o laminate flooring is applied over any dry, clean and level
floor surface
o the flooring is water-resistant and is ideally suited for
kitchens and bathrooms
o we introduced our flooring line under the Formica(R)name in
1996
We believe the Formica(R) brand name, which is recognized by many
customers without prompting, contributes significantly to the sale of our
products. For the years ended December 31, 2000 and 1999, our net sales were
$773.7 million and $606.6 million, respectively, and Adjusted EBITDA, as
defined under Selected Financial Data, was $78.7 million and $63.8 million,
respectively.
We market our products:
o through an extensive network of 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
Our History
Our company was founded in 1913 and created the world's first
decorative laminate in 1927. After several sales and an initial public
offering, we were sold to FM Acquisition Corporation in a buyout led by Vincent
Langone, David Schneider and Dillon Read & Co. in 1989. In January 1995, we
were acquired by BTR Nylex Ltd., an Australian company and a subsidiary of BTR
plc.
In May 1998, our parent company, FM Holdings Inc. which we refer to as
"Holdings", was bought by Laminates Acquisition Co. which we refer to as
"Laminates", which was organized by DLJ Merchant Banking Partners II, L.P.,
affiliated funds and entities, which we refer to as "DLJ Merchant Banking
Funds", three other 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. A fourth institutional investor,
Euro Ventures PTE Ltd., acquired shares in the Company in August 2000.
3
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, an
affiliate of Credit Suisse First Boston, the institutional investors and the
management shareholders.
Competitive Strengths
We possess a number of competitive strengths, including:
o global market position
o worldwide brand awareness
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
The following are significant recent developments which have had, or will
continue to have, an impact on Formica Corporation:
o Acquisitions
We pursue opportunities to make acquisitions that complement or expand our
decorative surfaces businesses or enable us to enter new, but related 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(R) brand name. The expansion opportunities include domestic and
international manufacturers of laminates, solid surfacing, flooring, wood,
tile, plastics and related surfacing products, as well as other building
products that would benefit from the Formica name and distribution channel.
Management is actively evaluating potential acquisition targets and will make
acquisitions that fit our acquisition strategy.
The following are the principal acquisitions we have made since our
acquisition by Laminates:
Fountainhead. In March 1999, we acquired the Fountainhead(R) brand solid
surfacing product of International Paper's Decorative Products Division and its
manufacturing facility located in Odenton, Maryland. This acquisition
significantly increased our solid surfacing production capability and our sales
of solid surfacing products. Fountainhead(R) is marketed in France as
Antium(R). This acquisition did not have a material effect on our results of
operations or financial condition. The transaction has permitted us to
rationalize our product lines and allow for future growth. In 2000, we
completed the consolidation of our Surell(R) and Fountainhead(R) brands
production into one facility.
Rhinocore. In September 1999, we acquired Rhinocore(TM) as an entry into
direct imaging computer graphics for high-pressure laminate. Digital graphic
images enable the manufacture of laminates with superior graphics for
applications such as signage and photographic images of murals and panels. This
transaction did not have a material effect on the results of our operations and
financial condition.
STEL. In December 1999, we acquired STEL Industries, Inc., of Algona,
Washington. STEL was the independent supplier of Formica(R) brand flooring,
under a long-term exclusive "take-or-pay" supply contract. This acquisition was
funded through the utilization of available credit facilities. As a result of
this acquisition, we incurred a non-recurring charge of $26.2 million due to
the termination of the supply contract. We do not expect any material increase
in revenues as most of the production at STEL's facility was on behalf of
Formica.
4
Perstorp Surface Materials. On March 31, 2000, Decorative Surfaces Holding
AB acquired Perstorp Surface Materials AB from Perstorp AB (Sweden) for
approximately $177.5 million, including approximately $2.0 million of
transaction costs. The consideration paid to Perstorp AB was determined through
arms-length negotiations between Decorative Surfaces Holding AB and Perstorp
AB. Decorative Surfaces Holding AB was a wholly-owned subsidiary of Holdings
(the parent company of Formica) whose sole asset was its investment in Perstorp
Surface Materials AB.
On May 26, 2000, Holdings contributed all of the stock of Decorative
Surfaces Holding AB to Formica. The acquisition from Holdings was accounted for
on an as-if pooling basis because it is a combination of entities under common
control.
Perstorp Surface Materials AB is a worldwide producer of decorative and
industrial laminates, finished foils, printed paper and other surfacing
materials. In addition to bringing a strong European franchise, we believe that
Perstorp Surface Materials AB represents an important strategic opportunity for
Formica. Formica believes that there are opportunities in rationalizing
manufacturing, purchasing, marketing, selling and administrative functions,
which will create a synergistic combination. Formica also believes there are
opportunities to improve gross profit margins through raw material sourcing
benefits.
Management believes the acquisitions made since our acquisition by
Laminates will accelerate additional growth and provide the basis for synergies
and cost savings. In addition, we also expect to derive certain manufacturing
efficiencies at all our operations, which we anticipate will improve our gross
margins.
o Restructuring
In 2000, we announced several restructuring initiatives in North
America and Europe. These initiatives include the consolidation of warehouses,
reduction in headcount, a select curtailment of operations and the optimization
of asset utilization. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for a discussion of these initiatives.
-------------------------
Our principal executive offices are located at 15 Independence Boulevard,
Warren, New Jersey 07059, and our telephone number is 908-647-8700.
5
SUMMARY HISTORICAL
FINANCIAL AND OPERATING DATA
The following table includes:
o summary historical financial data for Formica after we were
acquired by BTR for the years ended December 31, 1996 and 1997,
and the four months ended April 30, 1998.
o summary historical financial data for Formica for the eight
months ended December 31, 1998, and the years ended December 31,
1999 and 2000.
The historical financial data for BTR-owned Formica for the years ended
December 31, 1996 and 1997 and the four months ended April 30, 1998 have been
derived from the audited consolidated financial statements of BTR-owned
Formica. The historical financial data for the eight months ended December 31,
1998, and the years ended December 31, 1999 and 2000 have been derived from our
audited consolidated financial statements. 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," and
our consolidated financial statements and notes thereto included elsewhere
herein.
Eight
Four Months
Years Ended Months Ended Years Ended
December 31, Ended December December 31,
------------------- April 30, 31, ---------------------
1996 1997 1998 1998 1999 2000
--------- -------- --------- ---------- --------- ---------
(dollars in millions)
Statement of Operational Data:
Net sales (7) $ 543.1 $ 553.6 $ 184.8 384.6 $ 606.6 $ 773.7
Cost of products sold (7) 369.8 370.3 137.6 279.4 440.2 566.8
Inventory markdown from
restructuring (6) --- --- --- --- --- 2.2
--------- --------- --------- --------- --------- ---------
Gross profit 173.3 183.3 47.2 105.2 166.4 204.7
Selling, general & administrative
expenses 186.7 202.2 60.9 100.5 148.0 199.7
Cost of terminated acquisition (8) --- --- --- 3.0 0.8 0.4
Cost to terminate supply contract (9) --- --- --- --- 26.2 ---
Provision for restructuring (6) --- --- --- --- --- 8.0
Goodwill impairment charge (1) --- 484.4 --- --- --- ---
--------- --------- --------- --------- --------- ---------
Income (loss) from operations (13.4) (503.3) (13.7) 1.7 (8.6) (3.4)
Interest expense (2) (10.6) (3.1) (1.7) (25.7) (37.4) (50.8)
Other income 1.1 1.8 0.8 4.5 2.5 7.6
--------- --------- --------- --------- --------- ---------
Loss before provision for income
taxes (22.9) (504.6) (14.6) (19.5) (43.5) (46.6)
Income tax benefit (provision) (5.0) (0.2) --- (2.8) 11.4 9.1
--------- --------- --------- --------- --------- ---------
Net loss $ (27.9) $ (504.8) $ (14.6) $ (22.3) $ (32.1) $(37.5)
========= ========= ========= ========= ========= =========
Other Data:
EBITDA:
Net loss $ (27.9) $ (504.8) $ (14.6) $ (22.3) $ (32.1) $(37.5)
Interest expense 10.6 3.1 1.7 25.7 37.4 50.8
Income tax (benefit) provision 5.0 0.2 --- 2.8 (11.4) (9.1)
Depreciation and amortization 52.1 55.7 11.1 29.3 42.9 57.8
Goodwill impairment charge (1) --- 484.4 --- --- --- ---
Cost to terminate supply contract (9) --- --- --- --- 26.2 ---
--------- --------- --------- --------- --------- ---------
EBITDA (3) $ 39.8 $ 38.6 $ (1.8) $ 35.5 $ 63.0 $ 62.0
Charges(4) --- --- 5.7 10.8 0.8 16.7
--------- --------- --------- --------- --------- ----------
Adjusted EBITDA (3) $ 39.8 $ 38.6 $ 3.9 $ 46.3 $ 63.8 $ 78.7
========= ========= ========= ========= ========= ==========
Adjusted EBITDA Margin 7.3% 7.0% 2.1% 12.0% 10.5% 10.2%
6
Eight
Four Months
Years Ended Months Ended Years Ended
December 31, Ended December December 31,
------------------- April 30, 31, ----------------------
1996 1997 1998 1998 1999 2000
--------- -------- --------- ---------- --------- -----------
(dollars in millions)
Net cash provided by (used in):
Operating activities $ 1.5 $ 5.7 $ (11.7) $ 26.7 $ 0.2 $ 37.3
Investing activities (44.5) (46.5) (8.3) (35.5) (89.3) (201.0)
Financing activities 56.5 47.1 (0.1) 33.0 66.2 159.8
Depreciation and Amortization 52.1 55.7 11.1 29.3 42.9 57.8
Capital expenditures $ 44.5 $ 46.5 $ 8.3 $ 35.5 $ 25.9 $ 23.5
Ratio of earnings to fixed charges (5) --- --- --- --- --- ---
Balance Sheet Data:
Cash equivalents $ 26.3 $ 27.2 $ 6.9 $ 31.6 $ 7.8 $ 3.4
Working capital 64.3 66.6 48.8 118.9 124.7 153.5
Total assets 1,136.8 647.7 612.0 701.2 726.6 879.4
Total debt 42.2 44.8 83.9 317.7 391.1 470.6
Total liabilities 266.1 304.3 280.8 581.4 649.3 788.1
Total stockholders' equity $ 870.7 $ 343.4 $ 331.2 $ 119.8 $ 77.3 $ 91.3
(1) During 1997, we recorded a goodwill impairment charge of $484.4 million
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.
(3) "EBITDA" is defined as income before extraordinary items and change in
accounting principles plus interest expense (not net of interest income),
income tax expense, depreciation and amortization expenses, goodwill
impairment charge and cost to terminate supply contract. 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). "Adjusted
EBITDA" for the four months ended April 30, 1998, and the eight months
ended December 31, 1998 represents EBITDA excluding $5.7 million and $10.8
million of the 1998 Charges (See (4) below), respectively. "Adjusted
EBITDA" for the years ended December 31, 1999 and 2000 represents EBITDA
excluding charges of $0.8 million for the cost of terminated acquisitions
and $16.7 million ($10.2 million for the costs of restructuring, $6.1
million for acquisition related costs (primarily merger integration costs
and PSM asset write-offs) and $0.4 million for the cost of terminated
acquisition), 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.
(4) Includes 1998 Charges of $5.7 million and $10.8 million 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. Also,
includes 1999 charges of $0.8 million for the cost of terminated
acquisitions and 2000 charges of $16.7 million ($10.2 million for the
costs of restructuring, $6.1 million for acquisition related costs
(primarily merger integration costs and PSM asset write-offs) and $0.4
million for the cost of terminated acquisition).
(5) 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 years ended December 31, 1996
and 1997, the four months ended April 30, 1998, the eight months ended
December 31, 1998, and the years ended December 31, 1999 and 2000,
earnings were insufficient to cover fixed charges by $23.1 million, $505.9
million, $14.6 million, $19.5 million, $43.5 million, and $46.6 million,
respectively.
(6) During 2000, we recorded a restructuring charge of $10.2 million including
a $2.2 million charge for the markdown of inventory as a result of the
elimination of product lines from the restructuring of our North America
operations. See Note 18 to the accompanying consolidated financial
statements.
(7) Data has been reclassified in accordance with the Emerging Issues Task
Force Issue 00-10 "Accounting for Shipping and Handling Fees and Costs."
For the years ended December 31, 1996, 1997, the four-months ended April
30, 1998, the eight-months ended December 31, 1998, and the years ended
December 31, 1999 and 2000, $21.5 million, $20.2 million, $6.5 million,
$13.2 million, $21.4 million and $26.0 million, respectively, have been
reclassed from net sales to cost of products sold for the cost of shipping
and handling. The impact of these reclassifications did not have any
effect on operating income/(loss), EBITDA, or net loss.
7
(8) Includes charges of $3.0 million, $0.8 million, and $0.4 million, for the
eight months ended December 31, 1998, and the years ended December 31,
1999 and 2000, respectively, in connection with proposed acquisitions of
decorative products businesses. We have abandoned these proposed
transactions. See Note 12 to the accompanying consolidated financial
statements.
(9) We acquired our exclusive supplier of laminate flooring. The excess of the
purchase price over the net tangible and intangible assets of the supplier
totaling $26.2 million was charged to expense as the cost to terminate the
supply contract.
8
RISK FACTORS
In addition to the other matters described in this prospectus you
should carefully consider the following risk factors before accepting the
exchange offer.
Risk factors relating to our debt and the notes
We have substantial debt, which could limit our cash available for other uses
and harm our competitive position
In connection with our acquisition by Laminates, we incurred
significant indebtedness. The level of our indebtedness could have important
consequences to us, including:
o limiting cash flow available for general corporate purposes,
including acquisitions, because a substantial portion of our cash
flow from operations must be dedicated to debt service;
o limiting our ability to obtain additional debt financing in the
future for working capital, capital expenditures or acquisitions;
o limiting our flexibility in reacting to competitive and other changes
in the industry and economic conditions generally; and
o exposing us to risks inherent in interest rate fluctuations because
some of our borrowings may be at variable rates of interest, which
could result in higher interest expense in the event of increases in
interest rates.
For the year ended December 31, 2000 earnings would have been
insufficient to cover fixed charges by approximately $46.6 million. As of
December 31, 2000 we had (1) total consolidated indebtedness of approximately
$470.6 million and (2) approximately $67.3 million of additional borrowings
available under the new credit facility. In addition, subject to the
restrictions in the new credit facility and the indenture, we may incur
significant additional indebtedness, which may be secured.
Restrictive covenants in our indenture and new credit facility will limit our
ability to enter into many transactions; our failure to comply with those
covenants could cause our debt obligations to be accelerated
The indenture and our credit facility contain covenants that restrict
our ability to effectuate many types of transactions. In addition, our new
credit facility also requires us to maintain specified financial ratios and
satisfy other financial condition tests. Our ability to meet those financial
ratios and tests can be affected by events beyond our control, and there can be
no assurance that we will meet those tests. A breach of any of these covenants
could result in a default under our new credit facility and/or the notes. Upon
the occurrence of an event of default under our new credit facility, the
lenders could elect to declare all amounts outstanding under our new credit
facility to be immediately due and payable and terminate all commitments to
extend further credit. If we were unable to repay those amounts, the lenders
could proceed against the collateral granted to them to secure that
indebtedness. We have pledged substantially all of our assets, other than
assets of our foreign subsidiaries, as security under our new credit facility.
We cannot assure you that, if the lenders under our new credit facility
accelerate the repayment of borrowings thereunder, we will have sufficient
assets to repay our new credit facility and our other indebtedness, including
your notes. See "Description of Our Credit Facility."
The notes rank junior to our senior indebtedness in bankruptcy, and senior
debtholders may force us to stop making payments to you if we are in default on
our senior indebtedness
The notes rank junior to all of our senior indebtedness and secured
indebtedness, including all indebtedness under our new credit facility, and
liabilities of subsidiaries. As a result of the subordination provisions in the
notes, if:
(1) we are insolvent or enter into a bankruptcy or similar
proceeding;
(2) we fail to make a payment when due on senior indebtedness; or
(3) any senior indebtedness is accelerated
then the holders of senior indebtedness and any other creditors of
subsidiaries, if any, must be paid in full before the holders of the notes may
be paid.
9
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
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 December 31, 2000, we had approximately $255.6 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 December 31, 2000, our subsidiaries had $165.5 million of outstanding
liabilities, including trade payables.
While the indenture requires us to offer to repurchase your notes upon a change
of control, we may not be able to repurchase your notes in that event
Upon the occurrence of a change of control as defined in "Description
of Notes," you may require us to purchase your notes at 101% of their principal
amount, plus accrued interest. Please note that the terms of our new credit
facility limit our ability to purchase your notes upon a change of control. Any
of our future debt agreements may contain similar restrictions and provisions.
Accordingly, we may not be able to satisfy our obligations to purchase your
notes unless we are able to refinance or obtain waivers with respect to those
agreements. We cannot assure you that we will have the financial resources to
purchase your notes, particularly if a change of control event triggers a
similar repurchase requirement for, or results in the acceleration of, other
indebtedness. Our new credit facility currently provides that specified change
of control events will constitute a default and could result in the
acceleration of our indebtedness under the new credit facility.
The restrictive covenants in the indenture may not prevent us from entering
into transactions that could adversely affect the value of your notes
You should be aware that the restrictive covenants in the indenture,
including the covenant that requires us to offer to repurchase your notes in
the event of a change of control, are subject to significant exceptions. As a
result, we may still be able to enter into a variety of transactions, including
acquisitions, refinancings and recapitalizations, that could increase the
amount of our indebtedness or otherwise affect our capital structure. Those
transactions could have an adverse impact on our ability to repay your notes,
or on our credit rating and the market value of your notes. Because those
transactions will not be restricted by the indenture, you will have no right to
prevent us from entering into any of those transactions or to compel us to
repurchase your notes.
Courts could invoke fraudulent transfer statutes to limit your right to receive
payments on your notes
Federal or state fraudulent transfer laws permit a court, if it makes
the findings described below, to
o void 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,
10
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.
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 the 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, Credit
Suisse First Boston 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 Credit Suisse First Boston Corporation. No
assurance can be given as to the liquidity of or the trading market for the
notes.
Credit Suisse First Boston Corporation may be deemed to be our
"affiliate", as defined in 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 Credit Suisse
First Boston 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 Credit Suisse First Boston Corporation to engage in
market-making transactions in the notes. We have agreed to bear substantially
all the costs and expenses related to registration.
Risk factors relating to our business
We intend to reduce our operating costs, including advertising and marketing
costs; that strategy may not be successful and may actually reduce our sales
Our business strategy includes the reduction of operating costs,
primarily advertising and marketing costs, and a shift in marketing focus away
from consumer-targeted marketing that we believe is ineffective. We cannot
assure you that we will be successful in reducing these costs. Additionally,
reductions in advertising and marketing expenditures could have an adverse
impact on our sales.
Our strategy of growing via acquisitions is risky, as we may have difficulty
managing a larger company and we may have difficulty financing new acquisitions
Our business strategy also includes the pursuit of an acquisition
strategy to promote our growth. For example, in March 2000 we acquired Perstorp
Surface Materials AB. 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
11
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 flows;
o financing will be available on acceptable terms;
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; or
o we will be able to successfully integrate acquired businesses
and achieve expected synergies and cost savings, and the
integration process will not be costly and divert management
time and resources.
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 results have been adversely affected by the recent
economic slowdown in the United States.
Our intellectual property is important to our business and may not be
sufficiently protected under the laws of the United States and other countries
Substantially all of our net sales are from sales of products bearing
proprietary trademarks, including Formica(R), the Anvil F mark, Colorcore(R),
Surell(R) , Fountainhead(R) and Soliq(R), . Accordingly, our future success may
depend in part upon the goodwill associated with our trademarks and the loss of
our intellectual property rights could have a material adverse effect on our
financial condition and results of operations. We cannot assure you that the
steps taken by us to protect our proprietary rights in our intellectual
property will be adequate to prevent the misappropriation thereof in the United
States or abroad. In addition, the laws of some foreign countries do not
protect intellectual property to the same extent as do the laws of the United
States.
We are controlled by a small group of shareholders who will be able to make
important decisions about our business and capital structure; their interests
may be different than your interests as a debtholder
Circumstances may occur in which the interests of our principal
shareholders could be in conflict with the interests of the holders of the
notes. In addition, our shareholders may have an interest in pursuing
transactions that, in their judgment, enhance the value of their equity
investment in us, even though those transactions may involve risks to the
holders of the notes.
