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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOLMES PRODUCTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 506 04-2768914
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
233 FORTUNE BOULEVARD
MILFORD, MASSACHUSETTS 01757
(508) 634-8050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SEE TABLE OF ADDITIONAL REGISTRANTS
JORDAN A. KAHN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HOLMES PRODUCTS CORP.
233 FORTUNE BOULEVARD
MILFORD, MA 01757
(508) 634-8050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES OF ALL COMMUNICATIONS TO:
MICHAEL L. ANDRESINO, ESQ.
POSTERNAK, BLANKSTEIN & LUND, L.L.P.
100 CHARLES RIVER PLAZA
BOSTON, MASSACHUSETTS 02114-2723
(617) 973-6100
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> APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
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9 7/8% Senior Subordinated Notes,
Series D......................... $31,250,000 $1,000.00 $31,250,000 $8,687.50
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Guarantees of 9 7/8% Senior
Subordinated Notes, Series D..... $31,250,000 (1) (1) None(1)
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(1) No separate consideration will be received for the guarantees of the 9 7/8%
Senior Subordinated Notes, Series D by certain subsidiaries of Holmes
Products Corp.
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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 SUCH
SECTION 8(a), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS(1)
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EXACT NAME OF REGISTRANT STATE OR OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL
AS SPECIFIED IN ITS CHARTER OF INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER
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Holmes Manufacturing Corp. .......... Massachusetts 506
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Holmes Air (Taiwan) Corp. ........... Massachusetts 506
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Holmes Motor Corp. .................. Delaware 506
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The Rival Company.................... Delaware 506
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Patton Electric Company, Inc. ....... Indiana 506
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Patton Building Products, Inc. ...... Delaware 506
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Rival Consumer Sales Corporation..... Missouri 506
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(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is c/o Holmes
Products Corp., 233 Fortune Boulevard, Milford, Massachusetts 01757, (508)
634-8050.
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THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED UNTIL THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 6, 1999
PRELIMINARY PROSPECTUS
[HOLMES LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 9 7/8% SENIOR
SUBORDINATED NOTES DUE 2007, SERIES C
$31,250,000 AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING
FOR
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES D OF
HOLMES PRODUCTS CORP.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless extended.
- - Not subject to any condition other than that the exchange offer not violate
applicable law or any applicable interpretation of the Staff of the Securities
and Exchange Commission.
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged.
- - Tenders of outstanding notes may be withdrawn any time prior to 5:00 p.m. on
the expiration date.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- - The terms of the notes to be issued are substantially identical to the
outstanding notes, except for the absence of certain transfer restrictions and
registration rights relating to the outstanding notes.
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SEE "RISK FACTORS" BEGINNING ON PAGE 24 FOR A DISCUSSION OF THE RISKS THAT YOU
SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is , 1999
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TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS.......... 3
AVAILABLE INFORMATION............... 4
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE...................... 5
SUMMARY............................. 6
RISK FACTORS........................ 24
THE EXCHANGE OFFER.................. 33
CAPITALIZATION...................... 44
SELECTED FINANCIAL DATA............. 45
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS.... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 55
BUSINESS............................ 66
MANAGEMENT.......................... 78
SHARE OWNERSHIP..................... 83
CERTAIN TRANSACTIONS................ 84
DESCRIPTION OF CREDIT FACILITY...... 85
DESCRIPTION OF THE EXCHANGE NOTES... 86
PLAN OF DISTRIBUTION................ 119
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS................ 120
LEGAL MATTERS....................... 124
EXPERTS............................. 124
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
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FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation the statements under
"Summary," "Risk Factors," "Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." The words "believes," "anticipates,"
"plans," "expects," "intends," "estimates" and similar expressions are intended
to identify forward-looking statements. These forward looking statements involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements, or industry results, to be
materially different from those expressed or implied by such forward-looking
statements. Such factors include, among others, the following:
- Our degree of leverage;
- Our integration of the acquisition of The Rival Company, including the
potential failure to realize anticipated revenue enhancements and cost
savings;
- Economic conditions and the retail environment;
- Our dependence on major customers and key personnel;
- Competitive products and pricing;
- Our reliance on foreign and domestic manufacturing and sources of supply;
- Potential product liability claims or recalls;
- The cost of labor and raw materials; and
- Other factors both referenced and not referenced in this Prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this Prospectus.
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Holmes(R), Rival(R), Crock-Pot(R), Bionaire(R), Pollenex(R), Patton(R),
Simer(R), White Mountain(R) and various product names used herein are registered
trademarks of the Company. Other trademarks used herein are the property of
their respective owners.
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AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith we
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also access this information
electronically through the Commission's web page on the Internet at
http://www.sec.gov. This web site contains reports, proxy statements and other
information regarding registrants such as ourselves that have filed
electronically with the Commission.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by us with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto. As such we make in this Prospectus reference to the
Registration Statement and to the exhibits and schedules thereto. For further
information about us and about the securities we hereby offer, you should
consult the Registration Statement and the exhibits and schedules thereto. You
should be aware that statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
The indenture governing the outstanding notes provides that we will furnish
to the holders of the notes copies of the periodic reports required to be filed
with the Commission under the Exchange Act. Even if we are not subject to the
periodic reporting and informational requirements of the Exchange Act, we will
make such filings to the extent that such filings are accepted by the
Commission. We will make these filings regardless of whether we have a class of
securities registered under the Exchange Act. Furthermore, we will provide the
Trustee for the notes and the holders of the notes within 15 days after such
filings with annual reports containing the information required to be contained
in Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in Form
8-K promulgated by the Exchange Act. If the filing of such information is not
accepted by the Commission or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We hereby incorporate by reference into this Prospectus the following
documents or information filed with the Commission:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (the "1998 10-K"), filed with the Commission on March
31, 1999.
(b) The Company's Current Reports on Form 8-K dated December 17, 1998,
January 25, 1999 and February 5, 1999.
(c) The Rival Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, filed with the Commission on September 4, 1998.
(d) The Rival Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998, filed with the Commission on November
2, 1998.
(e) All documents filed by the Company and The Rival Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of the Registration Statement of which this Prospectus is part and
prior to the effectiveness thereof or subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby.
Any statement contained herein, or in any documents incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a subsequent
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge upon
written or oral request from Ira B. Morgenstern, Senior Vice
President -- Finance of the Company at the Company's principal executive offices
located at 233 Fortune Boulevard, Milford, Massachusetts 01757.
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This Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof would not be in compliance with the
Securities or Blue Sky laws of such jurisdiction.
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SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes included or incorporated by reference herein, and the information
set forth under the heading "Risk Factors," before making an investment
decision. Except as the context may otherwise require, the terms "Holmes", the
"Company", "our" and "we" as used in this Prospectus refer to Holmes Products
Corp. and its subsidiaries.
Market data (including market share data) used throughout this Prospectus
were obtained from our internal surveys, surveys commissioned by us, independent
market research companies and industry publications. Independent market research
companies and industry publications generally indicate that the information
provided by them or contained therein has been obtained from sources believed to
be reliable, but that the accuracy and completeness of such information is not
guaranteed. We have not independently verified such market data. Similarly,
although we believe that surveys performed or commission by us are reliable,
these surveys have not been verified by any independent sources.
THE EXCHANGE OFFER
On February 5, 1999, we completed the private offering of $31.25 million of
9 7/8% Senior Subordinated Notes due 2007, Series C (the "Old Notes"). We
entered into a registration rights agreement with the initial purchasers of the
Old Notes in which we agreed, among other things, to deliver this Prospectus to
the holders of Old Notes and to use our best efforts to commence and consummate
the exchange offer within certain time periods.
As a holder of Old Notes, you are entitled to exchange in the exchange
offer your outstanding notes for registered notes with substantially identical
terms. You should read the discussion under the headings "Summary of Terms of
the Exchange Notes" and "Description of the Exchange Notes" for further
information regarding the registered notes.
We believe that the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. You should read the
discussion under the headings "Summary of the Terms of the Exchange Offer" and
"The Exchange Offer" for further information regarding the exchange offer and
resale of the notes.
THE COMPANY
HOLMES PRODUCTS CORP.
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. We believe that Holmes has the leading U.S. market share in each of
these product categories, which, in the aggregate, accounted for approximately
93% of Holmes' net sales for the year ended December 31, 1998. We also market
and distribute a variety of decorative and home office lighting products, as
well as various replacement filters and accessories for our products. We believe
that our strong market position and success are attributable to our continual
product innovation, engineering and manufacturing expertise, close customer
partnerships, breadth of product offerings and reputation for quality.
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Our products are sold to consumers through major retail channels, including
mass merchants, do-it-yourself home centers, warehouse clubs, hardware stores
and national drugstore chains. Major customers in these channels include
Wal-Mart, Kmart, Target, Home Depot, Costco, BJ's Wholesale Club, TruServ
(formerly True Value and ServiStar) and Walgreens. We believe that the strength,
scope and visibility of our retail account base provide a competitive advantage
with respect to brand recognition, access to shelf space and penetration of the
consumer market.
ACQUISITION OF THE RIVAL COMPANY
On February 5, 1999, we acquired The Rival Company ("Rival"), a Kansas
City, Missouri-based designer, manufacturer and marketer of a variety of
products including small kitchen appliances and home environment products. We
paid Rival shareholders $13.75 per share in cash, or a total purchase price of
approximately $129.4 million (including payments for outstanding stock options).
We also refinanced approximately $142.9 million of Rival's outstanding debt in
connection with the Rival acquisition.
Rival produces small kitchen appliances, such as Crock-Pot(R) slow cookers
and can openers; products for the home environment, such as heaters, air
purifiers, showerheads, utility pumps, humidifiers and fans; and building supply
and industrial products, such as household ventilation systems, door chimes,
ceiling fans and industrial fans. Rival markets its products under a variety of
well known brand names, including Rival(R), Crock-Pot(R), Bionaire(R),
Pollenex(R), Patton(R), Simer(R) and White Mountain(R). We believe that Rival
has the leading market share for slow cookers and enjoys a leading market share
in several of its other product categories.
For the year ended December 31, 1998, after giving pro forma effect to the
Rival acquisition and the associated transactions described herein, we generated
net sales and EBITDA of $561.7 million and $53.8 million, respectively. See
"-- Summary Financial Data" and "Unaudited Pro Forma Combined Condensed
Financial Statements."
We believe that the following factors will contribute to the successful
integration of Rival's business into our own and allow us to continue our proven
record of growth in net sales and EBITDA:
- LEADING NAME IN KITCHEN APPLIANCES. Rival, which is the dominant
manufacturer and marketer of slow cookers through its Crock-Pot(R) brand
and enjoys a leading market share in can openers, adds a strong
complementary business to our home comfort line. Approximately 53% of
Rival's domestic net sales for the twelve months ended December 31, 1998
were in kitchen appliances. We believe that we will be able to increase
sales by capitalizing on Rival's franchise in the small kitchen appliance
market and the combined organizations' expertise in product innovation
and marketing products through mass merchants and other distribution
channels to consumers. This new market segment allows us to better
service our mass merchant customers and enables us to spread the cost of
serving these customers over a larger revenue base.
- COMPLEMENTARY HOME COMFORT BUSINESSES. Approximately 27% of Rival's
domestic net sales for the twelve months ended December 31, 1998 were in
home comfort products, where we are a market leader. As a result of the
Rival acquisition, we will be able to broaden our home comfort product
offerings through the addition of well known Rival brand names such as
Bionaire, Pollenex and Patton. We believe that the broadening of our
product and brand offerings will help
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us secure our mass merchant customers, who increasingly are trying to
reduce the number of vendors from whom they purchase merchandise, while
also differentiating their product offerings through a variety of brands
and SKUs. Additionally, we intend to leverage cross selling opportunities
within Holmes' and Rival's key customer relationships.
- OPPORTUNITIES FOR SIGNIFICANT COST SAVINGS. We believe that significant
opportunities to reduce costs exist by, among other things, (1)
capitalizing on our expertise in sourcing components and raw materials in
the Far East, (2) capitalizing on our motor design and manufacturing
capabilities, (3) integrating and rationalizing Holmes' and Rival's
manufacturing operations and (4) consolidating certain of Holmes' and
Rival's sales, marketing and administrative functions.