Approximately 50.0% of the outstanding shares of Laminates common
stock is held by DLJ Merchant Banking funds, 13.2% is held by CVC, 13.2% is
held by MMI and 7.9% is held by Euro Ventures PTE Ltd., in each case without
giving effect to 222,642 outstanding shares of restricted stock issued to our
management.
The DLJ Merchant Banking funds, CVC, MMI, Euro Ventures PTE Ltd. 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, MMI and Euro Ventures PTE Ltd. 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
12
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 Credit Suisse First Boston Corporation. DLJ Capital
Funding, which is one of the lenders under the new credit facility, Laminates
Funding, Inc. which purchased our bridge notes, and Credit Suisse First Boston
Corporation, which was one of the initial purchasers of the old notes, are also
affiliates of Credit Suisse First Boston Corporation.
Our international presence exposes us to additional risks inherent in
international operations, including exchange rate fluctuations, repatriation of
funds and adverse economic conditions in other regions of the world
In 2000, net sales from international operations to third parties
accounted for approximately 57% of our total net sales and all of our operating
income was earned outside of the United States. 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. Further, many developing economies have a significant degree of
political and economic uncertainty. Social unrest, the absence of trained labor
pools and the uncertainty of entering into joint ventures or other partnership
arrangements with local organizations have slowed business activities in some
large developing economies. The political and economic uncertainties present in
these promising growth markets may adversely impact our ability to implement
and achieve our foreign growth objectives.
We operate in a competitive industry and many of our competitors have greater
resources than we do, which could permit them to spend more on marketing and
research and development
The decorative surfacing product market is highly competitive. Many of
our competitors are owned by larger enterprises and may have greater assets or
resources than us, which could allow them to spend more money on marketing and
research and development, which would give them a competitive advantage. For
example, Corian(R), the major competitor for our Surell(R) and Fountainhead(R)
products, is produced by DuPont, one of the largest companies in the world. Our
products compete around the world with high pressure decorative laminates
manufactured by other producers, as well as with wood, veneers, marble,
granite, solid surfacing, tile, plastics, foils, papers, vinyls, acrylics,
paint, wallpaper, wall and floor coverings, low pressure laminates and other
surfacing materials. Competition is based principally on breadth of product
line, product quality, marketing, technology, price and service. We compete in
a number of geographic markets and our success in each of these markets is
influenced by those factors. See "Business--Competition."
We are dependent on key personnel and our business could be adversely affected
if we lost the services of these key employees; in particular, our business
strategy is dependent upon our CEO and CFO, who have a proven track record with
our company
Our success depends, to a large extent, upon the efforts and abilities
of key managerial employees, particularly our executive officers. In
particular, our business strategy is dependent upon Messrs. Langone and
Schneider's prior experience in the industry and with Formica, and our
historical results of operations were worse in their absence. The loss of the
services of any of these key employees or the failure to retain qualified
employees when needed could have a material adverse effect on our business,
financial condition or results of operations. Competition for qualified
management personnel in the industry is intense. We do not currently maintain
key man life insurance.
Our operations and assets are subject to extensive environmental laws and
regulations, which could require us to spend significant amounts of money to
clean up contaminated property
Our operations are subject to various foreign and United States
environmental laws and regulations. We have conducted environmental assessments
on a limited number of properties. 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.
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 $3.8 million for liabilities at
December 31, 2000 for these matters. 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
13
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."
You may not be able to rely on forward-looking statements, as our actual results
may be materially different
This prospectus (as well as other public filings, press releases and
discussions with Company management) contains and incorporates by reference
certain forward-looking statements. These statements are subject to risks and
uncertainties. Forward-looking statements include the information concerning:
o our future operating performance, including sales growth and
cost savings and synergies following our acquisitions of
Fountainhead, STEL, and Perstorp Surface Materials and our
related restructurings and capital investment program; and
o our belief that we have sufficient cash flows to support working
capital needs, capital expenditures and debt service
requirements.
In addition, statements that include the words "believes," "expects,"
"anticipates," "intends," "estimates," "will," "should," "may," "seeks," "pro
forma," or other similar expressions are forward-looking statements. For those
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
What Factors Could Affect the Outcome of Our Forward-Looking Statements?
You should understand that the following important factors, in
addition to those discussed elsewhere in this prospectus could affect the
future results of Formica and could cause those results or other outcomes to
differ materially from those expressed in our forward-looking statements.
Industry and Market Factors
o changes in economic conditions generally or in the markets
served by us
o fluctuations in raw material and energy prices
o product specifier preferences and spending patterns and
o competition from other decorative surfaces producers
Operating Factors
o our ability to combine our recently acquired businesses while
maintaining current operating performance levels during the
integration period(s) and the challenges inherent in diverting
our management's focus and resources from other strategic
opportunities and from operational matters
o our ability to implement our cost savings plans without
adversely impacting our net sales and
o our ability to attract, hire and retain suitable personnel
Relating to our Debt and the Notes
We have substantial debt, which could limit our cash available for
other uses and harm our competitive position. In connection with our
acquisitions, we incurred significant indebtedness. The level of our
indebtedness could have important consequences to us, including:
o limiting our ability to obtain additional debt financing in the
future for working capital, capital expenditures or acquisitions
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 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 are at variable rates of
interest, which could result in higher interest expense in the
event of increases in interest rates
14
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes
by Credit Suisse First Boston Corporation in market-making transactions. We
will not receive any of the proceeds from such transactions.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
2000. 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."
December 31,
2000
Historical
(in millions)
---------------
Cash and cash equivalents....................... $ 3.4
===============
Long term debt, including current portion:
New credit facility revolving loans (1)...... $ 21.6
New credit facility term loans............... 212.1
Senior subordinated notes.................... 215.0
Other debt................................... 21.9
---------------
Total debt...................................... 470.6
Total stockholders' equity...................... 91.3
---------------
Total capitalization............................ $ 561.9
===============
(1) We have a total commitment for revolver borrowings of $120.0 million
under our new credit facility. Approximately $31.0 million has been
used as of December 31, 2000, to obtain letters of credit to provide
credit enhancement and support for some of our foreign credit
facilities. See "Description of New Credit Facility."
15
SELECTED CONSOLIDATED FINANCIAL DATA
Historical
The following table includes:
o selected historical financial data for Formica after we were
acquired by BTR for the years ended December 31, 1996 and 1997,
and the four months ended April 30, 1998 and
o selected historical financial data for Formica for the eight
months ended December 31, 1998, and the years ended December 31,
1999 and 2000.
The historical financial data for BTR-owned Formica for the years
ended December 31, 1996 and 1997 and the four months ended April 30, 1998 have
been derived from the audited consolidated financial statements of BTR-owned
Formica. The historical financial data for the eight months ended December 31,
1998, and the years ended December 31, 1999 and 2000 have been derived from our
audited consolidated financial statements. 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," and
our consolidated financial statements and notes thereto included elsewhere
herein.
Eight
Four Months
Years Ended Months Ended Years Ended
December 31, Ended December December 31,
------------------- April 30, 31, ---------------------
1996 1997 1998 1998 1999 2000
--------- -------- --------- ---------- --------- ---------
(dollars in millions)
Statement of Operational Data:
Net sales (7) $ 543.1 $ 553.6 $ 184.8 384.6 $ 606.6 $ 773.7
Cost of products sold (7) 369.8 370.3 137.6 279.4 440.2 566.8
Inventory markdown from
restructuring (6) --- --- --- --- --- 2.2
--------- --------- --------- --------- --------- ---------
Gross profit 173.3 183.3 47.2 105.2 166.4 204.7
Selling, general & administrative
expenses 186.7 202.2 60.9 100.5 148.0 199.7
Cost of terminated acquisition (8) --- --- --- 3.0 0.8 0.4
Cost to terminate supply contract (9) --- --- --- --- 26.2 ---
Provision for restructuring (6) --- --- --- --- --- 8.0
Goodwill impairment charge (1) --- 484.4 --- --- --- ---
--------- --------- --------- --------- --------- ---------
Income (loss) from operations (13.4) (503.3) (13.7) 1.7 (8.6) (3.4)
Interest expense (2) (10.6) (3.1) (1.7) (25.7) (37.4) (50.8)
Other income 1.1 1.8 0.8 4.5 2.5 7.6
--------- --------- --------- --------- --------- ---------
Loss before provision for income
taxes (22.9) (504.6) (14.6) (19.5) (43.5) (46.6)
Income tax benefit (provision) (5.0) (0.2) --- (2.8) 11.4 9.1
--------- --------- --------- --------- --------- ---------
Net loss $ (27.9) $ (504.8) $ (14.6) $ (22.3) $ (32.1) $(37.5)
========= ========= ========= ========= ========= =========
Other Data:
EBITDA:
Net loss $ (27.9) $ (504.8) $ (14.6) $ (22.3) $ (32.1) $(37.5)
Interest expense 10.6 3.1 1.7 25.7 37.4 50.8
Income tax (benefit) provision 5.0 0.2 --- 2.8 (11.4) (9.1)
Depreciation and amortization 52.1 55.7 11.1 29.3 42.9 57.8
Goodwill impairment charge (1) --- 484.4 --- --- --- ---
Cost to terminate supply contract (9) --- --- --- --- 26.2 ---
--------- --------- --------- --------- --------- ---------
EBITDA (3) $ 39.8 $ 38.6 $ (1.8) $ 35.5 $ 63.0 $ 62.0
Charges(4) --- --- 5.7 10.8 0.8 16.7
--------- --------- --------- --------- --------- ----------
Adjusted EBITDA (3) $ 39.8 $ 38.6 $ 3.9 $ 46.3 $ 63.8 $ 78.7
========= ========= ========= ========= ========= ==========
Adjusted EBITDA Margin 7.3% 7.0% 2.1% 12.0% 10.5% 10.2%
16
Eight
Four Months
Years Ended Months Ended Years Ended
December 31, Ended December December 31,
------------------- April 30, 31, ----------------------
1996 1997 1998 1998 1999 2000
--------- -------- --------- ---------- --------- -----------
(dollars in millions)
Net cash provided by (used in):
Operating activities $ 1.5 $ 5.7 $ (11.7) $ 26.7 $ 0.2 $ 37.3
Investing activities (44.5) (46.5) (8.3) (35.5) (89.3) (201.0)
Financing activities 56.5 47.1 (0.1) 33.0 66.2 159.8
Depreciation and Amortization 52.1 55.7 11.1 29.3 42.9 57.8
Capital expenditures $ 44.5 $ 46.5 $ 8.3 $ 35.5 $ 25.9 $ 23.5
Ratio of earnings to fixed charges (5) --- --- --- --- --- ---
Balance Sheet Data:
Cash equivalents $ 26.3 $ 27.2 $ 6.9 $ 31.6 $ 7.8 $ 3.4
Working capital 64.3 66.6 48.8 118.9 124.7 153.5
Total assets 1,136.8 647.7 612.0 701.2 726.6 879.4
Total debt 42.2 44.8 83.9 317.7 391.1 470.6
Total liabilities 266.1 304.3 280.8 581.4 649.3 788.1
Total stockholders' equity $ 870.7 $ 343.4 $ 331.2 $ 119.8 $ 77.3 $ 91.3
(1) During 1997, we recorded a goodwill impairment charge of $484.4 million
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.
(3) "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, goodwill
impairment charge and cost to terminate supply contract. 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). "Adjusted
EBITDA" for the four months ended April 30, 1998, and the eight months
ended December 31, 1998 represents EBITDA excluding $5.7 million and $10.8
million of the 1998 Charges (See (4) below), respectively. "Adjusted
EBITDA" for the years ended December 31, 1999 and 2000 represents EBITDA
excluding charges of $0.8 million for the cost of terminated acquisitions
and $16.7 million ($10.2 million for the costs of restructuring, $6.1
million for acquisition related costs (primarily merger integration costs
and PSM asset write-offs) and $0.4 million for the cost of terminated
acquisition), 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.
(4) Includes 1998 Charges of $5.7 million and $10.8 million 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. Also,
includes 1999 charges of $0.8 million for the cost of terminated
acquisitions and 2000 charges of $16.7 million ($10.2 million for the
costs of restructuring, $6.1 million for acquisition related costs
(primarily merger integration costs and PSM asset write-offs) and $0.4
million for the cost of terminated acquisition).
(5) 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 years ended December 31, 1996
and 1997, the four months ended April 30, 1998, the eight months ended
December 31, 1998, and the years ended December 31, 1999 and 2000,
earnings were insufficient to cover fixed charges by $23.1 million, $505.9
million, $14.6 million, $19.5 million, $43.5 million, and $46.6 million,
respectively.
(6) During 2000, we recorded a restructuring charge of $10.2 million including
a $2.2 million charge for the markdown of inventory as a result of the
elimination of product lines from the restructuring of our North America
operations. See Note 18 to the accompanying consolidated financial
statements.
(7) Data has been reclassified in accordance with the Emerging Issues Task
Force Issue 00-10 "Accounting for Shipping and Handling Fees and Costs."
For the years ended December 31, 1996, 1997, the four-months ended April
30, 1998, the eight-months ended December 31, 1998, and the years ended
December 31, 1999 and 2000, $21.5 million, $20.2 million, $6.5 million,
$13.2 million, $21.4 million and $26.0 million, respectively, have been
reclassed from net sales to cost of products sold for the cost of shipping
and handling. The impact of these reclassifications did not have any
effect on operating income / (loss), EBITDA, or net loss.
17
(8) Includes charges of $3.0 million, $0.8 million, and $0.4 million, for the
eight months ended December 31, 1998, and the years ended December 31,
1999 and 2000, respectively, in connection with proposed acquisitions of
decorative products businesses. We have abandoned these proposed
transactions. See Note 12 to the accompanying consolidated financial
statements.
(9) We acquired our exclusive supplier of laminate flooring. The excess of the
purchase price over the net tangible and intangible assets of the supplier
totaling $26.2 million was charged to expense as the cost to terminate the
supply contract.
Unaudited Quarterly Consolidated Financial Information:
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 2000 and 1999.
1st 2nd 3rd 4th Full
Year ended December 31, 2000 Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ------------ -----------
(dollars in millions)
Net sales (4).............................. $ 146.3 $ 221.1 $ 205.8 $ 200.5 $ 773.7
Cost of products sold (4).................. 106.7 163.6 154.4 142.1 566.8
Inventory Markdown (5)..................... 1.9 -- -- 0.3 2.2
----------- ----------- ----------- ------------ -----------
Gross profit............................... 37.7 57.5 51.4 58.1 204.7
Selling, general & administrative.......... 39.7 56.3 46.7 57.0 199.7
Provision for Restructuring (5)............ 4.1 3.1 0.4 0.4 8.0
Cost of Terminated Acquisitions (2)........ 0.4 -- -- -- 0.4
----------- ----------- ----------- ------------ -----------
Income (loss) from operations.............. (6.5) (1.9) 4.3 0.7 (3.4)
Interest expense (1)....................... (10.0) (12.1) (14.4) (14.3) (50.8)
Other income............................... 0.6 1.7 1.6 3.7 7.6
----------- ----------- ----------- ------------ -----------
Loss before provision for income taxes..... (15.9) (12.3) (8.5) (9.9) (46.6)
Income tax (provision) benefit............. (0.9) (2.0) (0.9) 12.9 9.1
----------- ----------- ----------- ------------ -----------
Net (loss) income.......................... $ (16.8) $ (14.3) $ (9.4) $ 3.0 $ (37.5)
=========== =========== =========== ============ ===========
1st 2nd 3rd 4th Full
Year ended December 31, 1999 Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ------------ -----------
(dollars in millions)
Net sales (4).............................. $ 144.1 $ 161.1 $ 150.4 $ 151.0 $ 606.6
Cost of products sold (4).................. 103.6 116.9 109.0 110.7 440.2
----------- ----------- ----------- ------------ -----------
Gross profit............................... 40.5 44.2 41.4 40.3 166.4
Selling, general & administrative.......... 39.9 38.6 36.1 33.4 148.0
Cost of Terminated Acquisitions (2)........ -- -- 0.4 0.4 0.8
Cost to Terminate Supply Contract (3)...... -- -- -- 26.2 26.2
----------- ----------- ----------- ------------ -----------
Income (loss) from operations.............. 0.6 5.6 4.9 (19.7) (8.6)
Interest expense (1)....................... (10.4) (8.6) (9.5) (8.9) (37.4)
Other income............................... 1.5 0.1 0.8 0.1 2.5
----------- ----------- ----------- ------------ -----------
Loss before provision for income taxes..... (8.3) (2.9) (3.8) (28.5) (43.5)
Income tax (provision) benefit (3)......... (1.2) (0.7) (0.1) 13.4 11.4
----------- ----------- ----------- ------------ -----------
Net loss................................... $ (9.5) $ (3.6) $ (3.9) $ (15.1) $ (32.1)
=========== =========== =========== ============ ===========
(1) Interest expense is not net of interest income.
(2) We recorded charges of $0.4 million, $0.4 million and $0.4 million, for the
quarters ended March 31, 2000, December 31, 1999 and September 30, 1999,
respectively, in connection with proposed acquisitions of decorative
products businesses. We have abandoned these proposed transactions. See
Note 12 to the accompanying consolidated financial statements.
(3) During the quarter ended December 31, 1999, we acquired our exclusive
supplier of laminate flooring. Prior to the acquisition, Formica was
obligated under a contract with the supplier to purchase minimum quantities
of laminate flooring at stipulated prices. The excess of the purchase price
over the net tangible and intangible assets of the supplier totaling $26.2
million was charged to expense as the cost to terminate the supply
contract. The income tax benefit for the quarter ended December 31, 1999
primarily results from the deductible cost to terminate a supply contract.
See Note 2 to the accompanying consolidated financial statements.
(4) Data has been reclassified in accordance with the Emerging Issues Task
Force Issue 00-10 "Accounting for Shipping and Handling Fees and Costs."
For the quarters ending March 31, 2000, June 30, 2000, September 30, 2000
and December 31, 2000, $5.2 million, $6.9 million, $6.6 million and $7.3
million, respectively, have been reclassed from net sales to cost of
products sold for the cost of shipping and handling. For the quarters
ending March 31, 1999, June
18
30, 1999, September 30, 1999 and December 31,1999, $4.9 million, $5.7
million, $5.3 million and $5.5 million, respectively, have been reclassed
from net sales to cost of products sold for the cost of shipping and
handling. The impact of these reclassifications did not have any effect on
operating income/(loss ), EBITDA, or net loss.
(5) Includes restructuring charges of $6.0 million (including 1.9 million
markdown of inventory), $3.1 million, $0.4 million and $0.7 million
(including $0.3 million markdown of inventory), for the quarters ending
March 31, 2000, June 30, 2000, September 30, 2000 and December 31, 2000,
respectively. See Note 18 to the accompanying consolidated financial
statements.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are engaged in the design, manufacture and distribution of
decorative 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 Dillon, Read & Company. In January 1995, BTR Nylex Ltd., an Australian
company and a subsidiary of BTR plc, acquired Formica. In May 1998, Laminates
Acquisition Co. ("Laminates") acquired Formica.
Results of Operations
Our net loss in 2000 was $37.5 million compared to a net loss of $32.1
million in 1999. Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA) was $78.7 million in 2000 compared to $63.8
million in 1999, an increase of $ 14.9 million or 23.4%. Adjusted EBITDA for
the years ended December 31, 2000 and 1999 represents EBITDA (as defined as
income before extraordinary items and change in accounting principles plus
interest expense (not net of interest income), income tax expense, depreciation
and amortization expenses, goodwill impairment charge, and the cost of
terminated contract) excluding charges of $16.7 million ($10.2 million for the
costs of restructuring, $6.1 million of acquisition related costs (primarily
merger integration costs and Perstorp Surface Materials AB asset write-offs)
and $0.4 million for the cost of a terminated acquisition) and $0.8 million for
the cost of terminated acquisitions, respectively.
On March 31, 2000, Decorative Surfaces Holding AB acquired Perstorp
Surface Materials AB, a worldwide producer of decorative and industrial
laminates, finished foils, printed paper and other surfacing materials from
Perstorp AB (Sweden) for approximately $177.5 million including approximately
$2.0 million of transaction costs. On May 26, 2000, Holdings contributed all of
the stock of Decorative Surfaces Holding AB to Formica. Decorative Surfaces
Holding AB was a wholly-owned subsidiary of Holdings (the parent company of
Formica) whose sole asset was its investment in Perstorp Surface Materials AB.
The acquisition was accounted for on an as-if pooling basis because it is a
combination of entities under common control. The purchase price approximated
the fair value of the net assets acquired. Accordingly, Formica's results of
operations in 2000 reflect the acquisition and related purchase accounting by
Decorative Surfaces Holding AB on March 31, 2000 for all periods beginning
April 1, 2000.