- INCREASED INTERNATIONAL PRESENCE. Rival's brands, including Rival,
Bionaire and Patton, enjoy considerable international recognition. For
the twelve months ended December 31, 1998, approximately 10% of Rival's
net sales were outside the United States. We believe that this additional
distribution channel presents significant opportunities to market a
number of Holmes' products, as well as increase the penetration of
Rival's brand names in international markets.
- COMPLEMENTARY MANUFACTURING CAPABILITIES. We operate two manufacturing
facilities in China, where we manufacture our products and electric
motors for use in our products. Rival manufactures more than 60% of its
products at five domestic manufacturing facilities. We believe that we
can achieve substantial manufacturing efficiencies by utilizing Holmes'
Far East sourcing and manufacturing capabilities to produce certain Rival
products and components used in Rival's products. At the same time, we
believe that the addition of Rival's domestic manufacturing capabilities
will improve inventory management and enhance our ability to satisfy our
customers' needs for just-in-time delivery.
BUSINESS STRATEGY FOLLOWING THE RIVAL ACQUISITION
We have identified numerous opportunities for revenue enhancements and cost
savings that we believe we will be able to realize as a result of the Rival
acquisition. We believe that by capitalizing on Holmes' and Rival's core
strengths, we can achieve further growth in net sales, profitability and cash
flow by: (1) growing Rival's core kitchen franchise, (2) consolidating home
environment product lines, (3) penetrating new and existing distribution
channels, (4) improving our overall cost structure and (5) expanding
geographically.
- LEVERAGE CORE COMPETENCIES TO STRENGTHEN KITCHEN FRANCHISE. Holmes has
become a leader in the home comfort appliance market as a result of our
successful product innovations that meet consumer and customer needs,
coupled with our expertise in marketing and distribution. Rival has a
long-standing reputation as a leader in the small kitchen appliance
market. We believe that combining Holmes' proven strengths with Rival's
core kitchen franchise will drive growth in Rival's existing lines and
the development of new products.
- LEVERAGE AND GROW BRANDS. The addition of Rival's home comfort brands
allows us to increasingly differentiate our home comfort offerings among
customers and consumers. Through additional brands, we can offer a
step-up brand strategy for increased presence in both mass merchandise
and other distribution channels.
- FURTHER PENETRATE EXISTING DISTRIBUTION CHANNELS. We believe that we can
further penetrate our existing distribution channels as a result of
favorable industry dynamics and both Holmes' and Rival's strong
relationships and execution with mass merchant retailers. We believe that
mass merchants will continue to
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consolidate their vendor base and focus on a smaller number of
sophisticated suppliers that can (1) provide a broad array of
differentiated, quality products, (2) efficiently and consistently
fulfill logistical requirements and volume demands and (3) provide full
product support from design to category management, point-of-sale and
after-market service with the consumer.
- DEVELOP NEW DISTRIBUTION CHANNELS. We continue to develop new channels
of distribution by providing customized product offerings that appeal to
the specific needs of each channel. For example, since 1996, we have
marketed select products through an arrangement with the QVC electronic
retailing network. We have also partnered with Evenflo to market Holmes'
products under the Evenflo brand name and expand into the juvenile
products distribution channel.
- PURSUE TARGETED MARKETING OPPORTUNITIES. As part of our strategy, we
enter into strategic alliances in order to promote awareness of our
products. For example, we have developed a strategic marketing
partnership with the Brita Products Company, a subsidiary of Clorox
Company, to market a humidifier that integrates the Brita(R) water
filter. We also market humidifiers and filters with the Microban(R) anti-
bacterial technology.
- IMPROVE THE OVERALL COST STRUCTURE. Through our manufacturing facilities
in China and related Far East sourcing capabilities, we are a low-cost,
high quality, flexible producer of appliance products. By applying these
capabilities to certain of Rival's products, along with Rival's
previously-announced plant closings (one completed in December, 1998 and
another in March, 1999), we believe we can significantly reduce overall
manufacturing costs.
Our strong Far East manufacturing capability is demonstrated through our
recent joint venture arrangement with General Electric ("GE"). GE has
selected us as a joint venture partner for third-party fractional
horsepower motor sales, based on our cost position and capabilities.
Under this arrangement, GE will market and sell motors under the GE name
manufactured at our motor manufacturing facility in China. We believe the
joint venture will increase our third-party motor sales and provide us
with access to GE's extensive technical expertise in motors.
- EXPAND INTO NEW GEOGRAPHIC REGIONS. We believe that the European, Latin
American and Asian home comfort markets are underdeveloped and represent
significant growth opportunities. As a result, we have begun to focus on
marketing our products in these regions. Holmes currently sells its
products in Europe and Asia on an original equipment manufacturer basis
and its branded home comfort products in France. Rival has warehouse and
distribution facilities in Ontario, Canada and the Netherlands, as well
as a distribution arrangement in Mexico. We believe that combining
Rival's larger international presence with Holmes' product offerings will
significantly accelerate international growth.
Our ability to achieve revenue enhancements and recognize cost savings from
the Rival acquisition will depend to a significant extent on our ability to
successfully integrate the operations of Rival and other factors, including
economic conditions and the retail environment. See "Risk Factors" for a
discussion of certain factors that could impact our ability to realize expected
revenue enhancements and cost savings.
In furtherance of our strategic objectives, we will consider the possible
disposition of certain non-core business assets that do not support our current
growth strategy, and may from time to time engage in discussions regarding
mergers, acquisitions or other types of business combination transactions with
other parties in the consumer products industry.
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THE FINANCING
In connection with the Rival acquisition and its financing, we sold $50.0
million of our common stock in a private placement to investment funds
affiliated with Berkshire Partners LLC (our majority stockholder), and to
members of our management and certain other co-investors, and $31.25 million
principal amount of Old Notes. In addition, a group of lenders led by
BankBoston, N.A. provided us with $325.0 million in senior credit facilities,
the initial borrowings of which were used, together with the net proceeds of the
equity investment and the offering of Old Notes, to consummate the Rival
acquisition, refinance Rival's then-existing indebtedness, and pay the fees and
expenses of the transactions.
The following table sets forth the sources and uses of funds in connection
with the transactions (in millions):
SOURCES OF FUNDS: USES OF FUNDS:
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Credit Facility(a)............. $213.1 Cash purchase price(b)......... $129.4
Refinance Rival
Issuance of the Old Notes...... 30.0 indebtedness(c)................ 142.9
Equity Investment.............. 50.0 Fees and expenses(d)........... 20.8
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Total sources of funds.... $293.1 Total uses of funds............ $293.1
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The above sources and uses of funds reflects the refinancing of actual
Rival debt at the closing date of the transactions. This amount is $21.2 million
less than the refinanced amount shown in the pro forma sources and uses of funds
at December 31, 1998 due to the higher debt balances at December 31, 1998.
(a) The Credit Facility provides for total availability of $325.0 million. See
"Description of Credit Facility."
(b) Includes payments to holders of shares of Rival common stock and holders of
certain Rival stock options.
(c) Includes accrued interest of $1.4 million.
(d) Includes prepayment premium on Rival debt of approximately $6.0 million.
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Our principal executive offices are located at 233 Fortune Boulevard,
Milford, Massachusetts 01757
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $31.25 million
aggregate principal amount of outstanding Old Notes for an equal aggregate
principal amount of exchange notes. The exchange notes will be obligations of
the Company entitled to the benefits of the indenture governing the Old Notes.
The form and terms of the exchange notes are identical in all material respects
to the form and terms of the Old Notes except that the exchange notes have been
registered under the Securities Act, and therefore are not entitled to the
benefits of the registration rights granted under the Registration Rights
Agreement, executed as part of the offering of the Old Notes, between us,
BancBoston Robertson Stephens Inc. and Lehman Brothers Inc., the initial
purchasers in the private offering.
Registration Rights Agreement... You are entitled to exchange your notes for
registered notes with substantially
identical terms. The exchange offer is
intended to satisfy these rights. After the
exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
notes.
The Exchange Offer.............. We are offering to exchange $1,000 principal
amount of 9 7/8% Senior Subordinated Notes
due 2007, Series D which have been
registered under the Securities Act for each
$1,000 principal amount of our outstanding
Old Notes which were issued February 5,
1999. In order to be exchanged, an
outstanding Old Note must be properly
tendered and accepted. All outstanding Old
Notes that are validly tendered and not
validly withdrawn will be exchanged.
As of this date there are $31.25 million
principal amount of Old Notes outstanding.
We will issue registered notes on or
promptly after the expiration of the
exchange offer.
Resale of the Exchange Notes.... Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to the third parties,
including "Exxon Capital Holdings
Corporation" (available May 13, 1998),
"Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available October 11,
1991), we believe that the notes issued in
the exchange offer may be offered for
resale, resold and otherwise transferred by
you without compliance with the registration
and prospectus delivery provisions of the
Securities Act provided that:
- the notes issued in the exchange offer are
being acquired in the ordinary course of
business; you are not participating, do
not intend to partici-
11
14
pate, and have no arrangement or
understanding with any person to
participate in the distribution of the
notes issued to you in the exchange
offer;
- you are not a broker-dealer who purchased
such outstanding notes directly from us
for resale pursuant to Rule 144A or any
other available exemption under the
Securities Act; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer
any note issued to you in the exchange offer
without delivering a prospectus meeting the
requirement of the Securities Act or without
an exemption from registration of your notes
from such requirements, you may incur
liability under the Securities Act. We do
not assume or indemnify you against such
liability.
Each broker-dealer that is issued notes in
the exchange offer for its own account in
exchange for notes which were acquired by
such broker-dealer as a result of
market-making or other trading activities,
must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act, in connection with any
resale of the notes issued in the exchange
offer. The letter of transmittal states that
by so acknowledging and by delivering a
prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. A
broker-dealer may use this Prospectus for an
offer to resell, resale or other retransfer
of the notes issued to it in the exchange
offer. We have agreed that, for a period of
one year after the date of this Prospectus,
we will make this Prospectus and any
amendment or supplement to this Prospectus
available to any such broker-dealer for use
in connection with any such resales. We
believe that no registered holder of the
outstanding notes is an affiliate (as such
term is defined in Rule 405 of the
Securities Act) of the Company.
The exchange offer is not being made to, nor
will we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this exchange offer or
the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
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15
Minimum Condition............... The exchange offer is not conditioned upon
any minimum aggregate principal amount of
Old Notes being tendered for exchange.
Expiration Date................. The exchange offer will expire at 5:00 p.m.,
New York City time, , 1999,
unless we decide to extend the expiration
date.
Exchange Date................... The date of acceptance for exchange of the
Old Notes will be the first business day
following the expiration date.
Accrued Interest on the Exchange
Notes and the Old Notes....... The exchange notes will bear interest from
the most recent interest payment date to
which interest on Old Notes has been paid.
Holders of Old Notes whose notes are
accepted for exchange will be deemed to have
waived the right to receive any payment of
interest on such outstanding Old Notes
accrued from such date to the date of the
issuance of the exchange notes.
Consequently, holders who exchange their Old
Notes for exchange notes will receive the
same interest payment on November 15, 1999
(the first interest payment date with
respect to the outstanding notes and the new
notes to be issued in the exchange offer)
that they would have received had they not
accepted the exchange offer.
Termination of the Exchange
Offer........................... We may terminate the exchange offer if we
determine that our ability to proceed with
the exchange offer could be materially
impaired due to any legal or governmental
action, new law, statute, rule or
regulation. We do not expect any of the
foregoing conditions to occur, although
there can be no assurance that such
conditions will not occur. Holders of Old
Notes will have certain rights against our
Company under the Registration Rights
Agreement executed as part of the offering
of Old Notes should we fail to consummate
the exchange offer.
Procedures for Tendering
Outstanding Notes............. If you are a holder of an Old Note and you
wish to tender your note for exchange
pursuant to the exchange offer, you must
transmit to the exchange agent (as defined
herein) on or prior to the expiration date:
either
- a properly completed and duly executed
letter of transmittal, which accompanies
this Prospectus,
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16
or a facsimile of the letter of
transmittal, including all other
documents required by the letter of
transmittal, to the exchange agent at the
address set forth on the cover page of
the letter of transmittal; or
- a computer-generated message transmitted
by means of the Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming
a part of a confirmation of book entry
transfer in which you acknowledge and
agree to be bound by the terms of the
letter of transmittal;
and, either
- a timely confirmation of book-entry
transfer of your outstanding notes into
the exchange agent's account at the
Depository Trust Company ("DTC") pursuant
to the procedure for book-entry transfers
described in this Prospectus under the
heading "The Exchange Offer -- Procedure
for Tendering," must be received by the
exchange agent on or prior to the
expiration date; or
- the documents necessary for compliance
with the guaranteed delivery procedures
described below must be properly completed
and received by the exchange agent on or
prior to the expiration date.
By executing the letter of transmittal, each
holder will represent to us that, among
other things:
- the notes to be issued in the exchange
offer are being obtained in the ordinary
course of business of the person receiving
such new notes whether or not such person
is the holder,
- neither the holder nor any such other
person has an arrangement or understanding
with any person to participate in the
distribution or such new notes and
- neither the holder nor any such other
person is an "affiliate," as defined in
Rule 405 under the Securities Act of the
Company.
Special Procedures for
Beneficial Owners............... If you are the beneficial owner of notes and
your name does not appear on a security
position listing of DTC as the holder of
such notes or if you are a beneficial owner
of registered notes that are registered in
the name of a broker, dealer, commercial
14
17
bank, trust company or other nominee and you
wish to tender such notes or registered
notes in the exchange offer, you should
contact such person whose name your notes or
registered notes are registered to promptly
and instruct such person to tender on your
behalf. If such beneficial holder wishes to
tender on his own behalf such beneficial
holder must, prior to completing and
executing the letter of transmittal and
delivering his or her Old Notes, either make
appropriate arrangements to register
ownership of the outstanding notes in such
holder's name or obtain a properly completed
bond power from the registered holder. The
transfer of record ownership may take
considerable time.
Guaranteed Delivery
Procedures...................... If you wish to tender your Old Notes and
time will not permit your required documents
to reach the exchange agent by the
expiration date, or the procedure for
book-entry transfer cannot be completed on
time or certificates for registered notes
cannot be delivered on time, you may tender
your notes pursuant to the procedures
described in this Prospectus under the
heading "The Exchange Offer -- Guaranteed
Delivery Procedure."
Withdrawal Rights............... You may withdraw the tender of your notes at
any time prior to 5:00 p.m., New York City
time, on the expiration date.
Acceptance of Outstanding Notes
and Delivery of Exchange
Notes......................... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully under "The Exchange
Offer -- Termination"), we will accept for
exchange any and all outstanding notes which
are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on
the expiration date. The notes issued
pursuant to the exchange offer will be
delivered promptly following the expiration
date.
Federal Income Tax
Consequences.................... The issuance of the exchange notes to
holders of Old Notes pursuant to the terms
set forth in this Prospectus will not
constitute an exchange for federal income
tax purposes. Consequently, no gain or loss
would be recognized by such holders upon
receipt of the exchange notes. See "The
Exchange Offer -- Certain Federal Income Tax
Consequences of the Exchange Offer."
Use of Proceeds................. We will not receive any proceeds from the
issuance of notes pursuant to the exchange
offer. We will pay all expenses incident to
the exchange offer.
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18
Exchange Agent.................. State Street Bank and Trust Company is
serving as exchange agent in connection with
the exchange offer. See "The Exchange
Offer -- Exchange Agent."
Information Agent............... Morrow & Co. is serving as information agent
in connection with the exchange offer.
16
19
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form and terms
of the Old Notes (which they replace) except that unlike the Old Notes (i) the
exchange notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, and (ii) the holders of
exchange notes generally will not be entitled to further registration rights
under the Registration Rights Agreement, which rights generally will be
satisfied when the exchange offer is consummated. The exchange notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the indenture pursuant to which the Old Notes were issued. See "Description of
the Exchange Notes."
Securities Offered.............. $31,250,000 aggregate principal amount of
9 7/8% Senior Subordinated Notes due 2007,
Series D.
Maturity Date................... November 15, 2007.
Interest........................ The exchange notes will bear interest at the
rate of 9 7/8% per annum, payable
semi-annually in arrears on May 15 and
November 15 of each year, commencing on
November 15, 1999.
Guarantees...................... Our current and future domestic restricted
subsidiaries will unconditionally jointly
and severally guarantee our payment
obligations under the notes on a senior
subordinated basis. See "Description of the
Exchange Notes -- Subsidiary Guarantees."
Ranking......................... The exchange notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Debt of the
Company. As of December 31, 1998, after
giving pro forma effect to the financing
transactions that facilitated the Rival
acquisition, the Company would have had
approximately $244.2 million of Senior Debt
outstanding, including outstanding
borrowings under the Credit Facility. In
addition, the Company would have had $81.6
million of additional borrowings available
under the Credit Facility. The exchange
notes will rank pari passu with the Old
Notes.
Optional Redemption............. On or after November 15, 2002, we may redeem
the exchange notes, in whole or in part, at
the redemption prices set forth in this
Prospectus. In addition, at any time before
November 15, 2000, we may redeem on any one
or more occasions up to an aggregate of 33%
of the principal amount of the exchange
notes at 109.875% of the principal amount
thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon to
the redemption date, with the net cash
proceeds of one or more sales of Equity
Interests (other than Disqualified Stock) of
the Company, provided that
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20
at least 67% of the principal amount of the
exchange notes remains outstanding
immediately following each such redemption
of the exchange notes. See "Description of
the Exchange Notes -- Optional Redemption."
Change of Control............... Upon certain change of control events, each
holder of the exchange notes may require us
to make an offer to each holder of exchange
notes to repurchase all or any part of such
holder's exchange notes at a repurchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon to
the repurchase date.
Covenants....................... The indenture contains certain covenants
that, among other things, limit our ability
and the ability of our restricted
subsidiaries to:
- incur additional indebtedness,
- pay dividends,
- create certain liens,
- enter into certain transactions with
affiliates or
- repurchase certain equity interests.
See "Description of the Exchange Notes."
Registration Rights Agreement... The Registration Rights Agreement provides
that if (1) we are not required to file a
registration statement in connection with
the exchange offer or permitted to
consummate the exchange offer because the
exchange offer is not permitted by
applicable law or Commission policy or (2)
in certain circumstances, a holder of Old
Notes notifies us prior to the 20th day
following consummation of the exchange offer
that (a) that it is prohibited by law or
Commission policy from participating in the
exchange offer or (b) that it may not resell
the exchange notes acquired by it in the
exchange offer to the public without
delivering a prospectus and the prospectus
contained in the exchange offer registration
statement is not appropriate or available
for such resales or (c) that it is a
broker-dealer and owns Old Notes acquired
directly from us or an affiliate of ours, we
will file with the Commission a shelf
registration statement to cover resales of
the Old Notes by the holders thereof who
satisfy certain conditions relating to the
provision of information in connection with
the shelf registration statement.
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21
The interest rate on the Old Notes is
subject to increase under certain
circumstances if we are not in compliance
with our obligations under the Registration
Rights Agreement. See "Description of the
Exchange Notes -- Registration Rights;
Liquidated Damages."
Lack of Prior Market for the
Exchange Note................. The exchange notes will be new securities
for which there is currently no established
trading market. We do not intend to apply
for listing of the exchange notes on any
national securities exchange or for
quotation of the exchange notes on any
automated dealer quotation system. We have
been advised by the initial purchasers that
they presently intend to make a market in
the exchange notes, although they are under
no obligation to do so and may discontinue
any market-making activities at any time
without notice. Accordingly, no assurance
can be given as to the liquidity of the
trading market for the exchange notes or
that an active public market for the
exchange notes will develop. If an active
trading market for the exchange notes does
not develop, the market price and liquidity
of the exchange notes may be adversely
affected. If the exchange notes are traded,
they may trade at a discount from their
initial offering price, depending on
prevailing interest rates, the market for
similar securities, the performance of the
Company and certain other factors. See "Risk
Factors."
RISK FACTORS
Prospective purchasers of the exchange notes should carefully consider the
matters set forth under "Risk Factors," as well as the other information and
financial statements and data included or incorporated by reference in this
Prospectus, prior to making an investment in the exchange notes.
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22
SUMMARY FINANCIAL DATA
HOLMES PRODUCTS CORP.
The following summary historical financial data for the years ended
December 31, 1996, 1997 and 1998 have been derived from Holmes' audited
Consolidated Financial Statements included or incorporated by reference in this
Prospectus. The summary unaudited pro forma data as of December 31, 1998 and for
the year ended December 31, 1998 have been derived from the Unaudited Pro Forma
Combined Condensed Financial Statements included in this Prospectus. The
unaudited pro forma data do not purport to represent what the Company's
financial position or results of operations actually would have been if the
transactions referred to therein had been consummated on the date or for the
period indicated, or what such results will be for any future date or for any
future period. The following information should be read in conjunction with
"Selected Financial Data," "Unaudited Pro Forma Combined Condensed Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Holmes' and Rival's Consolidated Financial
Statements, including the notes thereto, included or incorporated by reference
in this Prospectus.
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------- DECEMBER 31,
1996 1997 1998 1998(1)
-------- -------- -------- -------------
(IN THOUSANDS)
Income Statement Data:
Net sales...................... $194,331 $192,153 $214,479 $561,748
Cost of goods sold............. 145,915 136,740 146,509 406,003
Cost of goods sold --
restructuring................ -- -- -- 3,333
-------- -------- -------- --------
Gross profit................. 48,416 55,413 67,970 152,412
Selling, general and
administrative expenses...... 32,828 41,993(2) 43,390 107,596
Restructuring expenses......... -- -- -- 5,052
-------- -------- -------- --------
Operating profit............. 15,588 13,420 24,580 39,764
Interest expense, net.......... 6,491 7,096 13,833 35,831
Other (income) expense, net.... (319) 56 (436) 3,895
-------- -------- -------- --------
Income before income taxes and
minority interest............ 9,416 6,268 11,183 38
Income tax expense (benefit)... 2,787 2,196 2,222 --
Minority interest in net income
of majority-owned
subsidiaries(3).............. 408 225 -- --
-------- -------- -------- --------
Net income..................... $ 6,221 $ 3,847 $ 8,961 $ 38
======== ======== ======== ========
Other Data:
EBITDA(4)...................... $ 22,774 $ 20,837 $ 32,264 $ 53,845
Depreciation and
amortization................. 6,867 7,473 7,248 18,001
Capital expenditures........... 8,594 5,815 4,749 12,014
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DECEMBER 31, 1998
--------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents............................. $ 5,379 $ 5,958
Working capital....................................... 71,089 241,867
Total assets.......................................... 131,357 483,956
Total long-term debt, including capital leases........ 115,139 375,372
Total stockholders' equity (deficit).................. (15,389)(5) 33,988
- -------------------------
(1) The unaudited pro forma income statement data gives effect to the
Transactions in connection with the Rival acquisition as if they had
occurred as of January 1, 1998. The unaudited pro forma balance sheet data
gives effect to the Transactions as if they had occurred on December 31,
1998. See "Unaudited Pro Forma Combined Condensed Financial Statements."
(2) Includes approximately $6.9 million of incremental compensation expense
which was paid to certain executives in conjunction with Holmes'
recapitalization in November, 1997.
(3) In May and June, 1997, Holmes repurchased the shares held by 30% minority
stockholders in one of Holmes' subsidiaries for a total of $900,000.
(4) EBITDA represents income before interest expense, income tax expense,
depreciation and amortization and the minority interest in net income of
majority-owned subsidiaries. EBITDA is presented because it is a widely
accepted measure to provide information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
Additionally, our calculation of EBITDA may differ from that performed by
other companies, and thus the amounts disclosed may not be directly
comparable to those disclosed by other companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) Total stockholders' equity on a historical basis reflects Holmes' November,
1997 recapitalization. See Note 8 of Notes to Holmes' Consolidated Financial
Statements incorporated by reference herein.