We announced several restructuring initiatives in 2000, which impacted
our costs but are expected to help Formica achieve cost savings and synergies
in the future:
On March 1, 2000, Formica's management committed to a formal plan to
restructure certain operating activities in North America, which reduced total
headcount by approximately 200 employees through December 31, 2000. As part of
this restructuring, the Mt. Bethel, Pennsylvania manufacturing facility was
closed and its operations were subsequently transferred to our Odenton,
Maryland manufacturing facility. We provided a restructuring provision of $6
million. We have identified an additional $3 million of charges, indirectly
related to the restructuring of the North America operations, of which $1.7
million was incurred in the twelve months ended December 31, 2000. The
restructuring plan will be completed by mid-year 2001.
On June 1, 2000, Formica's management committed to a formal plan to
restructure certain of its operations within Europe and provided a
restructuring provision of $1.5 million. These actions are being taken in
conjunction with the integration of the Perstorp Surface Materials AB
operations. The plan will result in a reduction in headcount of 25 employees
(13 employees through December 31, 2000). The restructuring plan includes the
closure of a warehouse in Europe with subsequent relocation of operations to
elsewhere in Europe. In addition, we have charged to income an additional $0.5
million of expenses indirectly related to the restructuring of the European
distribution operations during the year ended December 31, 2000. Under the
current timetable, we project that the restructuring plan will be substantially
completed by mid-year 2001.
As of the consummation date of the Perstorp Surface Materials AB
acquisition, management began a process to assess the organization as well as
the facilities acquired with the purpose of formulating a structure for the
combined organization. Balance sheet reserves for organizational restructuring
in the amount of $14.5 million were established as part of purchase accounting
in the second quarter. Management has committed to a formal plan to restructure
certain operating activities primarily in Europe. The balance sheet reserve was
revised through
20
purchase accounting to $12.7 million as a result of the refinement of the
assessment of the organization. The organizational restructuring plan, which
primarily relates to the European operations, includes the closing of offices
and a select curtailment of operations, the optimization of the utilization of
assets and a reduction of headcount in excess of 300 employees (approximately
140 employees through December 31, 2000). In addition, we charged to income an
additional $0.5 million of Perstorp Surface Materials AB restructuring-related
expenses which were not included as part of purchase accounting during the year
ended December 31, 2000. The restructuring plan is expected to be substantially
completed by the end of 2001.
Management has estimated approximately $18 million in annualized
salary and benefit cost savings from the Perstorp Surface Materials AB
restructuring program, of which approximately $2 million was realized during
the year ended December 31, 2000. In addition, other cost reductions underway
in Europe include facility consolidation reductions, purchasing synergies, and
manufacturing process efficiencies primarily from the integration of Perstorp
Surface Materials AB operations, which will generate another $4 million in
annualized savings.
2000 Compared to 1999
Net Sales. Net sales for 2000 were $773.7 million, compared to net
sales of $606.6 million for 1999, an increase of $167.1 million, or 27.5%. The
acquisition of Perstorp Surface Materials AB accounted for $185.1 million of
the increase, which was partially offset primarily by the impact of unfavorable
foreign exchange. Net sales in the Americas increased to $428.3 million from
$389.9 million in 1999, an increase of $38.4 million or 9.8%. This increase is
the result of the acquisition of Perstorp Surface Materials AB, which was
offset primarily by lower high-pressure laminate and flooring volume in North
America due to the slowing economy. Net sales in Asia increased to $90.7
million in 2000 from $71.1 million in 1999, an increase of $19.6 million, or
27.6%, resulting primarily from the addition of the Perstorp Surface Materials
AB business, as well as increased volume. Net sales in Europe increased $109.1
million to $254.7 million in 2000 from $145.6 million in 1999. The acquisition
of Perstorp Surface Materials AB accounted for the increase, which was offset
primarily by the impact of unfavorable foreign exchange.
Gross Profit. Gross profit for 2000 was $204.7 million, compared to
gross profit of $166.4 million for 1999, an increase of $38.3 million, or
23.0%. Gross profit as a percentage of net sales in 2000 decreased to 26.5%
from 27.4% in 1999. The 2000 period includes $2.2 million related to the
markdown in inventory from the restructuring of the North America operations.
Excluding the restructuring charge, gross profit increased $40.5 million in
2000, or as a percentage of sales to 26.7%.
Gross profit in the Americas increased to $106.8 million in 2000 from
$102.6 million in 1999. The $4.2 million increase primarily resulted from the
$8.6 million contribution from Perstorp Surface Materials AB, offset by the
$2.2 million markdown in inventory from the restructuring of the North America
operations, and increased raw material and energy costs. As a percentage of net
sales, gross profit for the Americas decreased to 24.9% in 2000 from 26.3% in
1999. Gross profit in Europe and Asia increased $34.1 million to $97.9 million
in 2000 from $63.8 million in 1999, or 53.4%, of which Perstorp Surface
Materials AB contributed $39.0 million. The effects of foreign exchange
translation, competitive pricing pressures and higher raw material costs
negatively impacted gross profit margins compared to last year. As a percentage
of net sales, gross profit in Europe and Asia decreased to 28.3% in 2000 from
29.4% in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2000 were $199.7 million compared to $148.0 million
for 1999, an increase of $51.7 million. Selling, general and administrative
expenses, as a percent of net sales, were 25.8% in the 2000 period compared to
24.4% in the 1999 period. Selling, general and administrative expenses
excluding Perstorp Surface Materials AB were $160.2 million for 2000 compared
to $148.0 million in 1999. Excluding the $6.1 million of acquisition related
costs (primarily merger integration costs and Perstorp Surface Materials AB
asset write-offs), selling, general and administrative expenses were $154.1
million in the 2000 period compared to $148.0 million in 1999. The increase was
primarily related to general economic cost increases, and increased warehousing
and distribution costs, sales and sales support expenditures, and information
technology costs.
Restructuring Charges. (See Note 18 to the Consolidated Financial
Statements) Formica recorded a restructuring provision of $6 million (includes
an inventory markdown shown separately on the income statement), relating to
North America operations. We also incurred an additional $1.7 million of
indirectly related restructuring charges for the North America operations which
was not included in the provision during the year.
21
Formica recorded a restructuring provision of $1.5 million relating to its
European operations. We incurred an additional $0.5 million of indirectly
related restructuring charges for the European operations during the year ended
December 31, 2000 which was not included in the provision.
Due to the acquisition of Perstorp Surface Materials AB, balance sheet reserves
for organizational restructuring in the amount of $12.7 million were
established as part of purchase accounting. We charged to income an additional
$0.5 million of Perstorp Surface Materials AB restructuring-related expenses
which were not included as part of purchase accounting during the year ended
December 31, 2000.
Cost of Terminated Acquisitions. For the years ended December 31, 2000
and 1999, we incurred $0.4 million and $0.8 million of charges relating to
expenses from the costs of terminated acquisitions, primarily for legal and
other professional fees.
Cost to Terminate Supply Contract. In December 1999, Formica acquired
STEL, its exclusive supplier of laminate flooring. Prior to the acquisition,
Formica was obligated under a contract with STEL to purchase minimum quantities
of laminate flooring at stipulated prices. The excess of the purchase price
over the net tangible and intangible assets of STEL totaling $26.2 million was
charged to expense as a cost to terminate the supply contract.
Operating Loss. The operating loss for 2000 was $3.4 million compared
to an operating loss of $8.6 million for 1999. The 2000 period includes
restructuring charges of $10.2 million, acquisition related costs (primarily
merger integration costs and Perstorp Surface Materials AB asset write-offs) of
$6.1 million and the cost of a terminated acquisition of $0.4 million. The 1999
period included a charge of $26.2 million for the cost of the terminated supply
contract resulting from the purchase of STEL and $0.8 million of costs for
terminated acquisitions. After taking into account the 2000 and 1999 charges,
operating income was $13.3 million in 2000 compared to operating income of
$18.4 million in 1999, for the reasons stated above.
Adjusted EBITDA. After taking into account the 2000 period
restructuring costs, acquisition related costs (primarily merger integration
costs and Perstorp Surface Materials AB asset write-offs) and the cost of a
terminated acquisition, and the 1999 period costs from the terminated supply
contract and the costs of terminated acquisitions (described above), EBITDA, as
adjusted, was $78.7 million in 2000 compared to $63.8 million in 1999, an
increase of $14.9 million or 23.4%.
Interest Expense. Interest expense increased $13.4 million to $50.8
million in 2000 from $37.4 million for 1999. The increase in interest expense
is due to the additional debt incurred in 2000 for the acquisition of Perstorp
Surface Materials AB and additional debt incurred in the latter part of 1999.
Income Taxes. Income tax benefit was $9.1 million in 2000 compared to
$11.4 million in 1999. In 2000, we realized an income tax benefit primarily
resulting from U.S. net operating losses partially offset by increased income
taxes in certain foreign countries.
Net Loss. Net loss was $37.5 million in 2000 compared to a net loss of
$32.1 million in 1999, due to the reasons described above.
22
1999 Compared to 1998
Net Sales. Net sales for 1999 were $606.6 million, compared to net
sales of $569.4 million for 1998, an increase of $37.2 million, or 6.5%. Net
sales in North America increased to $389.9 million in 1999 from $360.4 million
in 1998, an increase of $29.5 million, or 8.2%. This increase is primarily due
to additional volume contributed by the flooring product line and the addition
of the Fountainhead business. Net sales in Asia increased to $71.1 million in
1999 from $63.2 million in 1998, an increase of $7.9 million, or 12.5%,
resulting primarily from a stronger Asian economy as well as improved volume.
Net sales in Europe decreased $0.2 million to $145.6 million in 1999 from
$145.8 million in 1998.
Gross Profit. Gross profit for 1999 was $166.4 million, compared to
gross profit of $152.4 million for 1998, an increase of $14.0 million, or 9.2%.
Gross profit as a percentage of net sales in 1999 increased to 27.4% from 26.8%
in 1998. Adjusted for the 1998 charges, amounting to $5.7 million, described
below, gross profit increased $8.3 million, or 5.2%. Gross profit, as a
percentage of net sales, excluding the 1998 nonrecurring charges, was 27.8% in
1998 compared to 27.4% in 1999.
Gross profit in North America increased to $102.6 million in 1999 from
$95.9 million in 1998, or 7.0%. Gross profit as a percentage of net sales for
North America, excluding the 1998 Charges amounting to $3.5 million, decreased
to 26.3% in 1999 from 27.6% in 1998, principally as a result of increased raw
material prices and competitive pricing pressures. Gross profit in Europe and
Asia increased to $63.8 million in 1999 from $56.5 million in 1998, or 12.9%.
After adjusting for 1998 Charges amounting to $2.2 million, gross profit, as a
percentage of net sales, in Europe and Asia, increased to 29.4% in 1999 from
28.1% in 1998. This increase is primarily due to favorable material prices and
efficiency savings within Asia.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1999 were $148.0 million compared to $161.4 million
for 1998, a decrease of 8.3%. Selling, general and administrative expenses as a
percentage of net sales decreased to 24.4% in 1999 from 28.3 % in 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, partially offset by an increase in goodwill
amortization of $2.6 million due to the acquisition from BTR. Selling, general
and administrative expenses, adjusted for the 1998 Charges amounting to $7.8
million, were $153.6 million in 1998 compared to $148.0 million in 1999, a
decrease of 3.6%.
Cost of Terminated Acquisitions. For the years ended December 31, 1999
and 1998, we incurred $0.8 million and $3.0 million of charges relating to
expenses from the costs of terminated acquisitions, primarily for legal and
other professional fees.
Cost to Terminate Supply Contract. In December 1999, Formica acquired
STEL, its exclusive supplier of laminate flooring. Prior to the acquisition,
Formica was obligated under a contract with STEL to purchase minimum quantities
of laminate flooring at stipulated prices. The excess of the purchase price
over the net tangible and intangible assets of STEL totaling $26.2 million was
charged to expense as a cost to terminate the supply contract.
Operating Loss. The operating loss for 1999 was $8.6 million compared
to an operating loss of $12.0 million for 1998. The 1999 period included a
charge of $26.2 million, the result of the cost of the terminated supply
contract resulting from the purchase of STEL and $0.8 million of costs for
terminated acquisitions. The 1998 period included the 1998 Charges of $13.5
million relating to changes in accounting estimates and $3.0 million of charges
relating to expenses from the costs of terminated acquisitions. After taking
into account the 1999 and 1998 charges, operating income increased to $18.4
million in 1999 compared to $4.5 million in 1998, for the reasons stated above.
Adjusted EBITDA. After taking into account the 1999 period costs from
the terminated supply contract and the costs of terminated acquisitions, and
the 1998 period charges relating to changes in accounting estimates and the
costs of terminated acquisitions (described above), EBITDA, as adjusted, was
$63.8 million in 1999 compared to $50.2 million in 1998, an increase of $ 13.6
million or 27.1%.
Interest Expense. Interest expense increased to $37.4 million in 1999
from $27.4 million for 1998. The increase in interest expense was the result of
the funding of the acquisition in May 1998, as well as additional debt incurred
in 1999.
23
Income Taxes. In 1999, we realized an income tax benefit of $11.4
million primarily resulting from the deductible cost to terminate a supply
contract due to the acquisition of STEL (described above), compared to an
expense of $2.8 million in 1998.
Net Loss. Net loss was $32.1 million in 1999 compared to $36.9
million in 1998 due to the reasons described above.
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 certain markets. There were no significant changes in
accounting estimates in 1999 and 2000. These changes in accounting estimates
resulted in charges that impacted Formica's results of operations as follows:
o Customer Incentive Rebate Program. Due to competitive pressures
in certain markets, many Formica distributors set 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 distributor
margins, Formica offers percentage rebates to distributors on
specified products based on their actual resale prices to end
customers, within pre-established parameters. During the period
that Formica was owned by BTR, the reserve for customer
incentive rebates was estimated based upon distributor sales to
the end customer. Based on analyses performed at that time, the
reserve balance was determined by providing for approximately
one month of the average monthly amount of rebates based on
estimates of distributor sales in inventory.
Based on an analysis of inventories of Formica products
held by certain independent distributors that was performed in
connection with the acquisition, we 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 recorded a change in accounting
estimates to reserve an additional $2.7 million for customer
incentive rebate programs.
o 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. Formica carried a large
receivable balance from this distributor for several years and
have also converted approximately $4.0 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 million to $5.5 million during this
period. The aggregate balance was $4.6 million at April 30,
1998. Accordingly, Formica believed 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 from banks than were
otherwise obtainable. Formica has 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 recorded a change in accounting
estimates to increase its provision for doubtful accounts by
$2.4 million as of December 31, 1998.
o 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. Accordingly, we
recorded a change in accounting estimates to increase its
inventory obsolescence reserve by $5.4 million as of December
31, 1998.
o 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 ($500,000),
customs ($600,000), employee relocation costs ($345,000) and
vacation reserves ($216,000).
24
Liquidity and Capital Resources
Formica's principal sources of liquidity are cash flows from
operations, borrowings under our credit facility and local credit facilities
obtained by some of Formica's foreign subsidiaries. Formica's principal uses of
cash will be debt service requirements to service the acquisition-related debt
described below, capital expenditures and future acquisitions.
As of December 31, 2000, Formica had $470.6 million of indebtedness
outstanding compared to $391.1 million as of December 31, 1999. Formica's
significant debt service obligations could, under certain circumstances, have
material consequences to security holders.
Working capital was $153.5 million at December 31, 2000 compared to
$124.7 million at December 31, 1999. The increase was primarily the result of
the acquisition of Perstorp Surface Materials AB offset by reductions in
working capital. Management believes that Formica will continue to require
working capital levels consistent with past experience and that current levels
of working capital, together with borrowing capacity available under the credit
facility and the continued effort by management to manage working capital, will
be sufficient to meet expected liquidity needs in the near term.
In connection with our acquisition by Laminates in 1998, Formica's
parent raised approximately $137.1 million through the issuance of common and
preferred stock to the DLJMB Funds, the institutional investors and Messrs.
Langone and Schneider. The Laminates 8% Preferred Stock has an 8% cumulative
dividend that is paid in cash when, as and if declared by the Laminates board.
The Holdings 15% Senior Exchangeable Preferred Stock due 2008 has a 15%
cumulative dividend which is not payable in cash until May 2003 and is
exchangeable at Holdings' option for 15% subordinated debentures of Holdings.
Dividends from Formica, which are restricted by the provisions of the credit
facility and the indenture governing the notes described below, are the primary
source of funding for payments with respect to Holdings and Laminates
securities.
In February 1999, Formica issued $215 million of 10 7/8% Senior
Subordinated Notes due March 1, 2009. Interest on the notes is payable
semiannually in cash. The Notes and related indenture place certain
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 certain restricted investments.
The Credit Facility includes a $120 million revolving credit facility,
an $85 million term loan and a $140 million term loan. The $120 million
revolving credit facility may be increased by up to $25 million at the request
of Formica, with the consent of the banks providing the increased commitments,
and will terminate on May 1, 2004. At December 31, 2000, $21.6 million was
outstanding against the revolving credit facility. The $85 million and $140
million term loans will mature in 2004 and 2006, respectively. The term loans
outstanding under the credit facility totaled $212.1 million at December 31,
2000 and amortize over the life of the credit facility.
Borrowings under the credit facility generally bear interest based on
a margin over the base rate or, at Formica's option, the reserve-adjusted LIBO
rate. The applicable margin varies based upon Formica's ratio of consolidated
debt to EBITDA. Formica's obligations under the 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 subsidiaries of Formica (provided that, with a single exception, no more
than 65% of the voting stock of any foreign subsidiary shall be pledged) and a
pledge by FM Holdings, Inc. of the stock of Formica and by Laminates
Acquisition Co. of the stock of FM Holdings, Inc.
The credit facility contains financial covenants requiring Formica to
maintain minimum EBITDA, minimum coverage of interest expense and fixed charges
and a maximum leverage ratio. On May 26, 2000 Formica amended and restated the
credit facility, obtaining the consent of the bank group for the acquisition of
Perstorp Surface Materials AB. Formica was in compliance with the financial
covenants at December 31, 2000 and 1999. Formica's continued compliance with
debt covenants is dependent upon future economic performance which may be
affected by economic, financial, competitive, legislative, regulatory and other
factors beyond it's control.
In conjunction with the contribution of Perstorp Surface Materials AB
to Formica by Holdings Formica assumed $110.0 million in debt. PSM Funding,
Inc. syndicated and increased the term loan facility to $140.0 million. The
additional $30.0 million was used to reduce outstanding borrowings under
Formica's existing credit
25
facility at the time of the contribution and to make any payments in connection
with the closing. Formica's existing credit facility was amended and restated
to include the $140.0 million term loan as a separate tranche that will mature
in 2006 and will require 1% annual amortization (payable quarterly) until March
31, 2005, with all remaining amounts payable in increments of $27.6 million
quarterly thereafter until maturity. Interest on the new term loan will be, at
Formica's option, either 2.25% over the Base Rate or 3.5% over LIBOR. Interest
rates on the other tranches of the credit facility were also increased by 0.5%
in connection with this transaction.
Formica maintains various local credit facilities in foreign countries
(primarily in Asia) that provide for borrowings in local currencies. Formica
may replace the availability of these facilities (in local currencies) under
the credit facility and will maintain some of these credit facilities to
provide financing for its subsidiaries in these countries. Formica expects that
these facilities, together with the credit facility and operating cash flow in
these countries, will be sufficient to fund expected liquidity needs in these
countries.
As of December 31, 2000 and December 31, 1999, Formica had outstanding
approximately $31 million and $28.4 million, respectively, in letters of credit
under the credit facility to provide credit enhancement and support for certain
of its credit facilities.
Formica has implemented a capital investment program that management
believes will increase capacity, yield manufacturing savings and improve
competitiveness. Formica has spent approximately $23.5 million on capital
expenditures during 2000, and anticipates that it will spend approximately $24
million in the year 2001. The credit facility contains restrictions on its
ability to make capital expenditures. Based on present estimates, Formica
believes that the amount of capital expenditures permitted under the credit
facility will be adequate to complete its investment program and maintain the
properties and businesses of its current operations.
Formica continues to evaluate acquisitions that will complement or
expand 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. There can be no assurance, however, that
any such additional financing will be available on acceptable terms.
Formica anticipates that its operating cash flow, together with
borrowings under the 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.