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THE RIVAL COMPANY
The following summary historical financial data for Rival's fiscal years
ended June 30, 1996, 1997 and 1998 have been derived from Rival's audited
Consolidated Financial Statements included or incorporated by reference in this
Prospectus. The summary historical financial data for the six months ended
December 31, 1997 and 1998 have been derived from Rival's unaudited Condensed
Consolidated Financial Statements included or incorporated by reference in this
Prospectus. In the opinion of management, these unaudited Condensed Consolidated
Financial Statements include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of Rival for these periods. Due to the
seasonality of operations and other factors, the results of operations for
interim periods are not necessarily indicative of results that may be expected
for the full year. The following information should be read in conjunction with
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Rival's Consolidated Financial
Statements, including the notes thereto, included or incorporated by reference
in this Prospectus.
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------- -------------------
1996 1997 1998 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
Income Statement Data:
Net sales.................. $313,864 $376,465 $376,919 $224,549 $194,899
Cost of sales.............. 230,207 278,455 281,043 164,799 146,583(3)
-------- -------- -------- -------- --------
Gross profit............. 83,657 98,010 95,876 59,750 48,316
Selling, general and
administrative
expenses................. 50,561 63,809 63,251 34,934 33,004
Restructuring expenses..... -- 3,000(1) -- -- 5,052(3)
Amortization of goodwill
and other intangible
assets................... 2,432 3,069 2,894 1,485 1,370
-------- -------- -------- -------- --------
Operating income......... 30,664 28,132 29,731 23,331 8,890
Interest expense........... 7,117 10,081 10,099 5,459 5,208
Other (income) expenses.... 295 21 3,875(2) (92) 364
-------- -------- -------- -------- --------
Earnings before income
taxes................. 23,252 18,030 15,757 17,964 3,318
Income tax expense......... 9,013 7,345 6,550 6,801 1,570
-------- -------- -------- -------- --------
Net earnings............. $ 14,239 $ 10,685 $ 9,207 $ 11,163 $ 1,748
======== ======== ======== ======== ========
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DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
Balance Sheet Data:
Working capital.......................................... $ 97,643 $ 91,991
Total assets............................................. 322,216 314,058
Long-term debt........................................... 84,000 78,000
Stockholders' equity..................................... 120,270 115,711
- -------------------------
(1) In fiscal 1997, Rival recorded a $3.0 million restructuring expense relating
to the closing of its Montreal, Quebec manufacturing, distribution and
administrative functions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of
Operations -- Rival."
(2) Other expense for fiscal 1998 includes $3.8 million of non-recurring
litigation expenses relating to litigation that was settled during such
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Rival."
(3) In the six months ended December 31, 1998, Rival recorded $8.4 million of
restructuring expenses ($3.3 million of which are reflected in cost of
sales) relating to the closing of three facilities in North Carolina and
Indiana. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations -- Rival."
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26
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this Prospectus, before deciding to exchange
your notes for the exchange notes. In connection with the forward-looking
statements which appear in this Prospectus, you should carefully review the
factors discussed below and the cautionary statements referred to in
"Forward -- Looking Statements."
OUR LEVERAGE LIMITS OUR FLEXIBILITY AND INCREASES OUR RISK OF DEFAULT.
We are highly leveraged. As of December 31, 1998, after giving pro forma
effect to the financing transactions that facilitated the Rival acquisition, we
would have had total consolidated indebtedness of approximately $379.2 million
and total stockholders' equity of $34.0 million. See "Capitalization" and
"Unaudited Pro Forma Combined Condensed Financial Statements." We may incur
additional indebtedness in the future, including through additional borrowing
under the Credit Facility subject to the satisfaction of certain financial
tests. See "Description of Credit Facility" and "Description of Notes -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Our ability to pay principal and interest on the exchange notes, to satisfy
our other debt service obligations and to fund planned capital expenditures will
depend upon our future operating performance, which will be affected by
prevailing economic conditions in the markets we serve, as well as financial,
business and other factors, certain of which are beyond our control. Based upon
our current level of operations, we believe that cash flow from operations and
available cash, together with available borrowings under the Credit Agreement,
will be adequate to meet our anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal and interest
on our indebtedness, including the exchange notes. We cannot assure you that our
business will generate sufficient cash flow from operations or that future
borrowings will be available under the Credit Agreement in an amount sufficient
to enable us to service our indebtedness, including the exchange notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of the
principal of the exchange notes on or prior to maturity. We cannot assure you
that we will be able to effect any such refinancing on commercially reasonable
terms or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which we are leveraged could have important consequences to
the holders of the exchange notes, such as:
- making it more difficult for us to satisfy our obligations with respect
to the exchange notes;
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures or other general corporate
requirements;
- requiring the dedication of a substantial portion of our cash flow from
operations to the payment of principal of and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate
purposes;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a competitive disadvantage with respect to less leveraged
competitors.
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27
Our ability to pay principal and interest on the exchange notes, to satisfy
our other debt service obligations and to fund planned capital expenditures will
depend upon our future operating performance which will be affected by
prevailing economic conditions in the markets we serve and financial business
and other factors, certain of which are beyond our control.
THE EXCHANGE NOTES ARE UNSECURED AND SUBORDINATED; IN CASE OF A DEFAULT, THERE
MAY NOT BE SUFFICIENT ASSETS TO PAY AMOUNTS DUE ON THE NOTES.
The exchange notes are unsecured obligations of the Company, and will be
subordinated in right of payment to all current and future Senior Debt including
all obligations under the Credit Facility. Upon any distribution to creditors in
a liquidation or dissolution or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding, the holders of Senior Debt will be entitled
to be paid in full in cash before any payment may be made with respect to the
exchange notes. In the event of a bankruptcy, liquidation or reorganization,
holders of the exchange notes will participate equally with all holders of
subordinated indebtedness that is deemed to be of the same class as the exchange
notes, and potentially with all other general creditors, based upon the amounts
owed to each holder or creditor, in the remaining assets. In any of the
foregoing events, we cannot assure you that there would be sufficient assets to
pay amounts due on the notes. As a result, holders of the exchange notes may
receive less, ratably, than holders of Senior Debt. See "Description of
Notes -- Subordination." As of December 31, 1998, after giving pro forma effect
to the financing transactions that facilitated the Rival acquisition, we would
have approximately $244.2 million of Senior Debt outstanding, including
outstanding borrowing under the Credit Facility. In addition we would have had
$81.6 million of additional borrowing available under the Credit Facility. The
indenture permits us to incur additional Senior Debt, subject to certain
financial tests. See "Description of Notes -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Our payment obligations under the notes will be jointly and severally
guaranteed on a senior subordinated basis by each of our existing and future
domestic subsidiaries. See "Description of the Exchange Notes -- Subordination."
RISKS ASSOCIATED WITH THE RIVAL ACQUISITION.
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING RIVAL INTO OUR BUSINESS. We
closed the Rival acquisition on February 5, 1999. We cannot assure you that we
will successfully integrate Rival with Holmes' business operations. The full
benefits of the Rival acquisition will require the integration of
administration, finance, product development, manufacturing, distribution and
sales and marketing operations. We have no prior experience integrating an
acquired company, and the integration of Rival may be further complicated by
Rival's size relative to our own. The integration will also require the
implementation of appropriate operational, financial and management systems and
controls. We cannot assure you that we will not encounter difficulties in
expanding our financial controls and reporting systems to meet our future needs.
The successful integration of the acquisition of Rival will also depend upon our
ability to retain and motivate certain of Rival's existing employees and
managers. In addition, Rival has undertaken a number of restructuring actions in
recent years to streamline its operations and improve manufacturing efficiency.
We cannot assure you that additional restructuring expenses will not be incurred
in the future, or that the cost savings anticipated to follow such
restructurings and the Rival acquisition will actually be realized. If we fail
to successfully integrate the operations of Holmes and Rival, or if anticipated
revenue enhancements and cost savings are not realized, our business, results of
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operations, financial condition and prospects would be materially adversely
affected. The Unaudited Pro Forma Combined Condensed Financial Statements
included in this Prospectus contain certain adjustments relating to the
acquisition of Rival; actual amounts could differ from those set forth in such
statements, possibly to a material extent. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
WE COULD BE ADVERSELY AFFECTED BY UNKNOWN OR UNDISCOVERED WEAKNESSES OR
LIABILITIES. We performed a legal and financial due diligence investigation of
Rival in preparation for the acquisition, which included Phase I environmental
studies of Rival's major facilities. However, unknown or undiscovered legal,
financial or operational weaknesses or liabilities may exist or arise. These
liabilities could include, among others, those arising from litigation, product
recalls, product liability claims, employee benefits obligations or
non-compliance with applicable federal, state or local environmental
requirements for which we, as Rival's successor owner, may be responsible.
OUR BUSINESS INVOLVES THE POTENTIAL FOR PRODUCT RECALLS AND PRODUCT LIABILITY
CLAIMS AGAINST US.
We face exposure to product recalls and product liability claims in the
event that our products are alleged to have manufacturing or safety defects or
to have resulted in injury or other adverse effects. Although we maintain
product liability insurance in amounts that we believe are reasonable, we cannot
assure you that we will be able to maintain our product liability insurance on
acceptable terms, if at all, in the future or that product liability claims will
not exceed the amount of our insurance coverage. We have also implemented and
are currently engaged in certain voluntary product recalls, and we have had and
continue to have ongoing communications with the United States Consumer Products
Safety Commission and with retail customers and, in the case of Rival, with the
Canadian Standards Association, regarding allegations that various products may
contain a defect that would warrant a product recall. We do not maintain product
recall insurance. As a result, we cannot assure you that product recalls and
product liability claims will not have a material adverse effect on our
financial conditions or results of operations. See "Business -- Regulation" and
"--Legal Proceedings."
OUR BUSINESS COULD BE SIGNIFICANTLY AFFECTED BY THE LOSS OF ANY OF OUR MAJOR
CUSTOMERS.
Our three largest retail customers prior to the Rival acquisition, Wal-Mart
(including Sam's Wholesale Club), Kmart and Target, each accounted for over 10%,
and in the aggregate approximately 48% of our net sales during 1998. Rival's
largest customer, Wal-Mart (including Sam's Wholesale Club), accounted for 26%
of Rival's net sales in each of Rival's three fiscal years ended June 30, 1998.
Rival's next five largest customers represented an aggregate of 21% of net sales
during fiscal 1998. We do not have long term agreements with our major
customers, and purchases are generally made through the use of individual
purchase orders. A significant reduction in purchases by any of these major
customers or a general economic downturn in retail sales could have a material
adverse effect on our business. See "Business -- Sales and Marketing."
WE COULD BE ADVERSELY AFFECTED BY FLUCTUATIONS OF OUR RETAIL CUSTOMERS AND THE
RETAIL INDUSTRY GENERALLY.
Our products are sold to consumers through major retail channels, including
mass merchants, do-it-yourself home centers, warehouse clubs, hardware stores
and national
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drugstore chains. As a result, our business and financial results can fluctuate
with the financial condition of our retail customers and the retail industry
generally. Certain of our retail customers have filed for bankruptcy protection
in recent years. We continually monitor and evaluate the credit status of our
customers and attempt to adjust sales terms as appropriate. Additionally, we
have entered into factoring agreements whereby receivables from certain
predetermined customers, up to specified limits, can be sold in the event the
customer defaults on payment. Despite these efforts, a bankruptcy filing by a
significant customer could have a material adverse effect on our business. See
Note 12 of Notes to Holmes' Consolidated Financial Statements incorporated by
reference herein.
WE COULD BE ADVERSELY AFFECTED BY CHANGING CONDITIONS IN FOREIGN COUNTRIES.
We manufacture a significant portion of Holmes' products and substantially
all of the motors used in Holmes' products in China. We also obtain a
significant proportion of the raw materials used in the manufacturing of Holmes'
products outside the United States. Rival currently has certain of its products
manufactured by contract manufacturers outside of the United States. In
addition, our strategy includes increasing sales to customers outside of the
United States. International operations are subject to risks including labor
unrest, political instability, restrictions on transfers of funds, import and
export duties and quotas, domestic and international customs and tariffs,
unexpected charges in regulatory environments, difficulty in obtaining
distribution and support and potentially adverse tax consequences. Labor in
China has historically been readily available at relatively low cost to us as
compared to labor costs applicable in other nations. China has experienced rapid
social, political and economic change in recent years. We cannot assure you that
labor will continue to be available to us in China at costs consistent with
historical levels. A substantial increase in labor costs in China could have a
material adverse effect on us. Although China currently enjoy "most favored
nation" trading status with the United States, the U.S. government has in the
past proposed to revoke such status and to impose higher tariffs on products
imported from China in response to human rights abuse in China and failure by
the Chinese government to protect U.S. intellectual property rights in China. In
addition to risks specific to China, a number of Asian countries have
experienced worsening economic conditions over the past two years. We cannot
assure you that any of the foregoing factors will not have a material adverse
effect on our ability to increase or maintain our international sales or
importing activities, our financial condition or the results of our operations.
Due to our international operations, we are also subject to currency
exchange rate risk. Although our international operations have not historically
been significantly impacted by changes in currency exchange rates, future change
in currency exchange rates could have an adverse effect on our financial
condition or results of operations.
Rival has more substantial European, Latin America and Canadian operations
and sales than Holmes, which may further increase our exposure to the risks
described above.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEVELOPMENT OF NEW PRODUCTS.
We believe that our future success will depend in part upon our ability to
continue to make innovations in our existing products and to develop,
manufacture and market new products. We cannot assure you that we will be
successful in the introduction, marketing and manufacture of any new products or
produce innovations or that we will be able to develop and introduce in a timely
manner innovations to our existing products which satisfy customer needs or
achieve market acceptance. The failure to develop products and
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introduce them successfully and in a timely manner could have a material adverse
effect on our business, financial condition or results of operations.
WE RELY HEAVILY ON OUR MANUFACTURING FACILITIES TO MANUFACTURE AND ASSEMBLE OUR
PRODUCTS. AN EXTENDED INTERRUPTION IN THE OPERATION OF ANY FACILITY COULD HAVE
AN ADVERSE IMPACT ON OUR OPERATING RESULTS.
A substantial portion of Holmes' net sales are derived from products
manufactured or assembled at two of our manufacturing facilities located in
China. One of the facilities manufactures substantially all of the motors
utilized in Holmes' products. The second facility manufactures many of the
remaining components and assembles most of Holmes' products. The manufacturing
facilities used by us are subject to hazards that could result in material
damage to any such facility. Any such damage to either facility, or prolonged
interruption in the operations of either facility for repairs, labor disruption
or other reasons, would have a material adverse effect on our financial
condition and results of operation.
Rival currently operates five manufacturing facilities in the United
States. We have had no prior experience in operating manufacturing facilities in
the United States on the scale of Rival's operations. Rival operates one
unionized facility in Jackson, Mississippi, which produces an essential
component (stoneware) for a significant product line (Crock-Pot(R) slow
cookers). We have no prior experience with unionized employees. See
"Business -- Manufacturing."
WE COULD BE ADVERSELY AFFECTED BY FLUCTUATIONS IN THE COST AND AVAILABILITY OF
RAW MATERIALS USED IN THE MANUFACTURE AND PACKAGING OF OUR PRODUCTS.
Plastic resin, copper wire and corrugated paper are significant raw
materials used in the manufacture and packaging of our products. Because the
primary resource used in manufactured plastics is petroleum, the cost and
availability of plastic for use in our products varies to a great extent with
the price of petroleum. In addition, copper wire and corrugated paper prices can
fluctuate significantly. Rival's products also require substantial quantities of
steel and aluminum. If we were unable to acquire sufficient raw materials at
reasonable prices it would effect our ability to stay within our margins and
could result in a material adverse affect on our financial condition or results
of operations.
OUR OPERATING RESULTS CAN BE AFFECTED BY SEASONALITY
Our business is highly seasonal with operating results varying from quarter
to quarter. For Holmes, the highest sales of fans occur in the first and second
quarters of each year. During fiscal 1996, 1997 and 1998, an average of 82.9% of
domestic gross fan sales were generated during the first and second quarters.
Holmes' heaters, humidifiers, and air purifiers generate their highest sales in
the third and fourth quarter of each year with an average of 94.0%, 89.9% and
62.7% of domestic gross sales of heaters, humidifiers, and air purifiers,
respectively, generated during the third and fourth quarters during fiscal 1996,
1997 and 1998. Certain of Rival's product lines are also seasonal, with sales of
heaters and humidifiers highest during the fall and winter and ice cream
freezers, pumps and fans sold primarily during the spring and summer.
Accordingly, counter-seasonal summer weather could adversely affect sales of
fans and could result in increased returns of these products to us by customers
in subsequent quarters and in lower purchases by retailers in the following year
due to high inventory levels. Similarly, counter-seasonal winter weather could
adversely affect sales of heaters and humidifiers and could result in increased
returns in subsequent quarters and in lower purchases by retailers in the
following years. Sales of air purifiers are less subject to seasonal weather
patterns, but follow the seasonal pattern of
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the retail industry generally, with highest sales to retailers in the third and
fourth quarters in anticipation of the Christmas selling season. Additionally, a
significant percentage of the products sold by Rival are given as gifts and, as
such, sales volumes are higher in the anticipation of the Christmas season. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality" and "Business -- Seasonality."
WE COMPETE WITH OTHER LARGE COMPANIES THAT PRODUCE SIMILAR PRODUCTS.
The markets for our products are highly competitive. We believe that
competition is based upon several factors, including price, access to retail
shelf space, product features and enhancements, brand names, new product
introductions, marketing support and distribution systems. We compete with
established companies, a number of which have substantially greater facilities,
personnel, financial and other resources than we have. We also compete with
importers and foreign manufacturers of unbranded products. In addition, the
consumer home comfort product industry has recently experienced some
consolidation of existing manufacturers, each generating annual sales which are
significantly higher than our own. Large consumer product companies have from
time to time entered the market for consumer home comfort products and may do so
in the future. We cannot assure you that we will be able to compete successfully
against current and future sources of competition or that the competitive
pressures we face will not adversely affect our profitability or financial
performance. See "Business -- Competition."
OUR BUSINESS COULD BE SIGNIFICANTLY AFFECTED BY THE LOSS OF KEY PERSONNEL.
Our continued success will depend significantly on the efforts and
abilities of our key executive officers, including Jordan A. Kahn, our President
and Chief Executive Officer, Stanley Rosenzweig, our Chief Operating Officer,
Ira B. Morgenstern, our Senior Vice President -- Finance, Gregory F. White, our
Executive Vice President, Sales and Marketing, and Tommy Liu, Managing Director
of our Far East operations. The loss of the services of one or more of these
individuals could have a material adverse affect on our business.
WE COULD BE AFFECTED BY "YEAR 2000" COMPUTER PROBLEMS.
Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modifications in order to
be "year 2000 compliant." This issue may have a material adverse affect on our
business, financial condition and results of operations because our computer and
other systems are integral parts of our distribution activities as well as our
accounting and other information systems and because we will have to divert
financial resources and personnel to address this issue.
Year 2000 compliance may also adversely affect our business, financial
condition and results of operations indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of our suppliers and
customers. As described in this Prospectus, we have developed plans to address
the possible exposures related to our computer systems from the Year 2000.
However, there cannot be any that such measures will be sufficient to avoid Year
2000-related problems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
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OWNERSHIP OF HOLMES PRODUCTS CORP. IS CONCENTRATED.
Our largest stockholder and certain members of our senior management,
including Jordan A. Kahn, beneficially own approximately 91% of our outstanding
common stock. Consequently, in the event that these stockholders vote together,
they will have the ability to control substantially all corporate actions. The
interests of our stockholders may conflict with the interests of holders of the
notes in certain circumstances. See "Share Ownership."
THE INDENTURE AND THE CREDIT FACILITY CONTAIN COVENANTS THAT RESTRICT OUR
ABILITY TO TAKE CERTAIN ACTIONS.
The credit facility and the indenture impose restrictions that affect,
among other things, our ability to incur debt, pay dividends, sell assets,
create liens, make capital expenditures and investments, and otherwise enter
into certain transactions outside the ordinary course of business. The credit
facility also requires us to maintain specified financial ratios and meet
certain financial tests. Our ability to continue to comply with the covenants
and restrictions may be affected by events beyond our control. The breach of any
of these covenants or restrictions would result in a default under the credit
facility and the indenture, in which case the lenders under the credit facility
could elect to declare all amounts borrowed thereunder, together with accrued
interest, to be due and payable, foreclose on the assets securing the credit
facility or cease to provide additional revolving loans or letters of credit,
which could have a material adverse effect on our business. See "Description of
Credit Facility" and "Description of the Exchange Notes."
WE MAY NOT HAVE SUFFICIENT FUNDS TO REPAY THE EXCHANGE NOTES UPON A CHANGE OF
CONTROL.
Upon certain change of control events, we will be required to make an offer
in cash to repurchase all or any part of each holder's notes at a repurchase
price equal to 101% of the principal interest thereof, plus accrued interest and
liquidated damages, if any. The source of funds for any such repurchase would
come from our available cash or cash generated from operations or other sources,
including borrowings, sales of equity or funds provided by a new controlling
person. We cannot assure you that sufficient funds will be available at the time
of any change of control event to make any required repurchases of the notes
tendered. Our failure to offer to repurchase notes, or to repurchase notes
tendered, following a change of control, will result in a default under the
indenture governing the notes, which could lead to cross-default under the
Credit Facility and under the terms of other indebtedness of our business. In
such a case, the subordination provisions of the indenture may limit the ability
of the holders of the notes to receive payment in respect of their notes. See
"Description of Credit Facility," "Description of the Exchange
Notes -- Subordination" and "-- Repurchase of Notes at the Option of
Holders -- Change of Control."
CERTAIN SUBSIDIARY GUARANTORS OF OUR PAYMENT OBLIGATIONS DO NOT HAVE SUBSTANTIAL
ASSETS OR OPERATIONS.
Our payment obligations under the notes will be jointly and severally
guaranteed on a senior subordinated basis by each of our existing and future
domestic subsidiaries. Certain of our existing domestic subsidiaries (excluding
Rival and its subsidiaries) do not have substantial assets or operations. Our
Chinese manufacturing operations are, and will continue to be, conducted through
foreign subsidiaries. These subsidiaries will not be guarantors of the notes.
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YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE OLD NOTES
OR THE EXCHANGE NOTES.
There has not been an established trading market for the notes. Although
the initial purchasers have informed us that they currently intend to make a
market in the outstanding notes, and if issued, the exchange notes which will
replace the outstanding notes, they have no obligation to do so and may
discontinue making a market at any time without notice. In addition, such market
making activity may be limited during the pendency of the exchange offer or the
effectiveness of a shelf registration statement in lieu thereof. Accordingly, we
cannot assure you of the development or liquidity of any market for the notes,
and, if issued, the exchange notes. We do not intend to apply for listing of the
notes, or, if issued, the exchange notes on any securities exchange.
The liquidity of any market for the notes will depend upon, among other
things, the number of holders of the notes, our performance, the market for
similar securities, the interest of securities dealers in making a market in the
notes and other factors. A liquid trading market may not develop for the notes.
The liquidity of the notes may be further affected by the fact that we have
outstanding an additional $105.0 million of 9 7/8% Senior Subordinated Notes due
2007, Series B. These notes were issued on April 27, 1998, and are substantially
identical to the exchange notes, except that the Series B Notes were not issued
at a discount from their stated principal amount and thus do not result in the
accrual of original issue discount as described below. The amount of original
issue discount on the exchange notes prevents us from combining the exchange
notes and the Series B Notes into a single series of notes. Because of the
larger principal amount of our Series B Notes outstanding relative to the
principal amount of exchange notes, the liquidity of the exchange notes may be
adversely affected.