Cash provided by operations was $37.3 million for the twelve months
ended December 31, 2000, compared to $0.2 million for the twelve months ended
December 31, 1999. The increase in cash provided by operations is due to
additional depreciation and amortization primarily resulting from the Perstorp
Surface Materials AB acquisition, a decrease in accounts receivable and
inventories and an increase in accounts payable. The decrease in accounts
receivable and inventories results from an effort to improve the management of
working capital. Net cash used in investing activities was $201.0 million for
the twelve months ended December 31, 2000 and $89.3 million for the twelve
months ended December 31, 1999. The 2000 period includes $177.5 million due to
the acquisition of Perstorp Surface Materials AB and the 1999 period includes
$63.4 million utilized for acquisitions of Fountainhead and STEL. Net cash
provided by financing activities was $159.8 million and $66.2 million for the
twelve months ended December 31, 2000 and 1999, respectively, which included
additional financing resulting from the acquisitions discussed above.
Effect of Inflation; Seasonality
Formica does not believe that inflation has had a material impact on
its financial position or results of operations. Formica's operations are
modestly influenced by seasonal fluctuations.
Common European Currency
The Treaty on European Economic and Monetary Union provides for the
introduction of a single
26
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: (i) the 11 member states that met the requirement
for the Monetary Union, and (ii) 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: (i) 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;
(ii) from January 1, 2002 to June 30, 2002, in which local currencies will be
exchanged for Euros; and (iii) from July 1, 2002 after which local currencies
will disappear.
Formica cannot give assurance as to the effect of the adoption of the
Euro on its payment obligations under loan agreements for borrowings in
currencies to be replaced by the Euro or on its commercial agreements in those
currencies. However, Formica has not experienced nor does it anticipate any
problems resulting from the adoption of the Euro.
Market Risk
Interest Rate Risk
Formica utilizes both fixed and variable rate debt obligations to
finance its operations. At December 31, 2000, approximately 54% of our total
debt were at variable interest rates. A one-half percentage point increase in
interest would increase the annual amount of interest paid by approximately
$1.3 million. Although the Formica will continue to monitor its exposure to
interest rate fluctuations, we cannot assure that interest rate fluctuations
will not harm our business in the future.
Foreign Currency Exchange Rate Risk
Formica is exposed to market risk from changes in foreign currency
exchange rates, including fluctuations in the functional currency of foreign
operations. The functional currency of operations outside the United States is
the respective local currency. Foreign currency translation effects are
included in accumulated other comprehensive loss in stockholders' equity. Our
operating results are thus subject to significant fluctuations based upon
changes in the exchange rates of other currencies in relation to the U.S.
dollar. Forward contracts are entered into for periods consistent with
underlying exposures and do not constitute positions independent of those
exposures. Formica does not enter into contracts for speculative purposes and
are not a party to any leverage instruments. Although we will continue to
monitor our exposure to currency fluctuations, we cannot assure that exchange
rate fluctuations will not harm our business in the future.
Recent Accounting Pronouncements
Statement of Financial Accounting Standard (SFAS) No. 133
In June 1998, SFAS No. 133-"Accounting for Derivative Instruments and
Hedging Activities" was issued ("SFAS No. 133"). In June 1999, SFAS No. 137-
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" was issued which deferred the
effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning
after June 15, 2000. In June 2000, SFAS No. 138 was issued, which amended SFAS
No. 133. These SFAS's require 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. We
adopted SFAS No. 133, and the corresponding amendments of SFAS No. 138 on
January 1, 2001, and such adoption did not have a material impact on our
consolidated financial position, results of operations or cash flows.
Emerging Issues Task Force (EITF) Issue No. 00-10
In September 2000, the Emerging Issues Task Force reached a consensus
in EITF Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs"
and concluded that all amounts billed to a customer in a sale transaction
related to shipping and handling represent revenues earned and should be
classified as revenue. The EITF concluded that the costs incurred by the seller
for shipping and handling should be classified as costs of sales and not
deducted from shipping and handling revenues. The implementation date for the
EITF was the fourth quarter of a registrant's fiscal year beginning after
December 15, 1999. Accordingly, Formica adopted
27
EITF No. 00-10 in the fourth quarter of 2000, and has reclassified its
financial statements for all periods presented to comply with the guidelines of
the EITF Issue. These reclassifications did not have any effect on our
operating income/(loss), EBITDA or net loss.
28
BUSINESS
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 cabinet, a countertop or a
floor, and include everything from inexpensive vinyl flooring to marble
countertops. We produce:
o high-pressure decorative laminates, our primary product
o solid surfacing materials, and
o laminate flooring
We believe the Formica(R) brand name, which is recognized by many
customers without prompting, contributes significantly to the sale of our
products. For the years ended December 31, 2000 and 1999, our net sales were
$773.7 million and $606.6 million, respectively, and Adjusted EBITDA, as
defined under Selected Financial Data, was $78.7 million and $63.8 million,
respectively.
We market our products:
o through an extensive network of 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
Our History
Formica was founded in 1913 and created the world's first decorative
laminate in 1927. After several sales and an initial public offering, we were
sold to FM Acquisition Corporation in a buyout led by Vincent Langone, David
Schneider and Dillon Read & Co. in 1989. In January 1995, we were acquired by
BTR Nylex Ltd., an Australian company and a subsidiary of BTR plc.
In May 1998, our parent company, FM Holdings Inc., which we refer to as
"Holdings", was bought by Laminates Acquisition Co., which we refer to as
"Laminates", which was organized by DLJ Merchant Banking Partners II, L.P.,
affiliated funds and entities, which we refer as the "DLJ Merchant Banking
Funds", 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. A fourth institutional investor, Euro
Ventures PTE Ltd., acquired shares in August 2000.
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.
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, Brazil, the United
Kingdom, France, Finland, Spain, Taiwan, Thailand 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.
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(R)
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. Our distribution network includes independent
distributor locations worldwide. Many distributors have sub-
29
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 specification representatives, when
combined with the sales force of our distributor network provides 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 flooring product
was awarded the 1997, 1998 and 1999 Dealer's Choice Award-Best Laminate
Flooring Product, the 1997 Kitchen & Bath Business Product of the Year Award
and the 1999 Platinum Award for Design Excellence. 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:
Geographically, we sell our products in over 100 countries and
maintain a strong market position in the major markets of the Americas and
Europe and are positioned for continued growth in Asia. In 2000, approximately
55% of our net sales were made in the Americas, with the balance principally in
Europe and Asia. We believe that this diversification helps to mitigate the
effect of regional economic cycles and changes in market conditions.
Industry Overview
The decorative surfaces market encompasses 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 and vertical 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
lower end of the markets. At the high end are decorative surfaces such as our
Surell(R) and Fountainhead(R) solid surfacing products, E.I. DuPont de Nemour's
("DuPont") Corian(R) solid surfacing, granite, marble, tile and natural wood.
The low end of the market includes low-pressure laminates, foil, papers and
plastics, all of which 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 2000, 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. Both the residential and commercial new construction market and
the remodeling/renovation market drive demand for high-pressure laminate
products. 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) used in airports, institutions, hospitals,
schools, retail stores, hotels and office buildings.
Principal Products and Services
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, solid surfacing material, marketed under the Formica(R) brand
Surell(R), Fountainhead(R) and Soliq(R) trade names, and laminate flooring
products, introduced in late 1996 under the Formica(R) brand name. We also
manufacture and sell resins, industrial laminate, foils and printed papers and
license our Formica(R) brand name and proprietary technology and know-how to
third parties.
High-Pressure Laminate. Our principal product, high-pressure laminate,
is marketed under the Formica(R) brand name and the [Anvil F] mark. 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, Formica began lithographing images onto sheets of their product and its
decorative potential was discovered. In the 1930s, a melamine layer was added
which gave Formica(R)
30
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.
Formica also has a long-established presence in Europe, having entered the
market in 1947. Formica(R) brand products have been manufactured for many years
in the United Kingdom (1947), Spain (1947) and France (1964). As a result of
its long-standing presence in these markets, the Formica(R) brand name has
exceptional customer recognition. Formica installed its 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 Formica
one of the largest producers of high-pressure laminate in Asia. Formica began
operating in China with a sales office in 1990 and through a joint venture in
1992, and has owned its own manufacturing and distribution sites there since
1996.
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 kitchens, bathrooms, living
rooms, family rooms, dining rooms and bedrooms
The commercial applications include:
o work surfaces
o cabinetry
o furniture
o fixtures
o panels
o partitions
o counter tops and
o interior walls, each of which have 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 such
as 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 certain 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 numerous solid colors and 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's premium decorative
laminate products have characteristics which make them particularly suitable
for various specialized applications and generate higher profit margins than
the standard line products. Premium decorative laminate products include our
DecoMetal(R), which incorporates real metal foil on a laminate core giving the
solid appearance of a metal plate or sheet, our Ligna(R) line, a multi-laminate
veneer made with phenolic-backed real wood which replicates the grains of
exotic woods, our Formations(R) collection and ColorCore(R) 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-
31
retardant materials such as shipbuilding and office interiors, textured
laminates which are designed to look and feel like leather or slate and
laminate static-free flooring used in computer centers.
Solid Surfacing Products. Our solid surfacing products which are
distributed under the Surell(R) , Fountainhead(R) and Soliq(R) trade names, are
similar to DuPont's Corian(R) product, and are available in a selection of
colors and granite-like patterns that run throughout the entire thickness of
the product. The products can be fabricated for use in a variety of residential
and commercial applications, such as kitchen and bathroom countertops including
sinks, work surfaces, tabletops, commercial counters, vertical applications
such as wall panels, partitions and tub surrounds, or produced in sheet form
for work surfaces, countertops and other surface applications. One of the
advantages of these products is that if scratched or gouged, the damage can be
easily repaired by simply sanding down the surface to provide a new smooth
surface. Solid surfacing products are more expensive than laminates but less
expensive than other high-end materials such as marble, granite and high-end
ceramic tile.
Laminate Flooring. In late 1996, we introduced the Formica(R) brand
laminate flooring product line in North America to compete in the market for
laminate flooring. The product is produced in a variety of patterns and colors
and is sold in both the new construction and renovation markets.
Formica(R) flooring offers a virtually impermeable surface finish,
which is resistant to wear, staining, moisture and impact. It is constructed
from layers of direct pressure laminate sandwiching a high-density
moisture-resistant fiberboard. Due to its durable surface and rich beauty, it
is ideally suited for flooring in locations such as kitchens, bathrooms and
family rooms.
Formica(R) flooring is currently offered in a variety of patterns and
colors, including wood grains, marble, granite, and rustic stone. All patterns
are produced with a tongue and groove assembly system. Formica(R) flooring is
applied as a "floating" floor and can be fitted over any sub-floor with a dry,
clean and level surface. The flooring can often be laid directly over most
existing floor covering such as linoleum or vinyl, using Formica brand 3-in-1
underlayment, which provides substantial cost savings to the consumer.
Formica(R) flooring is manufactured in our dedicated facility in Algona,
Washington.
Other Products. In addition to expanding our presence in high-pressure
decorative laminate product sales, we also acquired the following additional
products as part of our acquisition of Perstorp Surface Materials in March
2000. The products include:
o Finished Foils and Printed Paper
We offer one of the widest ranges of foils with high quality
surface finishes and good flexibility, used for decorative surfaces in the
furniture industry and for internal surfaces in buildings such as living rooms,
bedrooms, etc. We produce finished foils with different weights to suit various
applications depending upon design and surface properties.
o Industrial Laminates
Our Brazilian subsidiary manufactures industrial (technical)
laminates which are mainly used in the production of printed circuit boards,
with large utilization in many markets segments, such as: consumer electronics
(TVs, VCRs and audio equipment), computers, telecommunications, automotive
electronics and automation devices for banking, commerce and industry.
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 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
1996 Gold Ink Award, the 1996 Graphic Arts Recognition Committee Award of
Excellence, the 1997 Visual Merchandising & Store Design Reader's Choice Poll
and the 1997 Green Product Award. 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, the 1997
Printing Industries of America Award and the 1999 Design Journal's Platinum
ADEX Award, among others.
Our efforts to refine the designs of our products have resulted in
such products as the Formations(R) collection, Deco Metal(R), Ligna(R) and
ColorCore(R), a solid "color-through" laminate. During the last several years,
we introduced
32
solid opaque laminates, granite-like solid surfacing materials and a number of
other premium products.
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
the Design Center Program, rather than on those architects, contractors and
designers who actually choose the product. Since our acquisition by Laminates,
we have re-oriented our design program to once again focus on those product
specifiers. Management believes that communication with the architectural and
design community is essential to our sales efforts, particularly with respect
to new product introductions.
Manufacturing Process
The high-pressure laminate manufacturing process involves several
major steps: resin manufacturing, paper treating, collation, pressing,
trimming, sanding, packaging and shipping.
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 paper rolls of untreated kraft paper or decorative surface paper
are run through treaters where the paper is saturated by dipping it into the
liquid resin and floated on air currents through an oven to dry it. As the
product emerges from the machines, it is automatically cut and stacked 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 stainless steel plates and moved into
the press itself. The stainless steel plates can create surface textures
ranging from very high gloss 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 in a
press opening. Once the plates and the unfinished laminate are placed in the
press, the press applies approximately 1,400 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 customer.
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 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.
33
Marketing, Distribution and Customers
We believe our global distribution and dealer network, together with
our extensive sales force and the Formica(R) 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(R) brand name.
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.
Our distribution network includes 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.
Sales in the commercial market are heavily influenced by the
specifications of architects and designers. In addition to our regular sales
force, a specification sales force calls exclusively on architects and
designers.
Our order 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, 2000, no customer or affiliated group
of customers accounted for as much as 10% of our consolidated net sales.
Manufacturing Facilities
We manufacture and distribute products on a global basis with twenty
manufacturing facilities located in the United States, Canada, Brazil, the
United Kingdom, France, Finland, Spain, Germany, Thailand, 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, certain 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.
Our North American operations are headquartered in Evendale, Ohio
(near Cincinnati), which is also the site of an high-pressure laminate
manufacturing plant. We also manufacture high-pressure laminate in Rocklin,
California (near Sacramento) and St. Jean, Quebec, Canada (near Montreal).
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. Laminate flooring is
manufactured in Algona, Washington (near Seattle). Certain products, such as
Ligna(R), 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
34
Columbia, Canada; San Juan, Puerto Rico and Mexico City, Mexico. In May 2000,
we closed our Mt. Bethel, Pennsylvania manufacturing facility, and transferred
the manufacturing operations to the Odenton, Maryland facility.
Our European headquarters and United Kingdom operations are based in
North Shields, United Kingdom (near Newcastle), 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 (near Paris), and we have a high-pressure
laminate plant in Quillan, France. Our Homapal joint venture (which
manufactures metallic laminates) is based in Herzberg Am Harz, 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.
As part of our acquisition of Perstorp Surface Materials, we acquired
manufacturing facilities located in Kolho, Finland; Aycliffe and Christchurch,
England; Valencia, Spain; Bangkok, Thailand; Sao Bernardo do Campo and Embu,
Brazil; and Burstadt, Germany.
Competition
Our products compete around the world with high-pressure decorative
laminates, 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 substitution of solid surfacing at the high end, and
substitution of low-pressure laminates at the low end particularly among North
American manufacturers of cabinets, inexpensive furniture and store fixtures.
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. Many of our competitors are owned by larger enterprises and may have
greater assets or resources than us. However, 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,
Brazil, the United Kingdom, France, Finland, Spain, Taiwan, Thailand and China.
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 International, a subsidiary of Illinois Tool
Works, Inc. In the solid surfacing market, DuPont is the largest competitor,
and Pergo Flooring is largest in the laminate flooring market.
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. For the year ended December 31, 2000, we incurred approximately $2.6
million of research and development expense.
International Operations
Our foreign operations are subject to the usual risks that may affect
such operations. These include, among other things, exchange controls, currency
restrictions and fluctuations, changes in local economic conditions, unsettled
political conditions, local laws concerning repatriation of profits and other
factors normally associated with multinational operations. Most of the
identifiable assets associated with our foreign operations are located in
countries where we believe such risks to be minimal.
Our net sales from international operations to third parties accounted
for approximately 45%, 44% and 57% of total net sales of our products for the
years ended December 31, 1998, 1999 and 2000, respectively. The increase in
sales from international operations in 2000 is primarily the result of the
Perstorp Surface Materials AB acquisition. We have manufacturing subsidiaries
located in the United Kingdom, France, Spain, Finland, Brazil, Canada, Taiwan,
Thailand and China and a 50% interest in a German joint venture. Our principal
international markets are located in Europe, Asia, Brazil, Canada and Mexico.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 13 of the accompanying consolidated financial statements
for information concerning our business by geographic area.
35
Environmental Matters
See Note 15-Commitments and Contigencies to the accompanying
consolidated financial statements for a discussion of certain environmental
matters. There can be no assurances that we will not become involved in future
proceedings, litigation or investigations, that such Superfund or other
environmental liabilities will not be material or that indemnification pursuant
to such indemnification rights will otherwise be available.
Patents, Trademarks and Licenses
We own patents and possess proprietary information relating 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(R) 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(R)
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(R), Surell(R) , Fountainhead(R) and Soliq(R) trademarks are
registered in the United States and several other countries. The STEL(R)
trademark is registered in the United States. 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 selective copyright portfolio of patterns
and designs. Other designs used in our laminates were owned by the decorative
paper manufacturer. In more recent years, we have increasingly created our own
proprietary designs, many 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 and household cleaning products.
Employees
As of December 31, 2000, we had approximately 5,400 employees. In the
United States, approximately 1,200 of our employees are covered by collective
bargaining agreements that expire in the years 2002, 2003 and 2005. Of the
approximately 3,700 employees in our international operations, a majority are
represented by a variety of local unions. We consider our employee relations to
be satisfactory.
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:
36
Location Principal Function Square Feet
- ------------------------ ----------------------- ---------------
Warren, New Jersey World-wide Headquarters 15,000 Leased
Atlanta, Georgia Distribution Center 100,000 Leased
Dallas, Texas Distribution Center 82,000 Leased
Evendale, Ohio Manufacturing Plant
and Subsidiary Headquarters 1,000,000 Owned
Ft. Lauderdale, Florida Distribution Center 64,000 Leased
Indianapolis, Indiana Samples Facility 54,000 Leased
Mt. Bethel, Pennsylvania Distribution Center 100,000 Owned
Odenton, Maryland Manufacturing Plant 362,500 Owned
Rocklin, California Manufacturing Plant 350,000 Owned
Algona, Washington Manufacturing Plant 106,000 Leased
St. Jean, Quebec, Canada Manufacturing Plant 360,000 Owned
Sao Bernardo do Campo, Brazil Manufacturing Plant 281,000 Owned
Embu, Brazil Manufacturing Plant 44,100 Leased
Mexico City, Mexico Distribution Center 38,000 Leased
Shanghai, China Manufacturing Plant 340,000 Owned
North Shields, England Manufacturing Plant and
Subsidiary Headquarters 560,000 Owned
Aycliffe, England Manufacturing Plant 291,600 Owned
Christchurch, England Manufacturing Plant 89,300 Leased
LaPlaine, France Manufacturing Plant 25,000 Owned
Lognes, France Subsidiary Headquarters 69,000 Leased
Quillan, France Manufacturing Plant 240,000 Owned
St. Avold, France Distribution Center 107,600 Leased
Herzberg Am Harz, Germany Manufacturing Plant and
Joint Venture Headquarters 110,000 Leased
Burstadt, Germany Manufacturing Plant 161,400 Owned
Bilbao, Spain Manufacturing Plant and
Subsidiary Headquarters 360,000 Owned
Valencia, Spain Manufacturing Plant 199,100 Owned
Kolho, Finland Manufacturing Plant 121,600 Owned
Perstorp, Sweden Distribution Center 86,100 Leased
Bangkok, Thailand Manufacturing Plant 80,700 Owned
Hsinfeng, Taiwan Manufacturing Plant 150,000 Owned
Taipei, Taiwan Subsidiary Headquarters 15,000 Leased
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. Pursuant to the
credit facility, the Rocklin, California, Evendale, Ohio and Odenton, Maryland
facilities are subject to liens as security for the obligations of our company
and its subsidiaries thereunder. One of the Mt. Bethel, Pennsylvania properties
is subject to a lien related to an installment sale arrangement for the
facility with a local industrial development authority and the Hsingfeng,
Taiwan facility is subject to a lien pursuant to a credit agreement in Taiwan.
In May 2000, we closed our Mt. Bethel, Pennsylvania manufacturing
facility, and transferred the manufacturing operations to the Odenton, Maryland
facility.