We cannot assure you that all holders of the notes will exchange such notes
for exchange notes. To the extent that less than all of the notes are tendered
and accepted in the exchange offer, a total of three series of 9 7/8% Senior
Subordinated Notes due 2007, consisting of our Series B Notes, the Old Notes and
the exchange notes, each trading under different CUSIP numbers, will remain
outstanding, and the trading market for both exchange notes and untendered or
unaccepted Old Notes may be adversely affected.
THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT MAY BE INCLUDABLE IN YOUR GROSS INCOME
FOR U.S. FEDERAL INCOME TAX PURPOSES.
The Old Notes were issued at a discount from their stated principal amount
at maturity. Consequently, in addition to stated interest, original issue
discount ("OID") will be includable in the gross income of a holder of these
notes and the exchange notes for U.S. federal income tax purposes in advance of
the receipt of corresponding cash payments on the notes unless the amount of OID
is de minimis, which is not the case here. See "Certain United States Federal
Income Tax Considerations" for a more detailed discussion of the U.S. Federal
Income Tax consequences of the purchase, ownership, and disposition of the
notes.
If a bankruptcy case is commenced by or against our business under the U.S.
Bankruptcy Code after the issuance of the notes, the claim of a holder of notes
with respect to the principal amount thereof would likely be limited to an
amount equal to the sum of (1) the initial offering price and (2) accrued
interest plus that portion of the OID that is not deemed to constitute
"unmatured interest" for purposes of the U.S. Bankruptcy
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Code. Any OID that was not accrued as of any such bankruptcy filing would
constitute "unmatured interest".
ENFORCEMENT OF THE EXCHANGE NOTES COULD BE SUBJECT TO FRAUDULENT CONVEYANCE
LAWS.
Our obligations under the notes, and the application of the net proceeds
therefrom in connection with the transactions, may be subject to review under
various laws for the protection of creditors, including federal and state
fraudulent conveyance and fraudulent transfer laws, if a bankruptcy case or
other lawsuit (including in circumstances where bankruptcy is not involved) is
commenced by or on behalf of any of our creditors. If a court in such a case or
lawsuit were to find that, at the time we issued the notes or at the time of
such transactions, we (1) intended to hinder, delay or defraud any existing or
future creditor or (2) did not receive fair consideration or reasonably
equivalent value for issuing the notes or in connection with such transactions,
and we either (a) were insolvent or rendered insolvent by reason thereof, (b)
were engaged or were about to engage in a business or transaction for which our
remaining unencumbered assets constituted unreasonably small capital or (c)
intended to or believed that we would incur debts beyond our ability to pay such
debts as they matured or became due, such court could void our obligations under
the notes, subordinate the notes to our other indebtedness, direct that holders
of the notes return to us any amounts paid thereunder or to a fund for the
benefit of our creditors or take other action detrimental to the holders of the
notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction being applied. Generally, however, a company
will be considered insolvent at a particular time if the sum of its debts,
including contingent liabilities, at the time is greater than the then fair
value of its assets or if the fair saleable value of its assets at that time is
less than the amount that would be required to pay its probable liability on its
existing debts as they become absolute and mature. We cannot assure you as to
what standard a Court would apply to evaluate the parties' intent or to
determine whether we were insolvent at the time of, or rendered insolvent upon
consummation of, the transactions or that, regardless of the standard, a court
would determine that we were insolvent at the time of, or rendered insolvent
upon consummation of such transactions.
Our obligations under the notes will be guaranteed by our current and
future domestic restricted subsidiaries, and the guarantees of the notes also
may be subject to review under various laws for the protection of creditors,
including federal and state fraudulent conveyance and fraudulent transfer laws,
if a bankruptcy case or a lawsuit (including in circumstances where bankruptcy
is not involved) is commenced by or on behalf of any creditor of a guarantor or
a representative of any such creditors. In such a case, the analysis set forth
above would generally apply, except that the guarantees could also be subject to
the claim that, since the guarantees were incurred for our benefit (and only
indirectly for the benefit of the guarantors) the obligations of the guarantors
thereunder were incurred for less than reasonably equivalent value of fair
consideration. A court could void a guarantor's obligation under its guarantee
of the notes, subordinate the guarantee to other indebtedness of a guarantor,
direct that holders of the notes return any amounts paid under a guarantee to
the relevant guarantor or to a fund for the benefit of its creditors or take
other action detrimental to the holders of the notes.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the exchange offer (the "Exchange Offer"), including
those set forth in the letter of transmittal distributed with this Prospectus.
This summary is qualified in its entirety by reference to the full text of the
documents underlying the Exchange Offer, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes pursuant to the Purchase
Agreement dated January 29, 1999, as supplemented from time to time (the
"Purchase Agreement"), among the Company, certain of its subsidiaries (the
"Guarantors"), BancBoston Robertson Stephens Inc. and Lehman Brothers Inc.
(which, in conjunction with BancBoston Robertson Stephens Inc. shall be referred
to herein as the "Initial Purchasers"), the Initial Purchasers became entitled
to the benefits of the Registration Rights Agreement, dated as of February 5,
1999, among the Company, the Guarantors and the Initial Purchasers.
Under the Registration Rights Agreement, the Company and the Guarantors
agreed to (a) file a registration statement in connection with a registered
exchange offer within 90 days after February 5, 1999, the date the Old Notes
were issued (the "Issue Date"), (b) use best efforts to cause such registration
statement to become effective under the Securities Act within 150 days of the
Issue Date, (c) use best efforts to keep such registration statement effective
until the closing of the Exchange Offer and (d) use best efforts to cause such
registered Exchange Offer to be consummated within 30 days after the effective
date of such registration statement. Within the applicable time periods, the
Company will endeavor to register under the Securities Act all of the exchange
notes pursuant to a registration statement under which the Company will offer
each holder of Old Notes the opportunity to exchange any and all of the
outstanding Old Notes held by such holder for exchange notes in an aggregate
principal amount equal to the aggregate principal amount of Old Notes tendered
for exchange by such Holder. Subject to limited exceptions, the Exchange Offer
being made hereby, if commenced and consummated within such applicable time
periods, will satisfy the above requirements of the Registration Rights
Agreement. A copy of the Registration Rights Agreement is included as an exhibit
to the Registration Statement of which this Prospectus is a part. The term
"Holder" with respect to the Exchange Offer means any person in whose name the
Old Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all Old Notes, the principal
amount of Old Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Old Notes outstanding. Following the consummation of the
Exchange Offer, Holders who did not tender their Old Notes generally will not
have any further registration rights under the Registration Rights Agreement,
and such Old Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market, if any, for such Old Notes
could be adversely affected. The Old Notes are currently eligible for sale
pursuant to Rule 144A, Rule 501(a)(1), (2), (3) or (7) or Regulation S through
the PORTAL Market. Because the Company anticipates that most Holders of Old
Notes will elect to exchange such Old Notes for exchange notes due to the
absence of restrictions on the resale of exchange notes under the Securities
Act, the Company anticipates that the liquidity of any market for any Old Notes
remaining after the consummation of the
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Exchange Offer may be substantially limited. See "Description of the Exchange
Notes -- Registration Rights; Liquidated Damages" and "Risk Factors."
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept all Old Notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes, except that they differ in that (1) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof, and (2) the Holders of Exchange Notes
generally will not be entitled to certain rights under the Registration Rights
Agreement, which rights generally will terminate upon consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the indenture governing the Old Notes
(the "Indenture"). The Indenture is substantially similar to the indenture under
which the $105 million of outstanding Series B Notes were issued.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such Holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein, the
certificate for any such unaccepted Old Notes will be returned, without expense,
to the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders of Old Notes who tender pursuant to the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not
less than 20 business days (the "Exchange Period"). The Expiration Date will be
5:00 p.m., New York City time, on , , 1999, unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the Expiration
Date will be the latest business day to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer for
a specified period of time.
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The Company reserves the right (i) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Notes not previously accepted if any of the conditions set forth under
"-- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of such
amendment, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business-day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service or other comparable service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes is payable semi-annually on May 15 and
November 15 of each year at the rate of 9 7/8% per annum. The Exchange Notes
will bear interest from the most recent interest payment date to which interest
on such Old Notes has been paid, which is expected to be May 15, 1999.
Accordingly, holders of Old Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Old Notes at the time of
tender, but such interest will be payable in respect of the Exchange Notes
delivered in exchange for such Old Notes on the first interest payment date
after the Expiration Date, which is expected to be November 15, 1999.
PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes pursuant to the
Exchange Offer. To tender pursuant to the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by instruction 4 of the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, or an Agent's Message (as defined below) in the case of a book-entry
transfer, together with the Old Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Delivery of the Old Notes may be made by book-entry transfer in accordance with
the procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date. The term "Agent's
Message" means a message, transmitted by the book-entry transfer facility to,
and received by, the Depositary and forming a part of a book-entry confirmation,
which states that such book-entry transfer facility has received an express
acknowledgment from the participant in such book-entry transfer facility
tendering the Exchange Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Consent and Letter of Transmittal, and that the Company may enforce
such agreement against such participant.
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The tender by a Holder of Old Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein in the
Letter of Transmittal.
Holders of Old Notes that are tendering by book-entry transfer to the
Exchange Agent's account at the Depository Trust Company ("DTC") can execute the
tender through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible. DTC participants should transmit their acceptance
to DTC, which will verify the acceptance and execute a book-entry delivery to
the Exchange Agent's account at DTC. DTC will then send an Agent's Message to
the Exchange Agent for its acceptance. DTC participants may also accept the
Exchange Offer by submitting a notice of guaranteed delivery through ATOP.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial Holder whose Old Notes are registered in the name of such
Holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered Holder promptly and instruct
such registered Holder to tender on its behalf. If such beneficial Holder wishes
to tender on such beneficial Holder's behalf, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered Holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantees must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers and a proxy which authorizes
such person to tender the Old Notes on behalf of the registered Holder, in each
case signed as the name of the registered holder or holders appears on the Old
Notes with the signature thereon guaranteed by an Eligible Institution.
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If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the DTC may make book-entry delivery of the Old Notes by causing
the DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the DTC's procedures for such
transfer. Although delivery of the Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the DTC, a Letter of Transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the DTC does not constitute delivery to the Exchange
Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of the tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including, the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Old Notes, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
(i) the tender is made through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the
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name and address of the holder of the Old Notes, the certificate or
registration number or numbers of such Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within three business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificates(s) representing the Old Notes to be
tendered in proper form for transfer (or a confirmation of book-
entry transfer of such Old Notes into the Exchange Agent's account at
the Depository) and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's
account at the Depository) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three
business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes pursuant to the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate or
registration number(s) and principal amount of such Old Notes, or, in the case
of notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee (as defined herein) with
respect to the Old Notes register the transfer of such Old Notes into the name
of the Depositor withdrawing the tender, (iv) specify the name in which any such
Old Notes are to be registered, if different from that of the Depositor and (v)
include a statement that such holder is withdrawing such holder's election to
have such Old Notes exchanged. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for payment will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "-- Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and
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may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the
reasonable judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to
the Company; or
(ii) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, the Company will extend the Exchange Offer
for a period of five to ten business days if the Exchange Offer would otherwise
expire during such five to ten business-day period.
EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Letters of Transmittal, certificates representing Old
Notes and other materials should be tendered to the Exchange Agent addressed as
follows:
By Mail By Facsimile Transmission By Hand or Overnight
(registered or certified (for eligible institutions By Delivery:
mail recommended): only):
(617) 664-5290
State Street Bank and To Confirm by Telephone State Street Bank and
Trust Company or for Information Call: Trust Company
Corporate Trust Department (617) 664-5587 Corporate Trust Department
P.O. Box 778 4th Floor
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
Morrow & Co., Inc. has been appointed as Information Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Information Agent addressed as follows:
Morrow & Co., Inc.
909 Third Avenue
New York, NY 10022-4799
Telephone: (212) 754-8000
Facsimile: (212) 754-8300
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent and the Information Agent reasonable and customary fees
for their services and will reimburse the Exchange Agent and the Information
Agent for their reasonable out-of-pocket expenses in connection therewith and
pay other registration expenses, including fees and expenses of the Trustee,
filing fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is the aggregate principal amount of the Old Notes, as reflected in
the Company's accounting records on the date of exchange. Accordingly, no gain
or loss for accounting purposes will be recognized in connection with the
Exchange Offer. The cost of the Exchange Offer will be deferred and amortized
over the term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any Holder of such
Exchange Notes (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes acquired pursuant to the Exchange Offer are
obtained in the ordinary course of such Holder's business, and such Holder does
not intend to participate, and has no arrangement or understanding to
participate, in the distribution of such Exchange Notes.
Any Holder who tenders pursuant to the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or
Morgan Stanley & Co., Incorporated (available June 5, 1991) or similar
interpretive letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In addition, any such resale transaction should be
covered by
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an effective registration statement containing the selling security holders
information required by Item 507 of Regulation S-K of the Securities Act.
Each broker-dealer that received Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, may be a
statutory underwriter and must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Company has agreed, if
requested, for a period of one year from the date hereof, to make available a
prospectus meeting the requirements of the Securities Act to any such
broker-dealer for use in connection with any resale of any Exchange Notes
acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each holder will represent to
the Company, among other things, that (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of its business,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, and (iii) the Holder and any such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act) of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
holders of Old Notes who do not tender their Old Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Old Notes that does not exchange such Old
Notes for Exchange Notes will continue to hold the untendered Old Notes and will
be entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) pursuant to an effective registration statement under the Securities Act,
(iii) so long as the Old Notes are eligible
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for resale pursuant to Rule 144A under the Securities Act, to a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A, (iv)
outside the United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or Rule 501(a)(1), (2), (3)
or (7) or (vi) to an Accredited Investor in a transaction exempt from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States or other
applicable jurisdiction. See "Risk Factors."
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered Old Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Old Notes that are not tendered in the Exchange
Offer or to file a registration statement to permit resales of any untendered
Old Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company intends to file the appropriate
registrations and notices, and to make the appropriate requests, to permit the
Exchange Offer to be made in such state.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Certain Holders of the Old Notes (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. Each Holder of Old Notes should consult
his, her or its own tax advisor as to the particular tax consequences of
exchanging such Holder's Old Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Old Notes pursuant to
the terms set forth in this Prospectus will not constitute an exchange for
United States federal income tax purposes because such exchange does not
represent a significant modification of the debt instruments. Consequently, no
gain or loss would be recognized by Holders of the Old Notes upon receipt of the
Exchange Notes, and ownership of the Exchange Notes will be considered a
continuation of ownership of the Old Notes. For purposes of determining gain or
loss upon the subsequent sale or exchange of the Exchange Notes, a Holder's
basis in the Exchange Notes should be the same as such Holder's basis in the Old
Notes exchanged therefore. A Holder's holding period for the Exchange Notes
should include the
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Holder's holding period for the Old Notes exchanged therefor. The issue price,
original issue discount inclusion and other tax characteristics of the Exchange
Notes should be identical to the issue price, original issue discount inclusion
and other tax characteristics of the Old Notes exchanged therefor.
See also "Certain United States Federal Tax Considerations."
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998. The following table should be read in conjunction with
"Selected Financial Data" and the Consolidated Financial Statements of the
Company, including the notes thereto, included or incorporated by reference
elsewhere in this Prospectus.
AT DECEMBER 31, 1998
---------------------------
ADJUSTED FOR
PRO FORMA
FINANCING
AND RIVAL
ACTUAL ACQUISITION(2)
-------- ---------------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents............................. $ 5,379 $ 5,958
======== ========
Total debt (including current maturities):
Capital lease obligations........................... 743 743
Credit Facility:(1)
Tranche A Term Loan.............................. -- 40,000
Tranche B Term Loan.............................. -- 85,000
Revolving Credit Facility........................ 10,000 118,433
9 7/8% Senior Subordinated Notes due 2007........... 105,000 135,000
-------- --------
Total Debt.................................. 115,743 379,176
-------- --------
Stockholders' equity (deficit):
Common stock........................................ 10 60
Treasury stock...................................... (62,058) (62,058)
Paid-in capital..................................... 16,985 66,935
Accumulated other comprehensive income.............. (40) (40)
Retained earnings................................... 29,714 29,091
-------- --------
Total stockholders' equity (deficit)........ (15,389) 33,988
-------- --------
Total capitalization.................................. $100,354 $413,164
======== ========
- -------------------------
(1) The Credit Facility provides for total availability of $325.0 million. See
"Description of Credit Facility."
(2) The above capitalization table reflects pro forma capitalization at December
31, 1998. The amount of Rival indebtedness actually refinanced at the
closing date of the Transactions (February 5, 1999) was $21.2 million less
than at December 31, 1998, which resulted in a reduction in the Company's
total debt from the amount reflected above.
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SELECTED FINANCIAL DATA
HOLMES PRODUCTS CORP.
The following selected financial data of Holmes as of and for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 have been derived from the
audited Consolidated Financial Statements of Holmes; such Consolidated Financial
Statements as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998 are included or incorporated by reference in
this Prospectus. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Holmes' Consolidated Financial Statements, including the notes
thereto, included or incorporated by reference in this Prospectus.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
Income Statement Data:
Net sales................................... $114,509 $178,132 $194,331 $192,153 $214,479
Cost of goods sold.......................... 84,672 141,226 145,915 136,740 146,509
-------- -------- -------- -------- --------
Gross profit................................ 29,837 36,906 48,416 55,413 67,970
Selling, general and administrative
expenses.................................. 17,522 22,500 27,308 36,530(1) 37,095
Product development expenses................ 2,742 3,154 5,520 5,463 6,295
-------- -------- -------- -------- --------
Operating profit............................ 9,573 11,252 15,588 13,420 24,580
Interest expense, net....................... 2,087 5,219 6,491 7,096 13,833
Other (income) expense, net................. (244) (337) (319) 56 (436)
-------- -------- -------- -------- --------
Income before income taxes and minority
interest.................................. 7,730 6,370 9,416 6,268 11,183
Income tax expense.......................... 3,214 2,614 2,787 2,196 2,222
-------- -------- -------- -------- --------
Income before minority interest............. 4,516 3,756 6,629 4,072 8,961
Minority interest in net income of
majority-owned subsidiaries(2)............ 282 518 408 225 --
-------- -------- -------- -------- --------
Net income.................................. $ 4,234 $ 3,238 $ 6,221 $ 3,847 $ 8,961
======== ======== ======== ======== ========
Other Data:
EBITDA(3)................................... $ 12,798 $ 16,098 $ 22,774 $ 20,837 $ 32,264
Ratio of earnings to fixed charges(4)....... 3.9x 2.1x 2.2x 1.8x 1.7x
Depreciation and amortization............... $ 2,981 $ 4,509 $ 6,867 $ 7,473 $ 7,248
Capital expenditures........................ 8,821 9,706 8,594 5,815 4,749
Balance Sheet Data (at end of period):
Cash and cash equivalents................... $ 1,578 $ 3,368 $ 4,462 $ 5,141 $ 5,379
Working capital (deficit)................... (5,021) (6,770) (2,883) 78,318 71,089
Total assets................................ 72,490 118,524 128,286 135,165 131,357
Total long-term debt, including capital
leases.................................... -- 217 737 134,294 115,139
Total stockholders' equity (deficit)(5)..... 8,249 11,487 17,708 (24,991) (15,389)
- -------------------------
(1) Includes approximately $6.9 million of incremental compensation expense
which was paid to certain executives in conjunction with the 1997
Transactions (as defined).
(2) In May and June, 1997, Holmes repurchased the shares held by 30% minority
stockholders in one of Holmes' subsidiaries for a total of $900,000.
(3) EBITDA represents income before interest expense, income tax expense,
depreciation and amortization and the minority interest in net income of
majority-owned subsidiaries. EBITDA is presented because it is a widely
accepted measure to provide
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information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operations or other income or cash flow data
prepared in accordance with generally accepted accounting principles, or as
a measure of a company's profitability or liquidity. Additionally, Holmes'
calculation of EBITDA may differ from that performed by other companies,
and thus the amounts disclosed may not be directly comparable to those
disclosed by other companies.
(4) For purposes of determining the ratio of earnings to fixed charges, earnings
represent income before income taxes and minority interest, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness plus
a portion of rental payments on operating leases that is considered
representative of the interest factor. After giving pro forma effect to the
Transactions, the Company's ratio of earnings to fixed charges would have
been 1.0x for the year ended December 31, 1998.
(5) Total stockholders' deficit as of December 31, 1997 and December 31, 1998
reflects a reduction attributable to Holmes' 1997 recapitalization. See Note
8 of Notes to Holmes' Consolidated Financial Statements incorporated by
reference herein.
THE RIVAL COMPANY
The following selected historical financial data of Rival for the fiscal
years ended June 30, 1994, 1995, 1996, 1997 and 1998 have been derived from
Rival's audited Consolidated Financial Statements; such Consolidated Financial
Statements for the fiscal years ended June 30, 1997 and 1998 are included or
incorporated by reference in this Prospectus. The selected historical financial
data for the six months ended December 31, 1997 and 1998 have been derived from
Rival's unaudited Condensed Consolidated Financial Statements included or
incorporated by reference in this Prospectus. In the opinion of management,
these unaudited Condensed Consolidated Financial Statements include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations of Rival
for these periods. Due to the seasonality of operations and other factors, the
results of operations for interim periods are not necessarily indicative of
results that may be expected for the full year. The following information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Rival's Consolidated Financial
Statements, including the notes thereto, included or incorporated by reference
in this Prospectus.
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
Income Statement Data:
Net sales............. $229,233 $231,711 $313,864 $376,465 $376,919 $224,549 $194,899
Cost of sales......... 162,703 168,406 230,207 278,455 281,043 164,799 146,583(3)
-------- -------- -------- -------- -------- -------- --------
Gross profit........ 66,530 63,305 83,657 98,010 95,876 59,750 48,316
Selling, general and
administrative
expenses............ 37,483 34,461 50,561 63,809 63,251 34,934 33,004
Restructuring
expenses............ -- -- -- 3,000(1) -- -- 5,052(3)
Amortization of
goodwill and other
intangible assets... 1,635 1,774 2,432 3,069 2,894 1,485 1,370
-------- -------- -------- -------- -------- -------- --------
Operating income...... 27,412 27,070 30,664 28,132 29,731 23,331 8,890
46
49
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
Interest expense...... 4,113 4,216 7,117 10,081 10,099 5,459 5,208
Other (income)
expenses............ 205 120 295 21 3,875(2) (92) 364
-------- -------- -------- -------- -------- -------- --------
Earnings before income
taxes............... 23,094 22,734 23,252 18,030 15,757 17,964 3,318
Income tax expense.... 8,777 8,749 9,013 7,345 6,550 6,801 1,570
-------- -------- -------- -------- -------- -------- --------
Net earnings........ $ 14,317 $ 13,985 $ 14,239 $ 10,685 $ 9,207 $ 11,163 $ 1,748
======== ======== ======== ======== ======== ======== ========
JUNE 30, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
Balance Sheet Data:
Working capital........... $ 60,063 $ 60,293 $ 91,396 $ 84,819 $ 89,607 $ 97,643 $ 91,991
Total assets.............. 151,467 204,368 288,251 298,605 292,114 322,216 314,058
Long-term debt............ 46,000 42,000 88,000 84,000 78,000 84,000 78,000
Stockholders' equity...... 76,104 93,805 106,148 110,390 116,615 120,270 115,711
- -------------------------
(1) In fiscal 1997, Rival recorded a $3.0 million restructuring expense relating
to the closing of its Montreal, Quebec manufacturing, distribution and
administrative functions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of
Operations -- Rival."
(2) Other expense for fiscal 1998 includes $3.8 million of non-recurring
litigation expenses relating to litigation that was settled during such
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Rival."
(3) In the six months ended December 31, 1998, Rival recorded $8.4 million of
restructuring expenses ($3.3 million of which is reflected in cost of sales)
relating to the closing of three facilities in North Carolina and Indiana.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations -- Rival."