The leases for our leased properties will expire from 2001 through
2009, and the German joint venture has an annual lease that expires each
December 31, unless renewed. We are confident that we will be able to negotiate
renewals of our current leases with reasonable terms.
Legal Proceedings
See Note 15 - Commitments and Contingencies to the accompanying
consolidated financial statements for a discussion of certain litigation. Other
than as described in such note and as described under "Item 1 - Environmental
Matters," there are no legal proceedings to which we are a party, other than
ordinary routine litigation incidental to our business, which are otherwise
material to our business or financial condition.
On April 5, 1999, Formica received a subpoena covering the period from
January 1, 1994 until April 1, 1999 from a federal grand jury in connection
with an investigation into possible antitrust violations in the United States
37
market for high-pressure laminate. Formica has produced documents and provided
other information in response to the subpoena, and a number of present or
former Formica employees have appeared for testimony before the grand jury or
have been interviewed by the staff of the Antitrust Division of the U.S.
Department of Justice in connection with the investigation. Formica intends to
continue its cooperation with the investigation. Formica is unable to determine
at this time if this matter will have any effect on its financial position,
results of operations or cash flows.
Manufacturers of high-pressure laminate, including Formica
Corporation, have been named as defendants in purported class action complaints
filed in federal and certain state courts. The complaints, which all make
similar allegations, allege that high-pressure laminate manufacturers in the
United States engaged in a contract, combination or conspiracy in restraint of
trade in violation of state and federal antitrust laws and seek damages of an
unspecified amount. The actions remain in their early stages. Formica
Corporation intends to defend vigorously against the allegations of the
complaints.
38
MANAGEMENT
The following table sets forth certain information concerning the
directors and executive officers of Formica. Each director of Formica also
serves as a director of Holdings and Laminates.
Name Age Office
Vincent P. Langone................ 58 Director, Chairman, President and
Chief Executive Officer
David T. Schneider................ 51 Vice President, Chief Financial
Officer and Secretary
William Adams..................... 49 Director, Executive Vice President
& President of International
Steve Kuo......................... 46 President, Asian Operations
Jean Pierre Clement............... 57 President, Solid Surfacing Operations
R. Eugene Cartledge............... 71 Director
Thompson Dean..................... 41 Director
Peter T. Grauer................... 54 Director
David Y. Howe..................... 35 Director
Alexander Donald Mackenzie........ 42 Director
Vincent P. Langone has been Director, 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 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 Executive Vice President of Formica Corporation and
President of International Operations. In December 2000, Mr. Adams was elected
as a member of Formica Corporation's Board of Directors. 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.
Jean Pierre Clement is President of Formica's Solid Surfacing
Operations. Mr. Clement has held various senior management positions within
Formica in France, Canada and the United States over his 30-year tenure with
the Company.
R. Eugene Cartledge has been a director of Formica since
September 2000. Mr. Cartledge was the Chairman of the Board of Savannah Foods &
Industries, Inc. from April 1996 until December 1997. He was Chairman of the
Board and Chief Executive Officer of Union Camp Corporation from January 1986
until his retirement in June 1994. Mr. Cartledge is also a director of Delta
Air Lines, Inc., Chase Brass Industries, Inc., Sunoco, Inc., and UCAR
International Inc.
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.,
39
AKI Holdings Corporation, Amatek Ltd., DeCrane Aircraft Holdings Inc., Mueller
Group, Inc., Charles River Laboratories, 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., 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.
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.
Executive Compensation
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Award(s) Options/SA Payouts Compensation
Name and Principal Position ($) ($) ($) ($) (2) Rs (#) ($) ($)
- ---------------------------- -------- -------- ----------- ---------- ----------- ------- --------------
Vincent P. Langone 2000 $622,500 $825,000 -- -- -- -- $ 53,048
Director, Chairman, 1999 $600,000 $600,000 -- -- -- -- $ 52,065
President, and C.E.O. 1998 $400,000 -- -- -- -- -- $ 428,649 (1)
David T. Schneider 2000 $311,250 $412,000 -- -- -- -- $ 6,788
Vice-President, C.F.O., 1999 $300,000 $300,000 -- -- -- -- $ 6,421
and Secretary 1998 $200,000 -- -- -- -- -- $ 134,153 (1)
William Adams 2000 $226,740 $267,000 -- -- -- -- $ 13,774
Director, Executive Vice 1999 $194,218 $201,126 -- -- -- -- $ 1,585
President & President, 1998 $198,020 $198,020 -- -- -- -- --
International Operations
Steve Kuo 2000 $135,860 $ 63,354 -- -- -- -- $ 24,100
President, Asia 1999 $119,595 $ 35,389 -- -- -- -- $ 9,592
1998 $106,750 $ 34,747 -- -- -- -- --
Jean Pierre Clement 2000 $180,750 $ 50,000 -- -- -- -- $ 34,000
President-Solid Surfacing 1999 $168,000 $ 10,000 -- -- -- -- --
1998 -- -- -- -- -- -- --
(1) Amounts principally represent payment for transaction fees--see
"Employment Agreements."
(2) Messrs. Langone and Schneider purchased 104,769 and 15,715 shares of
restricted stock respectively, at $1.00 per share on April 30, 1998 and
purchased 70,773 and 10,619 shares of restricted stock respectively, at
$1.00 per share on March 30, 2000. The purchase price of those shares
reflects the fair market value of those shares, as of that date and
therefore those shares are not reported as "compensation."
Employee Retirement Plan
We maintain the Formica Corporation Employee Retirement Plan, a
non-contributory defined benefit plan for United States employees. The
retirement plan was amended and restated as of January 1, 1996, and amended
again in February 1998. A second amendment to the Formica Corporation Employee
Retirement Plan, effective July 1, 2000, which amends the list of eligible
employees that may participate and prevents any employees hired after July 1,
2000 from participating, as well as certain other employees subject to
collective bargaining or other plans. Pension benefits are determined based
upon a career average pay formula. The annual pension benefit to which a
salaried employee is entitled, under the 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
40
(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 $140,000,
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 $170,000, 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 $79,950 and $73,491 assuming current Code limitations, no change
in present salary and continued employment to 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 1998 would be $56,138 and $33,316,
respectively, and the amount of that benefit attributable to employment with
Formica after 1998 would be $23,812 and $40,175. As discussed below, the amount
of that benefit attributable to employment with Formica after 1998 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
- --------------------------------------------------------------------------------
Years of Service
- -------------------------- -----------------------------------------------
Final Average Compensation 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
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.
41
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, 2000, Messrs. Langone and Schneider
were the only two participants in the supplemental plan. Each of Messrs.
Langone and Schneider currently is credited with 2 years 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
- --------------------------------------------------------------------------------
Years of Service
- -------------------------- -----------------------------------------------
Final Average Compensation 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 participated 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 include basic pay, shift premium and overtime pay
(excluding bonus).
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 the
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.
42
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 month's 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.
Formica S.A. (France) 1989 Pension Scheme
Mr. Clement is the only named executive officer who participated in
the French pension scheme which is a final salary defined benefit scheme. The
French scheme provides supplementary benefits based on the number of year's
service and the final salary. 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
include basic pay, shift premium and overtime pay (excluding bonus).
Mr. Clement's pension is comprised of two parts: a government benefit
and a supplementary benefit from the Formica France Pension Plan. The French
government provides a maximum pension of 88,200FF per annum (at 60 or 65 years
old) provided the participant has 40 years of service.
Participants are not eligible to elect to receive their pension in a
lump sum upon retirement. Employees are not required to contribute to the
funding of the pension scheme. Formica France contributes 200,000FF per annum
in total for Mr. Clement; 20,000FF per annum to the government for the
government pension and 180,000FF per annum to the Formica France Pension Plan.
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 at 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 was 157,153
subject to adjustments upon the occurrence of various events and as follows. As
of December 31, 2000, 201,876 shares have been allocated to and purchased by
Messrs. Langone and Schneider, 20,766 shares have been allocated to and
purchased by other management employees under the 1998 and 1999 stock plans,
and 15,903 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.
43
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 at 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 repurchase
by Laminates at the purchase price 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. As of December 31, 2000, 7,791 preferred shares and 30,041 common shares,
including 20,766 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.
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 shareholders of Laminates shall be required to approve any
amendment if the approval is necessary to comply with any tax or regulatory
requirements.
44
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 Laminates' achievement of EBITDA
targets, payment of cash bonuses.
Mr. Langone was paid a $375,000 transaction fee in connection with the
acquisition of the Company by Laminates 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 of the Company by Laminates.
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
(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 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
45
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.
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 1997 and 1999. 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 twenty four (24) 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.
Jean Pierre Clement. Mr. Clement is an employee of Formica
Corporation. He is paid an annual salary and may participate in applicable
compensation schemes. Mr. Clement is also entitled to participation in certain
benefits of Formica Corporation, including a group health plan and company sick
pay. Mr. Clement is covered by the Formica S.A. (France) pension plan.
Compensation of Directors
Nonemployee directors receive a quarterly retainer of $4,500, a fee of
$2,500 for each Board meeting attended and a fee of $1,000 for each Committee
meeting attended.
46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of Formica's voting securities as of December 31, 2000 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:
Percentage
Name of Beneficial Owner 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%
R. Eugene Cartledge
6 Skidaway Village Walk
Savannah, Georgia 31411........................... --
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........................................ --
William Adams.......................................... --
Steve Kuo.............................................. --
Jean Pierre Clement.................................... --
All directors and officers as a group (10 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 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.
47
The following table sets forth information with respect to the
beneficial ownership of Laminates' voting securities as of December 31, 2000 by
(i) each person or group known to Formica who beneficially owns more than five
percent of Laminate's voting securities, (ii) each of Formica's directors,
(iii) each executive officer of Formica and (iv) all directors and executive
officers of Formica as a group:
- --------------------------------------------------------------------------------
Number of Percentage of
Name of Beneficial Owner Shares(1) Class
- -------------------------------------- --------- -------------
DLJ Merchant Banking Funds (2)...................... 1,128,289(3) 50.0%
CVC European Equity Partners, L.P.
Hudson House
8-10 Tavistock Street
London, WC2E 7PP................................. 240,198(4) 11.8%
CVC European Equity Partners (Jersey) L. P.
Hudson House
8-10 Tavistock Street
London, WC2E 7PP................................. 28,920(5) 1.4%
Euro Ventures PTE Ltd.
250 Northbridge Road
Raffles City Tower, Singapore 17910............. 161,074(6) 7.9%
MMI Products, L.L.C.
399 Park Avenue
New York, New York 10043......................... 269,118(7) 13.2%
R. Eugene Cartledge
6 Skidaway Village Walk
Savannah, Georgia 31411........................ 880(8) --
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..................................... 219,657(9) 11.8%
David Schneider..................................... 41,039(10) 2.2%
William Adams....................................... 5,816(11) 0.3%
Steve Kuo........................................... 525(12) --
Jean Pierre Clement................................. 1,800(13) --
All directors and officers as a group (10 persons)
(8)(9)(10)(11)(12)(13).............................. 269,717 14.5%
- ---------------------------------------
(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.
(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,
48
Inc.; DLJ First ESC L.P.; UK Investment Plan 1997 Partners, Inc.; DLJ EAB
Partners, L.P. and DLJ ESC II L.P. 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 200,628 shares that may be acquired upon exercise of warrants.
(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 14,599 shares that may be acquired upon exercise of warrants.
(7) Includes 25,000 shares that may be acquired upon exercise of warrants.
(8) Includes 75 shares that may be acquired upon exercise of warrants.
(9) Includes 175,542 shares of restricted stock, of which 105,326 are
time-based shares and 70,216 are performance- based shares. See
"Management--The 1998 Restricted Stock Plan."
(10) Includes 26,334 shares of restricted stock, of which 15,800 are time-based
shares and 10,534 are performance- based shares. See "Management--The 1998
Restricted Stock Plan."
(11) Includes 4,616 shares of restricted stock, of which 2,308 are time based
shares and 2,308 are performance-based shares. See "Management--The 1999
Stock Plan."
(12) 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."
(13) Includes 1,200 shares of restricted stock, of which 600 are time-based
shares and 600 are performance-based shares. See "Management --The 1999
Stock Plan."
49
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In order to fund normal working capital requirements, Formica has
entered into certain borrowing arrangements with Laminates. These arrangements
are short-term in nature and generally bear no interest. At December 31, 2000,
there was approximately $0.9 million outstanding under these arrangements. (See
Note 11 to the accompanying consolidated financial statements.)
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. Mr. Cartledge has been selected as an
independent director.
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 Credit Suisse First Boston 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, Inc., an affiliate of DLJ Merchant Banking
Partners II L.P. and its affiliates (DLJ Merchant Banking), has and will
receive customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the credit facility and as a lender thereunder.
In 2000, the aggregate amount of all fees paid to the various DLJ entities in
connection with the acquisition of Perstorp Surface Materials AB and the
syndication of the credit facility was approximately $6.0 million.
Laminates Funding, Inc., an affiliate of DLJ Merchant Banking, was a
purchaser of a portion of the bridge notes issued in connection with the
acquisition and received customary fees and expenses in connection therewith.
Credit Suisse First Boston Corporation, also an affiliate of DLJ Merchant
Banking, acted as the initial purchaser of the Senior Subordinated Notes. The
aggregate amount of all fees paid to the various DLJ entities in connection
with the Laminates acquisition and the offering of the Senior Subordinated
Notes was approximately $8.5 million.
Expected future transactions with Credit Suisse First Boston Corporation
Formica and its subsidiaries may from time to time enter into financial
advisory or other investment banking relationships with Credit Suisse First
Boston Corporation (an affiliate of DLJ Merchant Banking) or one of its
affiliates whereby Credit Suisse First Boston Corporation or its affiliates
will receive customary fees and will be entitled to reimbursement for all
related reasonable disbursements and out-of-pocket expenses. Formica expects
that any arrangement will include provisions for the indemnification of Credit
Suisse First Boston Corporation against a variety of liabilities, including
liabilities under the federal securities laws.
50
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 cash sources and uses of funds for
the acquisition and related fees and expenses:
(in millions)
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
Transaction fees and expenses, including fees and
expenses incurred in connection with the
offering of the old notes 30.0
-------
Total Uses $445.9
=======
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.
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:
51
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 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.
52
The following chart shows our corporate structure, but omitting most
of our subsidiaries, immediately before and immediately after the acquisition:
Corporate Organizational chart
Our Company
Acquisition Shells Before: After:
Laminates Laminates
LMS 1 Merger--> FM Holdings FM Holdings
LMS II
(issuer of bridge
notes and credit Merger--> Formica Formica
facility borrower)
LMS III Merger--> Formica Formica
International International
Holdco UK
(credit facility Holdco UK
borrower)
Purchase of
stock |
|
-> Formica Limited Formica Limited
53
DESCRIPTION OF OUR CREDIT FACILITY
Our credit facility was originally provided on May 11, 1998 by a
syndicate of financial institutions led by Credit Suisse First Boston
Corporation, as arranger, DLJ Capital Funding, as syndication agent and Bankers
Trust Company as administrative agent. In connection with the contribution of
Perstorp Surface Materials AB to us, we expanded our existing credit facility
to include the financing of the acquisition of that company, which was
initially provided under a separate credit facility. As so expanded, our credit
facility includes:
o an $85.0 million term loan A facility, which provides for
>> a pound sterling-denominated facility in an amount equal to
the pound sterling equivalent, determined as of the date
the loans under that facility were made, of US$40.0
million,
>> a $35.0 million U.S. dollar-denominated facility, and
>> a Canadian dollar-denominated facility in an amount equal
to the Canadian dollar equivalent, determined as of the
date the loans under that facility were made, of US$10.0
million,
o a $140.0 million U.S. dollar-denominated term B loan facility,
and
o a $120.0 million revolving credit facility, which provides for
loans and under which up to $100.0 million in letters of credit
may be issued.
At our request, our credit facility may be increased by $25 million of
additional term B loans and/or revolving loans, if consented to by the lenders
providing such increase. Any such additional term loans, and the existing term
B loans mature on April 30, 2006. All other loans under the facility 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 our credit facility bear interest, at Formica's option, at
the alternate base rate or the reserve adjusted LIBO 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 on revolving loans and term A loans and the 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
our credit facility. The applicable margin for term A loans are 2.25% in the
case of alternate base rate loans, and 3.50% in the case of LIBO rate loans.
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 LIBO rate term A loans and (2) in the case of commercial letters of credit,
1.25%, which shall be shared by all lenders participating in the Letter of
Credit, and an additional 0.125% per annum fee to issuers of each letter of
credit.
The term A loans are subject to the following amortization schedule:
Term Loan
Period Amortization (%)
6/15/99-6/15/00 2.5
6/16/00-6/15/01 10.0
6/16/01-6/15/02 20.0
6/16/02-6/15/03 25.0
6/15/03-5/01/04 42.5
The term B loans are subject to the following amortization schedule:
Term Loan
Period Amortization (%)
4/03/00-3/31/01 1.0
4/01/01-3/31/02 1.0
4/01/02-3/31/03 1.0
4/01/03-3/31/04 1.0
4/01/04-3/31/05 1.0
4/01/05-4/30/06 95.0
Any additional term loan made under the facility would also amortize
on this schedule.
54
Our 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 or any of its restricted subsidiaries, as defined in our
credit facility, subject to various exceptions, including an
exception for reinvestment in the business of Formica and its
subsidiaries,
o with 50% of the net cash proceeds received from the issuance of
equity securities of Formica, Holdings or Laminates 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 our credit facility. Formica's
obligations under our credit facility are secured by
o all existing and after-acquired personal property of Formica and
the domestic 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 domestic 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 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
>> the creation of liens on our assets
>> our subsidiaries' ability to make payments to us
o restrictions on mergers and acquisitions, sales of assets
(including stock in our restricted subsidiaries) and leases
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.
55
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 our 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 our 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.")
56
DESCRIPTION OF NOTES
The old and new notes were 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. The exchange offer period
expired on October 1, 1999, with all outstanding old notes exchanged for the
new notes.
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 prospectus, all of our subsidiaries are Restricted Subsidiaries except for
Surface Materials Co., Inc., which has no material assets or operations.
Principal, Maturity and Interest
The notes:
o are our general obligations
o are subordinated to all our Senior Indebtedness
o are not guaranteed by any of our subsidiaries
o are initially limited in aggregate principal amount to
$215.0 million
o mature on March 1, 2009 o bear interest at a rate of
10 7/8% per year
o are issued in denominations of $1,000 and in higher integral
multiples of $1,000.
We will pay interest on the notes in arrears every March 1 and
September 1, beginning September 1, 1999, to holders of record on the
immediately preceding February 15 and August 15. Interest on the new notes will
accrue from the most recent date on which we paid interest on the old notes or
the new notes or, if no interest has been paid, from the date when we
originally issued the old notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
We will make all payments of principal, premium, interest and
liquidated damages on the notes:
o at our office or agency that we have for that purpose within
the City and State of New York
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.
57
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 liquidation or dissolution of Formica
>> a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to Formica or its property
>> an assignment for the benefit of creditors
>> 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.
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.
58
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%
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
>> on a pro rata basis
>> by lot or
>> 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").
59
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, 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:
60
(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 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
61
(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.
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 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
62
(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:
>> (1) to the extent that the declaration of any dividend
referred to therein reduces amounts available for
Restricted Payments under this clause (c)
>> (2) through (9)
>> (11)
>> (12)
>> (14)
>> (16)
>> (17)
>> (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 that
Subsidiary at the time of that redesignation); plus
(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
63
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 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 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 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:
(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
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
64
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 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 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
65
(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
(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;
(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
66
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
(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
67
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.
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
68
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;
(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.
69
Merger, Consolidation, or Sale of Assets
Formica may not
>> consolidate or merge with or into another Person, whether or not
Formica is the surviving corporation, or
>> 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.
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 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:
70
(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
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";
71
(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:
(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
72
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
(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.
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.
73
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 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,
74
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.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the
indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents. Formica may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. Formica is not required to transfer or exchange any note selected
for redemption. Also, Formica is not required to transfer or exchange any note
for a period of 15 days before a selection of notes to be redeemed. The
registered holder of a note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Generally, the indenture and the notes may be amended or supplemented
with majority consent
Except as provided in the next two paragraphs,
o the indenture and the notes may be amended or supplemented with
the consent of the holders of at least a majority in principal
amount of the notes then outstanding and
o any
>> existing default or
>> 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
75
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.
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.
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.
76
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.
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
77
(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 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;
78
(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;
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:
(a) in the case of a corporation, corporate stock;
79
(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
(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;
80
(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:
(a) the interest expense of that Person and its Restricted
Subsidiaries for that period, on a consolidated basis,
determined in accordance with GAAP including:
o amortization of original issue discount,
o non-cash interest payments,
o the interest component of all payments associated with
Capital Lease Obligations,
o imputed interest with respect to Attributable Debt,
o commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance
financings, and
o 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
81
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:
(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.
82
"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
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of:
the Consolidated Cash Flow of that Person for that period,
exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses
disposed of prior to the Calculation Date
to
the Fixed Charges of that Person for that period, exclusive of
amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date.
In the event that the referent Person or any of its Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness other than revolving
credit borrowings or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to that
incurrence, assumption, guarantee or redemption of Indebtedness, or that
issuance or redemption of preferred stock and the use of the proceeds
therefrom, as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of making the computation referred to above,
the Acquisition and acquisitions that have been made by Formica or any of its
Subsidiaries, including all mergers or consolidations and any related financing
transactions, during the four-quarter reference period or subsequent to that
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for that reference period shall be calculated to include
the Consolidated Cash Flow of the acquired entities on a pro forma basis after
giving effect to cost savings reasonably expected to be realized in connection
with that acquisition, as determined in good faith by an officer of Formica
(regardless of whether that cost savings could then be reflected in pro forma
financial statements under GAAP, Regulation S-X promulgated by the SEC or any
other regulation or policy of the SEC) and without giving effect to clause (c)
of the proviso set forth in the definition of Consolidated Net Income.
"Foreign Credit Facilities" means any Indebtedness of a Restricted
Subsidiary organized or having its principal place of business outside the
United States. Indebtedness under the Foreign Credit Facilities outstanding on
the date on which the notes were first issued and authenticated under the
indenture shall be deemed to have been incurred on that date in reliance on the
first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as
83
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
(b) the principal amount thereof, in the case of any other Indebtedness
provided that the principal amount of any Indebtedness that is
denominated in any currency other than United States dollars shall be
the amount thereof, as determined under the foregoing provision,
converted into United States dollars at the Spot Rate in effect on
the date that Indebtedness was incurred or, if that indebtedness was
incurred prior to the date of the indenture, the Spot Rate in effect
on the date of the indenture.
"Intercompany Note" means the note, and all obligations, including
interest, with respect thereto, issued by Holdings to Formica on the date of
the completion of the Acquisition to evidence the loan by Formica to Holdings
of some proceeds of the offering of bridge notes and borrowings under the New
Credit Facility, which proceeds partially funded the merger consideration and
costs and expenses in connection therewith.
"Investments" means, with respect to any Person, all investments by
that Person in other Persons in the forms of direct or indirect loans
(including guarantees by the referent Person of, and Liens on any assets of the
referent Person securing, Indebtedness or other obligations of other Persons),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that an investment by Formica for consideration consisting of common
equity securities of Formica shall not be deemed to be an Investment. If
Formica or any Restricted Subsidiary of Formica sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of Formica
such that, after giving effect to any such sale or disposition, that Person is
no longer a Subsidiary of Formica, Formica shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of that Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described under the caption "--Restricted Payments."
84
"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
(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
85
(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:
(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 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;
86
(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 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;
(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,
87
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, MMI and Euro Ventures
PTE Ltd.
"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
(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
88
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.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated under the Securities Act, as that Regulation is in effect on the
date hereof.
"Spot Rate" means, for any currency, the spot rate at which that
currency is offered for sale against United States dollars as determined by
reference to the New York foreign exchange selling rates, as published in The
Wall Street Journal on that date of determination for the immediately preceding
business day or, if that rate is not available, as determined in any publicly
available source of similar market data.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which that payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any that interest or principal prior to the date
originally scheduled for the payment thereof. "Subsidiary" means, with respect
to any Person:
(a) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital
Stock entitled, without regard to the occurrence of any
contingency, to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(b) any partnership or limited liability company (1) the sole
general partner or the managing general partner or managing
member of which is that Person or a Subsidiary of that Person or
(2) the only general partners or managing members of which are
that Person or of one or more Subsidiaries of that Person (or
any combination thereof).
"Subordinated Note Obligations" means all Obligations with respect to
the notes, including, without limitation, principal, premium, if any, interest
and liquidated damages, if any, payable under the terms of the notes (including
upon the acceleration or redemption thereof), together with and including any
amounts received or receivable upon the exercise of rights of rescission or
other rights of action (including claims for damages) or otherwise.
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between Formica and Laminates and/or Holdings, as the same may be amended from
time to time; provided that in no event shall the amount permitted to be paid
under all those agreements and/or arrangements exceed the amount Formica would
be required to pay for income taxes were it to file a consolidated tax return
for itself and its consolidated Restricted Subsidiaries as if it were a
corporation that was a parent of a consolidated group.
"Total Assets" means the total consolidated assets of Formica and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of Formica.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the board of directors as an Unrestricted Subsidiary under a board resolution,
but only to the extent that Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement or
understanding with Formica or any
89
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 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.
PLAN OF DISTRIBUTION
This prospectus is to be used by Credit Suisse First Boston Corporation
in connection with offers and sales of the new notes in market-making
transactions effected from time to time. Credit Suisse First Boston 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 Credit Suisse First Boston
Corporation, and certain of its affiliates beneficially own approximately 50.0%
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,
90
Holdings and Formica. Further, DLJ Capital Funding, Inc., an affiliate of
Credit Suisse First Boston 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 Credit Suisse
First Boston Corporation, purchased a portion of the bridge notes, for which it
received customary fees and expenses. Credit Suisse First Boston 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. Credit Suisse First Boston 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, Credit Suisse First Boston 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."
Credit Suisse First Boston 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 Credit Suisse First Boston Corporation that,
subject to applicable laws and regulations, Credit Suisse First Boston
Corporation currently intends to make a market in the new notes following
completion of the exchange offer. However, Credit Suisse First Boston
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."
Credit Suisse First Boston Corporation and Formica have entered into the
Registration Rights Agreement with respect to the use by Credit Suisse First
Boston Corporation of this prospectus. In that agreement, Formica agreed to
bear all registration expenses incurred under such agreement, and Formica
agreed to indemnify Credit Suisse First Boston Corporation against a variety of
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Davis Polk & Wardwell, New York, New York will opine for Formica
whether the new notes are its valid and binding obligations.
EXPERTS
The consolidated balance sheets of Formica Corporation and its
subsidiaries as of December 31, 1999 and December 31, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the four months ended April 30, 1998, the eight months ended December 31, 1998
and the years ended December 31, 1999 and 2000, 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.
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.
91
In addition, we have agreed that, for so long as any notes
remain outstanding, we will furnish to the holders of the notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered by Rule 144A(d)(4) under the Securities
Act.
92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the years ended
December 31, 2000 and 1999, the eight-months ended December 31, 1998,
and the four-months ended April 30, 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2000 and 1999, the
eight-months ended December 31, 1998, and the four-months ended
April 30, 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 1999, the eight-months ended December 31, 1998,
and the four-months ended April 30, 1998 F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Formica Corporation:
We have audited the accompanying consolidated balance sheets of Formica
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 2000 and
1999, the eight-month period ended December 31, 1998 and the four-month period
ended April 30, 1998 (see Note 1). These consolidated financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Formica Corporation
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999,
the eight-month period ended December 31, 1998 and the four-month period ended
April 30, 1998 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule II - Valuation
and Qualifying Accounts is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
March 2, 2001
F-2
FORMICA CORPORATION
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 2000 AND 1999
(in millions, except share data)
2000 1999
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 3.4 $ 7.8
Accounts receivable, less allowance for doubtful accounts of $10.4 and
$4.7, respectively..................................................... 112.2 84.4
Inventories................................................................ 157.2 119.7
Prepaid expenses and other current assets.................................. 19.1 11.5
Deferred income taxes...................................................... 24.0 23.5
------------ -----------
Total current assets...................................................... 315.9 246.9
Property, Plant and Equipment, net.............................................. 370.3 307.3
Other Assets:
Intangible assets, net................................................. 168.6 161.1
Non-current assets........................................................ 24.6 11.3
------------ -----------
Total assets........................................................... $ 879.4 $ 726.6
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................................... $ 29.7 $ 28.2
Accounts payable........................................................... 68.3 37.2
Accrued expenses and other current liabilities............................. 64.4 56.8
------------ -----------
Total current liabilities................................................. 162.4 122.2
Long-Term Debt.................................................................. 440.9 362.9
Deferred Income Taxes........................................................... 130.0 134.2
Other Liabilities............................................................... 54.8 30.0
------------ -----------
Total liabilities......................................................... 788.1 649.3
Commitments and Contingencies
Stockholders' Equity:
Preferred stock--par value $.01--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.................................................. 217.0 137.0
Accumulated deficit......................................................... (91.9) (54.4)
Accumulated other comprehensive loss........................................ (33.9) (5.4)
------------ -----------
Total stockholders' equity............................................... 91.3 77.3
------------ -----------
Total liabilities and stockholders' equity............................. $ 879.4 $ 726.6
============ ===========
The accompanying notes to the consolidated financial
statements are an integral part of these
consolidated statements.
F-3
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
Eight Months Four Months
Year Ended Year Ended Ended Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
-------------- -------------- -------------- -------------
Net Sales............................................ $ 773.7 $ 606.6 $ 384.6 $ 184.8
Cost of Products Sold................................ 566.8 440.2 279.4 137.6
Inventory Markdown from Restructuring ............... 2.2 -- -- --
-------------- -------------- -------------- -------------
Gross Profit........................ 204.7 166.4 105.2 47.2
Selling, General and Administrative Expenses......... 199.7 148.0 100.5 60.9
Cost of Terminated Acquisitions...................... 0.4 0.8 3.0 --
Cost to Terminate Supply Contract.................... -- 26.2 -- --
Provision for Restructuring.......................... 8.0 -- -- --
-------------- -------------- -------------- -------------
Operating (Loss) Income............. (3.4) (8.6) 1.7 (13.7)
Interest Expense..................................... (50.8) (37.4) (25.7) (1.7)
Other Income......................................... 7.6 2.5 4.5 0.8
-------------- -------------- -------------- -------------
Loss Before Income Taxes............................. (46.6) (43.5) (19.5) (14.6)
Income Tax Benefit (Provision)....................... 9.1 11.4 (2.8) --
-------------- -------------- -------------- -------------
Net Loss............................ $ (37.5) $ (32.1) $ (22.3) $ (14.6)
============== ============== ============== =============
The accompanying notes to the consolidated financial
statements are an integral part of these
consolidated statements.
F-4
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive
Stock Capital Deficit Loss Total
------------ --------------- ----------------- ----------------- --------
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
--------
Total Comprehensive loss.................... (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
--------
Total Comprehensive loss...... (17.3)
------------ --------------- ----------------- ----------------- --------
Balance at December 31, 1998.................... 0.1 137.0 (22.3) 5.0 $119.8
============ =============== ================= ================= ========
Comprehensive loss:
Net loss.................................... -- -- (32.1) -- (32.1)
Foreign currency translation adjustments.... -- -- -- (10.4) (10.4)
--------
Total Comprehensive loss..... (42.5)
------------ --------------- ----------------- ---------------- - -------
Balance at December 31, 1999.................... $ 0.1 $ 137.0 $ (54.4) $ (5.4) $ 77.3
============ =============== ================= ================ = =======
Equity contribution from parent................. -- 80.0 -- -- 80.0
Comprehensive loss:
Net loss.................................... -- -- (37.5) -- (37.5)
Foreign currency translation adjustments.... -- -- -- (28.5) (28.5)
--------
Total Comprehensive loss..... (66.0)
------------ --------------- ----------------- ----------------- --------
Balance at December 31, 2000.................... $ 0.1 $ 217.0 $ (91.9) $(33.9) $ 91.3
============ =============== ================= ================= ========
The accompanying notes to the consolidated financial
statements are an integral part of these
consolidated statements.
F-5
FORMICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Year Eight Months Four
Ended Ended Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
-------------- -------------- -------------- -----------------
Operating Activities:
Net loss.................................................. $ (37.5) $(32.1) $ (22.3) $ (14.6)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 57.8 42.9 29.3 11.1
Cost to terminate supply contract...................... -- 26.2 -- --
Deferred income taxes.................................. (14.6) (15.1) (0.8) 1.2
Changes in assets and liabilities: (net of the
effects of acquisitions)..........................
Accounts receivable................................ 20.5 (18.3) 8.9 (5.4)
Inventories........................................ 7.9 0.2 7.8 (2.0)
Prepaid expenses and other current assets.......... 3.2 7.0 (7.4) 5.8
Accounts payable................................... 11.3 (0.3) (2.6) 0.1
Accrued expenses................................... (20.5) (1.9) (3.0) (18.1)
Other, net......................................... 9.2 (8.4) 16.8 10.2
-------------- -------------- -------------- -----------------
Net cash provided by (used in) operating
activities.................................... 37.3 0.2 26.7 (11.7)
Investing Activities:
Purchases of property, plant and equipment............ (23.5) (25.9) (35.5) (8.3)
Acquisitions of businesses, net of cash acquired...... (177.5) (63.4) -- --
-------------- -------------- -------------- -----------------
Net cash used in investing activities........... (201.0) (89.3) (35.5) (8.3)
Financing Activities:
Proceeds from borrowings, net......................... 133.2 268.1 288.1 --
Due from affiliates................................... -- -- -- 15.5
Equity contribution from parent....................... 80.0 -- -- --
Dividends paid........................................ -- -- (255.0) (0.5)
Payments of debt...................................... (53.4) (201.9) (0.1) (15.1)
-------------- -------------- ----------------- ----------------
Net cash provided by (used in) financing
activities..................................... 159.8 66.2 33.0 (0.1)
Effects of Exchange Rate Changes on Cash.................. (0.5) (0.9) 0.5 (0.2)
-------------- -------------- -------------- -----------------
(Decrease) / Increase in Cash and Cash Equivalents........ (4.4) (23.8) 24.7 (20.3)
Cash and Cash Equivalents at Beginning of the Period...... 7.8 31.6 6.9 27.2
-------------- -------------- -------------- -----------------
Cash and Cash Equivalents at End of the Period............ $ 3.4 $ 7.8 $ 31.6 $ 6.9
============== ============== ============== =================
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
F-6
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
Formica Corporation ("Formica" or the "Company"), a Delaware
Corporation, 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
four-month period ended April 30, 1998. The accounts of the Company for the
eight-month period ended December 31, 1998 and the years ended December 31,
1999 and 2000 reflect the results post-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 decorative surfacing products. The
Company's operations are primarily based in the Americas, Europe and Asia.
(2) ACQUISITIONS:
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 million of cash (including transaction costs of approximately $15.4
million) and the assumption of approximately $29.0 million of net debt ("the
Acquisition"). 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 million has been allocated primarily to
intangible assets based on appraisals of the assets.
The Acquisition was financed with $87.1 million in proceeds from the
sales of preferred and common stock by Laminates, $50.0 million in proceeds
from the sale of senior preferred stock by an affiliate (which was merged into
Holdings) and from borrowings of $280.0 million by the Company. The net
proceeds to Holdings from the sale of 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.
In March 1999, the Company acquired a manufacturer of solid surface
products. The acquisition had no material effect on the Company's financial
position or results of operations.
In December 1999, the Company acquired its exclusive supplier of
laminate flooring. Prior to the acquisition, Formica was obligated under a
contract with the supplier to purchase minimum quantities of laminate flooring
at stipulated prices. The excess of the purchase price over the net tangible
and intangible assets of the supplier totaling $26.2 million was charged to
expense as the cost to terminate the supply contract.
On March 31, 2000, Decorative Surfaces Holding AB ("DSH") acquired
Perstorp Surface Materials AB ("PSM"), a worldwide producer of decorative and
industrial laminates, finished foils, printed paper and other surfacing
materials from Perstorp AB (Sweden) for approximately $177.5 million (including
approximately $2.0 million of transaction costs) ("the PSM Acquisition"). The
consideration paid to Perstorp AB was determined through arms-length
negotiations between DSH and Perstorp AB. An independent appraisal of the fair
value of PSM's assets and liabilities was performed in 2000. The purchase price
approximated the fair value of the net assets acquired.
The PSM acquisition and related fees and expenses were financed with
$110.0 million of term loan proceeds under a new senior credit facility and the
issuance of approximately $80.0 million of warrants, common stock and preferred
stock of Laminates and Holdings to 1) DLJ Merchant Banking Partners II, L.P.
and related funds, 2) CVC Capital Partners Limited and 3) management. The
$110.0 million in term loans was provided by PSM Funding, Inc., an affiliate of
DLJ Merchant Banking Partners II, one of the principal shareholders of
Laminates.
F-7
FORMICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Holdings had previously announced its intention to contribute the
stock of DSH, together with unused proceeds raised through the debt and equity
issued in connection with the PSM acquisition, to Formica once certain
conditions were satisfied. Formica was not required to pay any consideration
for that contribution, but was to assume the $110.0 million in debt incurred to
finance the acquisition.
On May 26, 2000, Holdings contributed all of the stock of DSH to
Formica. DSH was a wholly-owned subsidiary of Holdings (the parent company of
Formica) whose sole asset was its investment in PSM. The acquisition was
accounted for on an as-if pooling basis because it is a combination of entities
under common control. Accordingly, Formica's historical financial statements
include PSM's financial position, results of operations and cash flows after
reflecting the acquisition and related purchase accounting by DSH on March 31,
2000 for all periods beginning April 1, 2000.
The following unaudited pro forma consolidated results of operations
for the years ended December 31, 2000 and 1999 assume the December 1999 and
March 2000 acquisitions had occurred at the beginning of 1999:
2000 1999
---- ----
(in millions)
Net sales............................... $828.8 $ 846.5
Net loss................................ $(40.6) $ (26.2)
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 December 1999 and March 2000 acquisitions been consummated at the
beginning of 1999, or of future results.
(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.
Estimates, by their nature, are based on judgments and available information,
therefore 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 loss in stockholders' equity. Realized gains and losses from
foreign currency transactions are reflected in the consolidated statements of
operations.
Concentration of Credit Risk
Credit risk with respect to trade accounts receivable is 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.
F-8
Customer Incentive Rebate Program
The Company offers percentage rebates to distributors on specified
products based on the actual resale prices to end customers, within
pre-established parameters. Customer incentive rebates are accrued at the time
of the sale based upon historical rebate percentages as an offset to net sales.
The accrued rebates are reduced through payments of rebates to the distributors
after the sales to the end customer.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
valued using the first-in, first-out (FIFO) method, except for certain
inventories in the United States which are valued using the last-in, first-out
(LIFO) method. As of December 31, 2000 and 1999, 30% and 68%, 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 & Improvements.................... 10 to 40 years
Machinery & Equipment....................... 3 to 15 years
Computer & 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 the straight-line basis over their
estimated useful lives (3 to 20 years). The Company periodically reviews long
lived assets to evaluate whether changes have occurred that would suggest these
assets may be impaired based on the estimated net cash flows on an undiscounted
basis over the remaining amortization period. If this review indicated that the
remaining estimated useful life requires revision or that the asset is not
recoverable, the carrying amount of the asset would be reduced by the estimated
shortfall of cash flows on a discounted basis. Management is not aware of any
such changes.
Financial Instruments
At December 31, 2000 and 1999, the fair value of substantially all of
the Company's financial instruments approximated their carrying value, except
for the Senior Subordinated Notes which were trading at a price of $37.00 and
$91.50 per $100.00 of par value at December 31, 2000 and 1999, respectively.
Research and Development
Research and development costs are expensed as incurred. Research and
development costs included in selling, general and administrative expenses were
$2.6 million, $1.7 million, $1.4 million and $1.1 million for the years ended
December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and
the four-month period ended April 30, 1998, respectively.
Environmental Compliance and Remediation Costs
Environmental compliance costs include ongoing maintenance, monitoring
and similar expenditures. These 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-"Commitments and Contingencies" for information concerning environmental
matters.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs included
in selling, general and administrative expenses were $22.2 million, $16.6
million, $10.3 million, and $10.6 million for the years ended December 31, 2000
and 1999, the eight-month period ended December 31, 1998 and the four-month
period ended April 30, 1998, 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 No. 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
F-9
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 years amounts to
conform with the current year presentation. The Company's revenues and cost of
sales have been reclassified in accordance with Emerging Issues Task Force
(EITF) Issue No. 00-10.
Recently Issued Accounting Standards
Statement of Financial Accounting Standard (SFAS) No.133
In June 1998, SFAS No. 133-"Accounting for Derivative Instruments
and Hedging Activities" was issued ("SFAS No. 133"). In June 1999, SFAS No.
137-"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" was issued which deferred the
effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning
after June 15, 2000. In June 2000, SFAS No. 138 was issued, which amended SFAS
No. 133. These SFAS's require 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.
The Company adopted SFAS No. 133, and the corresponding amendments of SFAS No.
138 on January 1, 2001, and such adoption did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
Emerging Issues Task Force Issue No. 00-10
In September 2000, the Emerging Issues Task Force reached a consensus
in EITF Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs"
and concluded that all amounts billed to a customer in a sale transaction
related to shipping and handling represent revenues earned and should be
classified as revenue. The EITF concluded that the costs incurred by the seller
for shipping and handling should be classified as costs of sales and not
deducted from shipping and handling revenues. The implementation date for the
EITF was the fourth quarter of a registrant's fiscal year beginning after
December 15, 1999. Accordingly, the Company adopted EITF No. 00-10 in the
fourth quarter of 2000, and has reclassified its financial statements for all
periods presented to comply with the guidelines of the EITF Issue. These
reclassifications did not have any effect on the Company's operating income /
(loss), EBITDA or net loss.
(4) INVENTORIES:
Inventories consisted of the following at December 31:
2000 1999
---- ----
(in millions)
Finished goods............................ $100.1 $ 84.5
Work-in-process........................... 15.5 11.6
Raw materials............................. 61.5 45.1
------- -----
Total............................. 177.1 141.2
Less: Obsolescence reserve................ 19.9 21.5
------- ------
$157.2 $119.7
======= ======
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
2000 1999
----- -----
(in millions)
Land................................................... $ 32.7 $ 18.6
Buildings and improvements............................. 71.9 55.4
Machinery and equipment................................ 327.8 269.4
------ ------
Total............................................ 432.4 343.4
Less: Accumulated depreciation and amortization........ 62.1 36.1
------ ------
$370.3 $307.3
====== ======
F-10
Depreciation expense was $34.1 million, $24.1 million, $16.0 million
and $7.9 million for the years ended December 31, 2000 and 1999, the
eight-month period ended December 31, 1998 and the four-month period ended
April 30, 1998, respectively.
(6) INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31:
2000 1999
------ ------
(in millions)
Trademarks............................................ $154.7 $140.3
Patents............................................... 19.9 19.9
Goodwill and other.................................... 49.0 32.5
------ ------
Total......................................... 223.6 192.7
Less: Accumulated amortization........................ 55.0 31.6
------ ------
$168.6 $161.1
====== ======
(7) ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
2000 1999
----- ------
(in millions)
Accrued salaries and benefits......................... $22.1 $19.4
Restructuring reserve................................. 9.6 2.7
Accrued interest...................................... 10.1 8.6
Other accrued expenses................................ 22.6 26.1
------ ------
Total........................................ $64.4 $56.8
====== ======
(8) LONG-TERM DEBT:
Notes payable to banks and other long-term debt consisted of the
following at December 31:
2000 1999
------ ------
(in millions)
Senior subordinated notes.......................... $215.0 $215.0
Credit Facilities:
Term loans.................................... 212.1 83.2
Revolvers..................................... 21.6 60.7
Other.............................................. 21.9 32.2
------- -------
Total..................................... 470.6 391.1
Less: Current maturities........................... 29.7 28.2
------- --------
$440.9 $362.9
======= ========
In connection with the Acquisition (see Note 2), Formica sold $200
million of senior subordinated unsecured increasing rate bridge notes (the
"Bridge Notes") with interest at the greater of prime plus an additional amount
or 10% and, together with its subsidiaries, borrowed $80 million of term loans
under the senior loan facility (the "Credit Facility"). Borrowings under the
Credit Facility were increased to $85 million after the acquisition.
On February 22, 1999, the Company issued $215 million of 10 7/8%
Series A Subordinated Notes due March 1, 2009 (the "Series A Notes") and repaid
the Bridge Notes. The Series A Notes were sold in transactions permitted by
Rule 144A and Regulation S under the Securities Exchange Act of 1933 and
therefore were not registered with the Securities and Exchange Commission
("SEC").
In conjunction with the issuance of the Series A Notes, the Company
was subject to a Registration Rights Agreement that required the Company to
file an Exchange Offer Registration Statement (the "Statement") with the SEC.
The Statement allowed for the exchange of new 10 7/8% Series B Senior
Subordinated Notes due 2009 (the "Series B Notes"), which would be registered
under the 1933 Act, for the existing Series A Notes.
F-11
The exchange offer period expired on October 1, 1999 with all
outstanding Series A Notes being exchanged for Series B Notes. Interest on the
Series B Notes is payable semi-annually on March 1 and September 1 of each
year. The Series B Notes are redeemable at the option of the Company in part
beginning in 2002 and in whole in 2004 at specified redemption prices. The
Series B 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 connection with the PSM Acquisition (See Note 2), PSM Funding, Inc.
syndicated and increased the term loan facility by $140 million at the time of
the contribution of DSH to Formica. The additional $30 million was used to
reduce outstanding borrowings under Formica's existing Credit Facility at the
time of the contribution and to make payments in connection with the closing.
Formica's existing Credit Facility was amended and restated to include, as a
separate tranche of term borrowings, the $140 million term loan. The new
tranche will mature in 2006 and will require 1% annual amortization (payable
quarterly) until March 31, 2005, with all remaining amounts payable in
increments of $27.6 million quarterly thereafter until maturity. Interest on
the new term loan will be, at Formica's option, either 2.25% over the Base Rate
or 3.5% over LIBOR. Interest rates on the other tranches of the credit facility
were also increased by 0.5% in connection with this transaction.
In addition to the $85 million and $140 million term loans discussed
above, the Credit Facility includes a $120 million revolving credit facility.
The $120 million revolving credit facility may be increased by up to $25
million at the request of the Company, with the consent of the banks providing
the increased commitments, and will terminate on May 1, 2004. There was $21.6
million and $60.7 million outstanding on December 31, 2000 and 1999,
respectively, under the revolving credit facility. The $85 million and $140
million term loans will mature in 2004 and 2006, respectively. The term loans
outstanding under the Credit Facility totaled $212.1 million and $83.2 million
at December 31, 2000 and 1999, respectively, and amortize over the life of the
Credit Facility.
Borrowings under the Credit Facility generally bear interest based on
a margin over the base rate or, at the Company's option, the reserve-adjusted
LIBOR rate. The applicable margin varies based upon the Company's ratio of
consolidated debt to EBITDA (as defined in the credit agreement). The Company's
obligations under the 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,
with a single exception, 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 Credit Facility contains financial covenants requiring the Company
to maintain minimum EBITDA, minimum coverage of interest expense and fixed
charges and a maximum leverage ratio. On May 26, 2000, the Company amended and
restated the Credit Facility, obtaining the consent of the bank group for the
acquisition of PSM. The Company was in compliance with the financial covenants
at December 31, 2000 and 1999. The Company's continued compliance with debt
covenants is dependent upon future economic performance which may be affected
by economic, financial, competitive, legislative, regulatory and other factors
beyond the Company's control.
The Company maintains various credit facilities in foreign countries
(primarily in Asia) that provide for borrowings in local currencies. At
December 31, 2000 and 1999, the Company had outstanding approximately $31
million and $28.4 million, respectively, in letters of credit under the Credit
Facility to provide credit enhancement and support for certain of its 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 8.1% in order to fund the ongoing operations of the business. At
December 31, 2000 and 1999, there was approximately $21.9 million and $32.2
million, respectively, outstanding under these facilities. At December 31, 2000
and 1999, approximately $6.5 million and $3.2 million, respectively, were
available under these facilities.
F-12
The approximate aggregate debt maturities are as follows as of
December 31, 2000:
(in millions)
2001................................. $ 29.7
2002................................. 23.1
2003................................. 34.8
2004................................. 33.8
2005................................. 80.4
Thereafter........................... 268.8
-------
$470.6
=======
Cash payments for interest approximated $46.9 million, $28.5 million,
$20.6 million and $0.2 million for the years ended December 31, 2000 and 1999,
the eight-month period ended December 31, 1998 and the four-month period ended
April 30, 1998, respectively.
(9) EMPLOYEE BENEFIT PLANS:
The Company sponsors defined benefit pension plans covering
substantially all United States and Canadian employees and certain employees in
other countries. The benefits provided under the defined benefit pension plans
are determined under formulas using years of service and compensation, or
formulas using years of service and a flat dollar benefit rate. The Company's
principal funding policy for the defined benefit pension plans is to maintain
the plans in accordance with the minimum funding provisions of the Employee
Retirement Income Security Act of 1974. The majority of the defined benefit
pension plans' assets are held in trust, and consist principally of equity
securities and fixed income instruments.
The majority of the defined contribution plans sponsored by the
Company are qualified under Section 401(k) of the Internal Revenue Code, with
the amount of the Company's contributions determined under a matching formula
tied to employee payroll deduction contributions. In addition, some defined
contribution plans offer discretionary Company contributions based upon a
profit based formula. Expenses related to these plans totaled approximately
$1.1 million, $1.0 million, $1.1 million and $0.3 million for the years ended
December 31, 2000 and 1999, the eight-month period ended December 31, 1998 and
the four-month period ended April 30, 1998, respectively.
The net cost for the Company's defined benefit pension plans was
comprised of the following components:
Year Year Eight Four
Ended Ended Months Ended Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
-------------- ---------------- ------------- -----------
(in millions)
Service cost ......................... $ 4.7 $ 3.9 $ 2.9 $ 0.6
Interest cost ........................ 8.2 5.8 3.0 1.2
Expected return on plan assets........ (10.0) (6.1) (2.8) (1.0)
Other................................. (0.2) -- -- --
-------------- ---------------- ------------- -----------
Net periodic pension cost............. $ 2.7 $ 3.6 $ 3.1 $ 0.8
============== ================ ============= ===========
The net periodic pension cost attributable to international plans
included in the above table was $1.3 million, $2.1 million, $2.0 million and
$0.2 million for the years ended December 31, 2000 and 1999, the eight-month
period ended December 31, 1998 and the four-month period ended April 30, 1998,
respectively.
The Company provides for the estimated cost of post-retirement
benefits (principally medical, dental and life insurance benefits provided to
retirees and eligible dependents). The Company does not fund its
post-retirement benefit plans.
The net cost of post-retirement benefits other than pensions was
comprised of the following components:
F-13
Year Year Eight Four
Ended Ended Months Ended Month Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
---------- ----------- ------------- -----------
(in millions)
Service cost ......................... $0.2 $0.2 $0.1 $0.0
Interest cost ........................ 0.4 0.4 0.3 0.1
--------- -------- -------- --------
Net post-retirement benefit cost...... $0.6 $0.6 $0.4 $0.1
========= ======== ======== ========
The cost of healthcare and life insurance benefits for active
employees was $16.1 million, $12.5 million, $7.5 million and $3.8 million for
the years ended December 31, 2000 and 1999, the eight-month period ended
December 31, 1998 and the four-month period ended April 30, 1998, respectively.
Summarized information about the changes in plan assets and benefit
obligations is as follows
Other Post-retirement
Pension Benefits Benefits
-------------------------------- ------------------------------
2000 1999 2000 1999
--------------- -------------- ------------- -------------
(in millions)
Fair value of plan assets at January 1........... $ 91.3 $ 83.4 $ -- $ --
Actual return on plan assets..................... 1.6 6.3 -- --
Company contributions............................ 1.7 4.3 0.1 0.2
Participant contributions........................ 0.8 0.6 0.1 --
Acquisitions..................................... 52.3 -- -- --
Benefits paid from plan assets................... (5.6) (3.3) (0.2) (0.2)
--------------- -------------- ------------- -------------
Fair value of plan assets at December 31......... $ 142.1 $ 91.3 $ -- $ --
=============== ============== ============= =============
Benefit obligation at January 1.................. $ 94.7 $ 96.2 $ 5.9 $ 5.8
Service cost..................................... 4.5 3.9 0.2 0.2
Interest cost.................................... 7.8 5.8 0.4 0.4
Actuarial losses (gains) ........................ 0.8 (7.0) (0.3) (0.3)
Acquisitions..................................... 41.6 -- -- --
Benefits paid from plan assets................... (5.6) (3.3) (0.2) (0.2)
Other............................................ (4.3) (0.9) -- --
--------------- -------------- ------------- -------------
Benefit obligation at December 31................ $ 139.5 $ 94.7 $ 6.0 $ 5.9
=============== ============== ============= =============
The fair value of international pension plan assets included in the
above table was $100.1 million and $49.7 million in 2000 and 1999,
respectively. The pension benefit obligation of international plans included in
this table was $90.0 million and $48.4 million in 2000 and 1999, respectively.
A reconciliation of the plans' funded status to the net liability
recognized at December 31 is as follows:
Other Post-retirement
Pension Benefits Benefits
--------------------------- -------------------------
2000 1999 2000 1999
------------- ---------- ------------ ---------
(in millions)
Funded status (benefit obligation in excess of plan assets)...... $ 2.6 $ (3.4) $(6.0) $(5.8)
Unrecognized net gain ........................................... (8.5) (11.8) (0.8) (0.6)
Unrecognized prior service cost ................................. 0.4 -- -- --
------------- ---------- ------------ ---------
Net liability ......................................... $(5.5) $(15.2) $(6.8) $(6.4)
============= ========== ============ =========
Reported as:
Other liabilities...................................... $ 5.5 $ 15.2 $ 6.8 $ 6.4
============= ========== ============ =========
For Company pension plans with benefit obligations in excess of plan
assets at December 31, 2000
F-14
and 1999, the fair value of plan assets was $45.2 million and $50.0 million,
respectively, and the benefit obligation was $60.2 million and $60.6 million,
respectively.
Assumptions used in determining pension plan information are:
Year Year Eight Four
Ended Ended Months Ended Month Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
---------- ----------- ------------- -----------
Rate of future compensation increases 0.00%-4.25% 0.00%-4.25% 0.0%-5.0% 0.0%-5.5%
Discount rate 5.75%-7.75% 5.75%-7.25% 5.0%-7.0% 6.5%-8.0%
Expected long-term rate of return on plan assets 0.00%-9.00% 0.00%-9.00% 0.0%-9.0% 0.0%-9.5%
Assumptions used in determining other post-retirement plan information
are:
Year Year Eight Four
Ended Ended Months Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
---------- ----------- ------------- ------------
Discount rate 7.00%-7.75% 7.00%-7.25% 5.0%-7.0% 5.0%-7.0%
In the aggregate, average international plan assumptions do not vary
significantly from U.S. assumptions.
The health care cost trend rate for other post-retirement benefit
plans was 10.0% at December 31, 2000 and is assumed to gradually decline to
5.0% over a 5-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
-------- --------
(in millions)
Effect on total service and interest cost components.............. $0.0 ($0.0)
======== ========
Effect on benefit obligation...................................... $0.2 ($0.2)
======== ========
(10) INCOME TAXES:
The benefit (provision) for income taxes consisted of the
following:
Year Year Eight Four
Ended Ended Months Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
------------ ----------- --------------- ------------
(in millions)
Current:
Federal...... $ -- $ -- $ -- $ --
State........ (0.2) (0.1) (0.1) --
Foreign...... (5.3) (3.6) (3.5) 1.2
------------ ----------- --------------- -----------
(5.5) (3.7) (3.6) 1.2
Deferred:
Federal...... 13.2 14.2 -- --
State........ 0.8 2.1 -- --
Foreign...... 0.6 (1.2) 0.8 (1.2)
------------ ----------- --------------- -----------
14.6 15.1 0.8 (1.2)
------------ ----------- --------------- -----------
$ 9.1 $11.4 $ (2.8) $ --
============ =========== =============== ===========
Pretax (loss) income was taxed in the following jurisdictions:
F-15
Year Year Eight Four
Ended Ended Months Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
----------------- --------------- ----------------- -----------------
(in millions)
Domestic.................... $(47.1) $(54.9) $(25.6) $(12.6)
Foreign..................... 0.5 11.4 6.1 (2.0)
----------------- --------------- ----------------- -----------------
Total pretax loss...... $(46.6) $(43.5) $(19.5) $(14.6)
================= =============== ================= =================
The 1999 domestic pretax loss includes the cost to terminate a supply
contract of $26.2 million (see Note 2). Deferred tax assets and
liabilities are comprised of the following at December 31:
2000 1999
------------ ------------
(in millions)
Deferred tax liabilities:
Book over tax bases of assets acquired............. $ 132.1 $ 120.6
General inventory and LIFO reserves................ 3.0 2.0
Other, net......................................... 3.2 7.2
------------ ------------
Total deferred tax liabilities.............. 138.3 129.8
------------ ------------
Deferred tax assets:
Accrued liabilities................................ 11.4 16.7
Net operating loss and tax credit carryforwards.... 27.8 16.1
Pension and other post-retirement benefits......... 5.4 1.5
Bad debt........................................... 2.1 0.7
Other, net......................................... 4.0 0.2
------------ ------------
Total deferred tax assets.................... 50.7 35.2
------------ ------------
Valuation allowance........................... (18.4) (16.1)
------------ ------------
Net deferred tax liabilities.................. $ 106.0 $ 110.7
============ ============
The Company does not provide deferred income taxes on undistributed
earnings of its foreign subsidiaries, as the earnings are considered
indefinitely reinvested. At December 31, 2000, the cumulative amount of
undistributed earnings on which the Company has not recognized deferred income
taxes is approximately $102.7 million. 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 (benefit) expense is as follows:
Year Year Eight Four
Ended Ended Months Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
----------------- --------------- ----------------- -----------------
U.S. statutory rate............................ (35.0%) (35.0%) (35.0%) (35.0%)
State income taxes............................. (4.3%) (4.6%) -- --
Permanent differences.......................... 7.7% -- -- --
Subpart F income............................... 1.4% 0.7% 2.6% 2.1%
Tax on income of foreign subsidiaries
and rate differential.......................... 8.8% 9.0% 13.8% --
Change in valuation allowance.................. 1.7% 4.5% 32.3% 32.9%
Other, net..................................... -- (0.7%) 0.7% --
------------- ------------- ------------- --------------
(19.7%) (26.1%) 14.4% 0.0%
============= ============= ============= ==============
The Company is included in the consolidated federal and state tax
returns of its ultimate parent, Laminates. Cash paid for income taxes amounted
to $5.1 million, $3.9 million, $1.9 million and $1.0 million
F-16
for the years ended December 31, 2000 and 1999, the eight-month period ended
December 31, 1998 and the four-month period ended April 30, 1998, respectively.
The Company has provided a partial valuation allowance against the net
operating loss carryforwards due to the uncertainty of realization. Net
operating losses will begin to expire in 2006 through 2020.
(11) RELATED PARTY TRANSACTIONS:
In order to fund normal working capital requirements, the Company has
entered into certain borrowing arrangements with Laminates. These arrangements
are short-term in nature and generally bear no interest. At December 31, 2000
and 1999, there was approximately $0.9 million and $1.0 million outstanding
under these arrangements.
DLJ Capital Funding, Inc., an affiliate of DLJ Merchant Banking
Partners II L.P. and its affiliates (DLJ Merchant Banking), has and will
receive customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the Credit Facility and as a lender thereunder.
In 2000, the aggregate amount of all fees paid to the various DLJ entities in
connection with the acquisition of PSM and the syndication of the Credit
Facility was approximately $6.0 million.
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. Credit Suisse First Boston Corporation, also
an affiliate of DLJ Merchant Banking, acted as the initial purchaser of the
Senior Subordinated Notes. The aggregate amount of all fees paid to the various
DLJ entities in connection with the Laminates acquisition and the offering of
the Senior Subordinated Notes was approximately $8.5 million.
Formica and its subsidiaries may from time to time enter into
financial advisory or other investment banking relationships with Credit Suisse
First Boston Corporation (an affiliate of DLJ Merchant Banking) or one of its
affiliates whereby Credit Suisse First Boston Corporation or its affiliates
will receive customary fees and will be entitled to reimbursement for all
related reasonable disbursements and out-of-pocket expenses. Formica expects
that any arrangement will include provisions for the indemnification of Credit
Suisse First Boston Corporation against a variety of liabilities, including
liabilities under the federal securities laws.
(12) TERMINATION OF PROPOSED ACQUISITION:
The Company recorded charges of $0.4 million, $0.8 million and $3.0
million, during the years ended December 31, 2000 and 1999 and the eight-month
period ended December 31, 1998, respectively, in connection with proposed
acquisitions of decorative products businesses. The Company has abandoned these
proposed transactions.
(13) SEGMENT REPORTING:
The Company is principally engaged in a single line of business: the
design, manufacture and distribution of decorative surfacing products.
Substantially all revenues result from the sale of decorative surfaces and
related products through domestic and international distributors and direct
accounts. The Company's operations are managed on a geographic basis and,
therefore, reportable segments are based on geographic areas. The Company's
market presence in Europe, the Americas and Asia was increased as a result of
the PSM acquisition. The Company measures segment results as operating income
(loss), which is defined as income (loss) before the cost of the terminated
supply contract, interest expense, other income (expense) and income taxes.
Depreciation and amortization expense is included in the measure of segment
results. Segment revenues are defined as net sales to external customers of
each segment. All intercompany sales and expenses have been eliminated in
determining segment revenues and segment (loss) profit.
F-17
Year Year Eight Four
Ended Ended Months Ended Months Ended
December December December April
31, 2000 31, 1999 31, 1998 30, 1998
------------ ------------ -------------- -------------
(in millions)
Segment revenues:
United States.................................... $335.1 $341.1 $210.5 $102.1
Americas - Other................................. 93.2 48.8 33.4 14.4
Europe........................................... 254.7 145.6 95.7 50.1
Asia............................................. 90.7 71.1 45.0 18.2
---------------- ------------- ------------- -------------
Total.......................... $773.7 $606.6 $384.6 $184.8
================ ============= ============= =============
Segment (loss) profit:
Americas......................................... $(21.0) $ (5.5) $(10.7) $(13.9)
Europe........................................... 6.0 12.9 7.6 1.3
Asia............................................. 11.6 10.2 4.8 (1.1)
---------------- ------------- ------------- -------------
Total.......................... $ (3.4) $ 17.6 $ 1.7 $(13.7)
================ ============= ============= =============
Depreciation and amortization (included in
segment (loss) profit):
Americas......................................... $37.9 $30.6 $22.4 $ 6.2
Europe........................................... 15.8 8.9 4.6 3.5
Asia............................................. 4.1 3.4 2.3 1.4
---------------- ------------- ------------- -------------
Total.......................... $57.8 $42.9 $29.3 $11.1
================ ============= ============= =============
Expenditures for long-lived assets:
Americas......................................... $13.9 $16.2 $20.6 $4.8
Europe........................................... 7.5 7.3 11.1 1.2
Asia............................................. 2.1 2.4 3.8 2.3
---------------- ------------- ------------- -------------
Total.......................... $23.5 $25.9 $35.5 $8.3
================ ============= ============= =============
A reconciliation of total segment (loss) profit to
loss before income taxes is as follows:
Segment (loss) profit ........................... $(3.4) $17.6 $ 1.7 $(13.7)
Cost of terminated supply contract............... -- (26.2) -- --
Interest expense................................. (50.8) (37.4) (25.7) (1.7)
Other income..................................... 7.6 2.5 4.5 0.8
---------------- ------------- ------------- -------------
Loss before income taxes....... $(46.6) $(43.5) $(19.5) $(14.6)
================ ============= ============= =============
F-18
December 31,
--------------------------------------------------------
2000 1999 1998
----------------- ----------------- ----------------
(in millions)
Total assets:
United States.................................... $418.7 $459.8 $410.8
Americas - Other................................. 76.6 37.3 36.4
Europe........................................... 301.3 152.4 179.1
Asia............................................. 82.8 77.1 74.9
----------------- ----------------- ----------------
Total.......................... $879.4 $726.6 $701.2
================= ================= ================
Long-lived assets:
United States.................................... $153.7 $168.8 $128.6
Americas - Other................................. 41.9 13.4 14.3
Europe........................................... 134.0 85.4 106.6
Asia............................................. 40.7 39.7 39.2
----------------- ----------------- ----------------
Total.......................... $370.3 $307.3 $288.7
================= ================= ================
(14) CHANGES IN ACCOUNTING ESTIMATES:
During the eight and four-month 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 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
the increasing of the provisions for doubtful accounts and inventory
obsolescence by $2.4 million and $5.4 million, respectively. The changes in
accounting estimates for the four-month period ended April 30, 1998 include
increasing the provision for customer rebate programs by $2.7 million,
increasing the provision for doubtful accounts by $1.4 million and accruals for
customs, property tax exposures and other items totaling $1.6 million. There
were no significant changes in accounting estimates in 2000 and 1999.
(15) COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases 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, 2000, future minimum lease payments under operating
lease agreements that have a remaining term in excess of one year are as
follows:
(in millions)
2001......................................... $6.9
2002......................................... 5.7
2003......................................... 4.9
2004......................................... 4.4
2005......................................... 1.2
Thereafter................................... 1.8
-------------
$24.9
=============
Rent expense aggregated $7.7 million, $7.2 million, $5.3 million and
$2.4 million for the years ended December 31, 2000 and 1999, the eight-month
period ended December 31, 1998 and the four-month period ended April 30, 1998,
respectively.
Litigation and Environmental Matters
The Company is involved in various proceedings relating to
environmental matters. It is the Company's policy to accrue liabilities for
remedial investigations and clean-up activities when it is probable
F-19
that such liabilities have been incurred and when they can be reasonably
estimated. In the ordinary course of business, the Company has been or is the
subject of or party to various pending litigation and claims. Currently, the
Company has been named as a potentially responsible party at several Superfund
sites and has reserved approximately $3.8 million and $3.9 million at December
31, 2000 and December 31, 1999, respectively, for these matters to recognize a
reasonable estimate of the probable liability. 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. However, depending on the amount and timing of an unfavorable
resolution of this contingency, it is possible that the Company's future cash
flows could be materially affected in a particular quarter.
Formica's operations are subject to federal, state, local and foreign
environmental laws and regulations governing both the environment and the work
place. The Company believes that it is currently in substantial compliance with
such laws and the regulations promulgated thereunder.
On April 5, 1999, the Company received a subpoena covering the period
from January 1, 1994 until April 1, 1999 from a federal grand jury in
connection with an investigation into possible antitrust violations in the
United States market for high-pressure laminate. The Company has produced
documents and provided other information in response to the subpoena, and a
number of present or former Formica employees have appeared for testimony
before the grand jury or have been interviewed by the Staff of the Antitrust
Division of the U.S. Department of Justice in connection with the
investigation. The Company intends to continue its cooperation with the
investigation. The Company is unable to determine at this time if this matter
will have any effect on its financial position, results of operations or cash
flows.
Manufacturers of high-pressure laminate ("HPL"), including Formica
Corporation, have been named as defendants in purported class action complaints
filed in federal and certain state courts. The complaints, which all make
similar allegations, allege that HPL manufacturers in the United States engaged
in a contract, combination or conspiracy in restraint of trade in violation of
state and federal antitrust laws and seek damages of an unspecified amount. The
actions remain in their early stages. Formica Corporation intends to defend
vigorously against the allegations of the complaints.
Formica is involved in pending litigation in the usual course of
business. In the opinion of management, such litigation will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows. Formica continually evaluates its estimated legal
liabilities as a matter of policy. The Company's estimated range of liability
is based on known claims. There can be no assurances that Formica will not
become involved in future proceedings, litigation or investigations, that such
liabilities will not be material or that indemnification pursuant to certain
indemnification rights will be available.
(16) COMPREHENSIVE INCOME (LOSS):
Total comprehensive loss was $66.0 million, $42.5 million, $17.3
million and $11.7 million for the years ended December 31, 2000 and 1999, the
eight-month period ended December 31, 1998 and the four-month period ended
April 30, 1998, respectively. The difference between comprehensive loss and the
net loss results from foreign currency translation adjustments.
(17) RESTRICTED STOCK PLANS:
During 1999 and 1998, the board of directors and shareholders of
Laminates approved and adopted restricted stock programs. The plans authorize
purchases by eligible employees of Laminates and its subsidiaries of restricted
shares of common stock of Laminates, at a price equal to the fair market value
of a share of common stock on the date of purchase. Any shares of restricted
stock purchased under the plan are subject to repurchase by Laminates at the
purchase price 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 of the plan. The number of shares authorized to be
issued under the 1998 plan is 157,153, subject to adjustments upon the
occurrence of certain events. Under the 1999 plan, 15,401 shares of preferred
stock and 18,335 shares of common stock were authorized for issuance to
management and key employees. As of December 31, 2000, 222,642 shares have been
allocated to and purchased by certain officers and other management employees
and 15,903 shares are available under the plan for future purchase. The number
of preferred shares available for grants under both plans is 15,401 and the
number of common shares is 55,004.
F-20
(18) RESTRUCTURING:
Prior to May 1, 1998, the management of the Company formulated a plan
to restructure certain operations and provided a restructuring provision of
$6.6 million included as part of its purchase accounting, with approximately
$2.7 million of the restructuring provision remaining at December 31, 1999.
During 2000, the Company spent an additional $2.0 million of the restructuring
provision primarily relating to severance payments and reversed the remaining
$0.5 million restructuring liability against the initial purchase accounting.
The remaining balance of this restructuring provision of $0.2 million at
December 31, 2000 is related to severance payments and will be substantially
completed in 2001.
On March 1, 2000, the Company's management committed to a formal plan
to restructure certain operating activities in North America, which reduced
total headcount by approximately 200 employees through December 31, 2000. As
part of this restructuring, the Mt. Bethel, Pennsylvania manufacturing facility
was closed and its operations were subsequently transferred to the Company's
Odenton, Maryland manufacturing facility. The Company provided for a
restructuring provision of $6.0 million as follows: assets held for disposal,
facility closure and lease terminations ($2.8 million), markdown of inventory
resulting from the elimination of product lines ($2.2 million) and severance
and severance-related items ($1.0 million). During the twelve months ended
December 31, 2000, the Company spent $0.5 million on facility closing costs and
$0.7 million on severance and severance-related items. In addition, the Company
recorded a charge of $2.2 million for the markdown of inventory as a result of
the elimination of product lines and wrote-off an additional $2.0 million of
the restructuring provision liability against property, plant and equipment
relating to the Mt. Bethel assets held for disposal. The remaining balance of
the restructuring provision at December 31, 2000 was $0.6 million consisting of
$0.3 million of facility closure costs and $0.3 million of severance and
severance-related items. The Company has identified an additional $3.0 million
of charges indirectly related to the restructuring of the North America
operations for additional severance-related items and relocation costs, of
which $1.7 million was incurred in the twelve months ended December 31, 2000.
Under the current timetable, the Company projects the restructuring plan will
be completed by mid-year 2001.
On June 1, 2000, the Company's management committed to a formal plan
to restructure certain of its operations within Europe and provided a
restructuring provision of $1.5 million. These actions are being taken in
conjunction with the integration of the PSM operations. The plan will result in
a reduction in headcount of 25 employees (13 employees through December 31,
2000). The restructuring plan includes the closure of a Company warehouse in
Europe with subsequent relocation of operations to elsewhere in Europe. The
restructuring provision consists of severance and severance-related items ($1.0
million) and facility closure costs ($0.5 million). During the twelve months
ended December 31, 2000, the Company spent $0.4 million of this provision on
severance and severance-related items and $0.1 million on facility closure
costs. The remaining balance of the restructuring provision at December 31,
2000 was $1.0 million consisting of $0.6 million of severance and
severance-related items and $0.4 million of facility closure costs. In
addition, the Company has charged to income an additional $0.5 million of
expenses indirectly related to the restructuring of the European distribution
operations as a result of the integration of the PSM operations during the year
ended December 31, 2000. Under the current timetable, the Company projects that
the restructuring plan will be substantially completed by mid-year 2001.
As of the consummation date of the PSM acquisition, management began a
process to assess the organization as well as the facilities acquired with the
purpose of formulating a structure for the combined organization. Balance sheet
reserves for organizational restructuring in the amount of $14.5 million were
established as part of purchase accounting in the second quarter. Management
has committed to a formal plan to restructure certain operating activities
primarily in Europe. The balance sheet reserve was revised through purchase
accounting to $12.7 million as a result of the refinement of the assessment of
the organization. The organizational restructuring plan, which primarily
relates to the European operations, includes the closing of offices and a
select curtailment of operations, the optimization of the utilization of assets
and a reduction of headcount in excess of 300 employees (approximately 140
employees through December 31, 2000). During the twelve months ended December
31, 2000, the Company has spent $4.9 million of this provision primarily on
severance-related items. The remaining balance of the restructuring provision
was $7.8 million at December 31, 2000 consisting primarily of severance-related
items. In addition, the Company charged to income an additional $0.5 million of
PSM restructuring-related expenses which were not included as part of purchase
accounting during the year ended December 31, 2000. The restructuring plan is
expected to be substantially completed by the end of 2001.
F-21
=================================================== ===================================================
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
----
$215,000,000
Prospectus Summary.............................. 2
Risk Factors.................................... 9
Use of Proceeds................................. 15 Formica Corporation
Capitalization.................................. 15
Selected Consolidated Financial Data............ 16
Management's Discussion and Analysis of 10 7/8% Series B Senior Subordinated Notes Due
Financial Condition and Results of
Operations ................................... 20 2009
Business........................................ 29
Management...................................... 39
Security Ownership of Certain Beneficial --------------
Owners and Management of Laminates Prospectus
Stockholders.................................. 47 --------------
Certain Relationships and
Transactions.................................. 50
The Acquisition................................. 51 Credit Suisse First Boston
Description of Our Credit Facility.............. 54
Description of Notes............................ 57
Plan of Distribution............................ 90 April 10, 2001
Legal Matters................................... 91
Experts......................................... 91
Index to Financial Statements...................F-1
==================================================== ===================================================
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............ 26,000
Trustee Fees............................ 35,000
Legal Fees and Expenses................. 120,000
Accounting Fees and Expenses............ 75,000
Miscellaneous........................... 25,000
---------
Total................................... $340,770
=========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Exculpation. Section 102(b)(7) of the Delaware General Corporations Law
("Delaware Law") permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision may not eliminate
or limit the liability of a director for any breach of the director's duty of
loyalty to the corporation or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for the payment of unlawful dividends, or for any transaction from which
the director derived an improper personal benefit.
The Formica certificate of incorporation (the "Formica Charter") limits
the personal liability of a director to Formica and its stockholders for
monetary damages for a breach of fiduciary duty as a director to the fullest
extent permitted by law.
Indemnification. Section 145 of the Delaware Law permits a corporation
to indemnify any of its directors or officers who was or is a party, or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe that such person's conduct was unlawful.
In a derivative action, i.e., one by or in the right of a corporation, the
corporation is permitted to indemnify directors and officers against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of an action or suit if they acted in
good faith and in a manner that they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
directors or officers are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
The Formica Charter provides for indemnification of directors, officers,
employees or agents of Formica against liability they may incur in their
capacities as such to the fullest extent permitted under the Delaware Law.
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.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Document
- --------------------------------------------------------------------------------
1.1 * Registration Rights Agreement dated as of February 22, 1999
between Formica and Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated and Credit Suisse First
Boston as Initial Purchasers
- --------------------------------------------------------------------------------
3.1 * Certificate of Incorporation
- --------------------------------------------------------------------------------
3.2 * By laws
- --------------------------------------------------------------------------------
4.1 * Indenture, dated as of February 22, 1999 between Formica and the
Trustee
- --------------------------------------------------------------------------------
5.1 * Opinion of Davis Polk & Wardwell with respect to the new notes
- --------------------------------------------------------------------------------
10.1 * Investors' Agreement dated as of April 30, 1998 among
Laminates, the DLJ Merchant Banking funds, the institutional
investors and the management shareholders
- --------------------------------------------------------------------------------
10.2 * Restricted Stock Program
- --------------------------------------------------------------------------------
10.3 * Employment Agreement of Vincent Langone
- --------------------------------------------------------------------------------
10.4 * Employment Agreement of David Schneider
- --------------------------------------------------------------------------------
10.5 * Employment Agreement of William Adams
- --------------------------------------------------------------------------------
10.6 * Employment Agreement of Steven Kuo
- --------------------------------------------------------------------------------
10.7 Second Amended and Restated Credit Agreement dated May 26, 2000
between Formica and various financial institutions, DLJ Capital
Funding, Inc., Bankers Trust Company and Credit Suisse First
Boston (filed as an Exhibit 2.2 to the Form 8-K/A filed August
1, 2000, and incorporated herein by reference)
- --------------------------------------------------------------------------------
10.8 * Supplemental Executive Retirement Plan
- --------------------------------------------------------------------------------
10.9 * Restated Formica Corporation Employee Retirement Plan dated as
of January 1, 1996, as amended
- --------------------------------------------------------------------------------
10.9.1 Second Amendment to Formica Corporation Retirement Plan dated
June 2, 2000 (filed as Exhibit 10.8.1 in the Form 10K for the
year ended December 31, 2000, and incorporated herein by
reference)
- --------------------------------------------------------------------------------
10.10 * Formica Taiwan Corporation Employee Retirement Plan dated as of
December 23, 1986
- --------------------------------------------------------------------------------
10.11 * Formica UK Corporation Employee Retirement Plan
- --------------------------------------------------------------------------------
10.12 * Laminates 1999 Stock Plan
- --------------------------------------------------------------------------------
10.13 * Laminates 1999 Stock Purchase Agreement
- --------------------------------------------------------------------------------
12.1 Computation of Ratio of Earnings to Fixed Charges (filed as
Exhibit 12 in the Form 10K for the year ended
December 31, 2000, and incorporated herein by reference)
- --------------------------------------------------------------------------------
21.1 Subsidiaries of Formica (filed as Exhibit 21 in the Form 10K for
the year ended December 31, 2000, and incorporated herein by
reference)
- --------------------------------------------------------------------------------
23.1 * Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
- --------------------------------------------------------------------------------
23.2 ** Consent of Arthur Andersen LLP
- --------------------------------------------------------------------------------
24.1 * Power of Attorney (Included on the signature page of the
registration statement as originally filed)
- --------------------------------------------------------------------------------
24.2 ** Power of Attorney for William Adams
- --------------------------------------------------------------------------------
24.3 ** Power of Attorney for R.Eugene Cartledge
- --------------------------------------------------------------------------------
25.1 * Statement of Eligibility of Summit Bank on Form T-1.
- --------------------------------------------------------------------------------
* Previously filed.
- --------------------------------------------------------------------------------
** Filed herewith.
- --------------------------------------------------------------------------------
(b) Financial Statement Schedules and Auditors' Reports thereon
II-2
Schedule II Valuation and Qualifying Accounts (in millions)
- ----------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------
Additions
Charged Charged
Balance at to Costs to Other Balance
Beginning of and Accounts- Deductions- at End of
Description Period Expenses Describe describe Period
- ------------------------------------- ------------ -------- --------- ------------ ----------
Year ended December 31, 2000:
Deducted from assets accounts:
Allowance for doubtful accounts $4.7 $3.9 $2.8(2) ($1.0)(1) $10.4
==== ==== ==== ==== =====
Year ended December 31, 1999:
Deducted from assets accounts:
Allowance for doubtful accounts $4.2 $1.7 -- ($1.2)(1) $4.7
==== ==== ==== ==== =====
Year ended December 31, 1998:
Deducted from assets accounts:
Allowance for doubtful accounts $1.5 $6.0 -- ($3.3)(1) $4.2
==== ==== ==== ==== =====
- ----------------------------------------------------------------------------------------------------------------------
(1) Write-off of uncollectible accounts.
(2) Amounts recorded from acquisition of
Perstorp Surface Materials.
II-3
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-4
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 April 10, 2001.
FORMICA CORPORATION
By: /s/ David T. Schneider
----------------------------------
David T. Schneider
Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1933,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
* /s/ Vincent P. Langone
- ----------------------------------
Vincent P. Langone Director, Chairman, President April 10, 2001
and Chief Executive Officer
* /s/ David T. Schneider
- ----------------------------------
David T. Schneider Vice President, Chief Financial Officer April 10, 2001
and Secretary
* /s/ William Adams
- ----------------------------------
William Adams Director, Executive Vice President and April 10, 2001
President of International
* /s/ R. Eugene Cartledge
- ----------------------------------
R. Eugene Cartledge Director April 10, 2001
* /s/ Thompson Dean
- ----------------------------------
Thompson Dean Director April 10, 2001
* /s/ Peter T. Grauer
- ----------------------------------
Peter T. Grauer Director April 10, 2001
II-5
Signature Title Date
* /s/ David Y. Howe
- ----------------------------------
David Y. Howe Director April 10, 2001
* /s/ Alexander Donald Mackenzie
- ----------------------------------
Alexander Donald Mackenzie Director April 10, 2001
By: /s/ David T. Schneider
- ----------------------------------
David T. Schneider
Attorney-in-fact
II-6