47
50
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
as of December 31, 1998 ("the Pro Forma Financial Statements") have been derived
by the application of pro forma adjustments to the combination of the historical
financial statements of each of Holmes and Rival included or incorporated by
reference in this Prospectus.
The pro forma combined condensed balance sheet assumes that the
Transactions took place December 31, 1998 and combines Holmes' December 31, 1998
audited balance sheet and Rival's unaudited December 31, 1998 balance sheet. The
pro forma combined condensed statements of operations assume that the
Transactions took place on January 1, 1998 and combine Holmes' audited statement
of operations for the year ended December 31, 1998, and Rival's unaudited
statement of operations for the year ended December 31, 1998.
The Pro Forma Financial Statements do not purport to represent what the
Company's financial position or results of operations would have actually been
had the Transactions in fact occurred on such dates, or to project results of
operations for any future period. The Pro Forma Financial Statements should be
read in conjunction with "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements of each of Holmes and Rival, including the notes thereto, included or
incorporated by reference in this Prospectus.
The Transactions, as previously defined, include the issuance of the Old
Notes, the receipt of the Equity Investment (as defined herein), initial
borrowings under the Credit Facility, the acquisition of Rival, the refinancing
of Rival's existing indebtedness, the refinancing of outstanding borrowings
under Holmes' former credit facility (the "Former Credit Facility") and the
payment of fees and expenses of the Transactions.
48
51
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT PAR VALUE)
ADJUSTMENTS
HOLMES RIVAL ---------------------------
DECEMBER 31, DECEMBER 31, FINANCING ACQUISITION PRO
1998(1) 1998(1) ADJUSTMENTS ADJUSTMENTS FORMA
------------ ------------ ----------- ----------- --------
ASSETS
Current assets:
Cash and cash equivalents................ $ 5,379 $ 579 $301,433(2) $ (301,433)(2) $ 5,958
Accounts receivable...................... 36,967 100,601 -- -- 137,568
Inventories.............................. 53,340 102,444 -- -- 155,784
Prepaid expenses and other current
assets................................. 2,027 1,859 -- 2,085(4) 5,971
Deferred income taxes.................... 4,983 2,314 -- -- 7,297
-------- -------- -------- ---------- --------
102,696 207,797 301,433 (299,348) 312,578
Property, plant & equipment.............. 15,752 37,022 -- (2,175)(4) 50,599
Assets held for sale..................... -- 5,031 -- -- 5,031
Deferred income taxes.................... 563 -- -- 3,182(4) 3,745
Goodwill................................. -- 59,299 -- 23,635(4) 82,934
Deposits and other assets................ 3,174 4,661 -- 1,100(4) 8,935
Debt issuance costs, net................. 9,172 248 12,000(2) (248)(4) 20,134
(1,038)(3)
-------- -------- -------- ---------- --------
$131,357 $314,058 $312,395 $ (273,854) $483,956
======== ======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.................... $ -- $ 78,090 $ -- $ (78,090)(2) $ --
Current portion of long-term debt........ -- 6,000 3,200(2) (6,000)(2) 3,200
Current portion of capital leases........ 604 -- -- -- 604
Accounts payable......................... 15,004 14,821 -- -- 29,825
Accrued expenses......................... 12,292 15,434 -- 4,030(4) 31,756
Deferred tax liabilities................. -- -- -- 573(4) 573
Accrued income taxes..................... 3,707 1,461 (415)(3) -- 4,753
-------- -------- -------- ---------- --------
31,607 115,806 2,785 (79,487) 70,711
Capital lease obligations................ 139 -- -- -- 139
Line of credit........................... 10,000 -- (10,000)(2) -- --
Long-term debt (less current portion).... 105,000 78,000 270,233(2) (78,000)(2) 375,233
Other liabilities and deferred income
tax.................................... -- 4,541 -- (656)(4) 3,885
-------- -------- -------- ---------- --------
146,746 198,347 263,018 (158,143) 449,968
Commitments & contingencies.............. -- -- -- -- --
Stockholders' equity:
Common stock, $.001 par.................. 10 -- 50(2) -- 60
Common stock, $.01 par................... -- 98 -- (98)(5) --
Paid in capital.......................... 16,985 45,972 49,950(2) (45,972)(5) 66,935
Accumulated other comprehensive income... (40) (316) -- 316(5) (40)
Treasury stock, at cost.................. (62,058) (6,952) -- 6,952(5) (62,058)
Retained earnings........................ 29,714 76,909 (623)(3) (76,909)(5) 29,091
-------- -------- -------- ---------- --------
Total stockholders' equity (deficit)..... (15,389) 115,711 49,377 (115,711) 33,988
-------- -------- -------- ---------- --------
$131,357 $314,058 $312,395 $ (273,854) $483,956
======== ======== ======== ========== ========
49
52
NOTES TO THE UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
BASIS OF PRESENTATION
(1) The pro forma combined condensed balance sheet assumes that the Transactions
took place December 31, 1998 and combines Holmes' audited December 31, 1998
balance sheet and Rival's unaudited December 31, 1998 balance sheet.
PRO FORMA ADJUSTMENTS
(2) Reflects the issuance of the Old Notes, initial borrowings under the Credit
Facility, the funding of the Equity Investment (as defined herein), the
repayment of the Former Credit Facility and all of Rival's indebtedness and
the related adjustments to cash assuming consummation of the Transactions as
of December 31, 1998, computed as follows:
FINANCING ACQUISITION TOTAL
--------- ----------- ---------
Sources of Funds:
Initial borrowings under Credit
Facility -- long term..................... $240,233 $ -- $ 240,233
Initial borrowings under Credit
Facility -- short term.................... 3,200 -- 3,200
Issuance of the Old Notes................... 30,000 -- 30,000
Issuance of common stock.................... 50,000 -- 50,000
-------- --------- ---------
323,433 323,433
Use of Funds:
Repayment of existing Rival credit
facility.................................. -- (78,090) (78,090)
Repayment of existing Rival notes -- long
term...................................... -- (78,000) (78,000)
Repayment of existing Rival notes -- short
term...................................... -- (6,000) (6,000)
Repayment of the Former Credit Facility..... (10,000) -- (10,000)
Redemption of Rival common stock............ -- (127,796) (127,796)
Redemption of certain Rival options......... -- (1,565) (1,565)
Prepayment premium on Rival debt............ -- (6,012) (6,012)
Accrued interest at December 31, 1998....... -- (1,970) (1,970)
Estimated fees and expenses................. (12,000) (2,000) (14,000)
-------- --------- ---------
(22,000) (301,433) (323,433)
-------- --------- ---------
Net adjustment to cash...................... $301,433 $(301,433) $ --
======== ========= =========
Short-term debt incurred under the Credit Facility is comprised of $2,800 on
Term Loan A and $400 on Term Loan B, which are the total of quarterly payments
due under the Credit Facility within one year of December 31, 1998.
The above pro forma sources and uses of funds at December 31, 1998 reflect an
amount that is greater than the amount of Rival indebtedness actually refinanced
in connection
50
53
with the Acquisition on February 5, 1999, because the total debt to be repaid at
closing was $21.2 million higher at December 31, 1998 than at February 5, 1999.
(3) Reflects the write-off of $623 of debt issuance costs, net of $415 tax
benefit, related to the Holmes debt extinguished in connection with the
Transactions. This amount has not been included in the pro forma combined
condensed statements of operations due to its extraordinary nature.
(4) Reflects management's preliminary allocation of purchase price for the
Acquisition in accordance with the purchase method of accounting, as
follows:
PURCHASE PRICE:
Cash used to purchase shares and options................... $129,361
Retirement of Rival indebtedness........................... 162,090
Prepayment premium on debt................................. 6,012
Accrued interest on debt................................... 1,970
Estimated fees and expenses................................ 2,000
--------
$301,433
========
RIVAL PRO
DECEMBER 31, 1998 ADJUSTMENTS FORMA
----------------- ----------- --------
Cash and cash equivalents..... $ 579 $ -- $ 579
Accounts receivable........... 100,601 -- 100,601
Inventories................... 102,444 -- 102,444
Deferred income taxes......... 2,314 -- 2,314
Prepaid expenses and other
current assets.............. 1,859 2,285(a) 3,944
(200)(b)
-------- --------- --------
Total current assets........ 207,797 2,085 209,882
Property, plant & equipment... 37,022 (2,175)(c) 34,847
Assets held for sale.......... 5,031 -- 5,031
Deferred income taxes......... -- 3,182(d) 3,182
Deposits and other assets..... 4,661 1,100(e) 5,761
Debt Issuance Costs, net...... 248 (248)(f) --
Goodwill...................... 59,299 23,635(g) 82,934
-------- --------- --------
Total assets................ 314,058 27,579 341,637
Current portion of long-term
debt........................ 84,090 (84,090)(h) --
Accounts payable.............. 14,821 -- 14,821
Accrued expenses.............. 15,434 (1,970)(i) 19,464
6,000(j)
Deferred tax liabilities...... -- 573(d) 573
Accrued income taxes.......... 1,461 -- 1,461
-------- --------- --------
Total current liabilities... 115,806 (79,487) 36,319
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54
RIVAL PRO
DECEMBER 31, 1998 ADJUSTMENTS FORMA
----------------- ----------- --------
Long-term debt (less current
portion).................... 78,000 (78,000)(h) --
Other liabilities and deferred
income tax.................. 4,541 (656)(k) 3,885
-------- --------- --------
Total liabilities........... 198,347 (158,143) 40,204
-------- --------- --------
Net assets acquired......... $115,711 $ 185,722 $301,433
======== ========= ========
- -------------------------
(a) Reflects the current tax benefits related to the prepayment premium on the
extinguished debt of Rival.
(b) Reflects the write-off of prepaid assets forfeited/terminated in connection
with the acquisition.
(c) Reflects the write-off of fixed assets with no value subsequent to the
acquisition as a result of decisions made by the acquiring company to
discontinue certain product lines.
(d) Reflects adjustments to deferred income taxes in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, as a
result of adjustments made to historical assets and liabilities in
connection with the purchase price.
(e) Reflects adjustment to revalue pension plan assets and liabilities at the
acquisition date.
(f) Reflects the write-off of deferred financing fees relating to the debt that
has been extinguished in the Transactions.
(g) Reflects the excess purchase price over the fair value of net assets
acquired based on a preliminary purchase price allocation.
(h) Reflects the reduction in current and long-term debt repaid in connection
with the Transactions.
(i) Reflects the payment of $1,970 in accrued interest paid in connection with
the Transactions.
(j) Reflects a $6,000 estimate of accrued restructuring charges to be incurred
in connection with the Acquisition.
(k) Reflects the elimination of an unrealized gain on a swap transaction
previously entered into by Rival.
(5) Reflects the elimination of Rival's historical common stock, additional paid
in capital and retained earnings accounts in connection with the
Acquisition.
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55
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
RIVAL
TWELVE
HOLMES MONTHS ADJUSTMENTS
YEAR ENDED ENDED --------------------------
DECEMBER 31, DECEMBER 31, FINANCING ACQUISITION PRO
1998(1) 1998(1) ADJUSTMENTS ADJUSTMENTS FORMA
------------ ------------ ----------- ----------- --------
Net sales..................... $214,479 $347,269 $ -- $ -- $561,748
Costs of goods sold........... 146,509 259,494 -- -- 406,003
Cost of goods sold --
restructuring............... -- 3,333 -- -- 3,333
-------- -------- -------- ---- --------
Gross profit................ 67,970 84,442 -- -- 152,412
Restructuring................. -- 5,052 -- -- 5,052
Selling, general and
administrative expenses..... 43,390 64,100 -- 106(4) 107,596
-------- -------- -------- ---- --------
Operating profit............ 24,580 15,290 -- (106) 39,764
Other (income) expense:
Interest expense, net....... 13,833 9,848 12,150(2) -- 35,831
Other (income) expense,
net....................... (436) 4,331 -- -- 3,895
-------- -------- -------- ---- --------
Income (loss) before taxes
and minority interest..... 11,183 1,111 (12,150) (106) 38
Income tax expense
(benefit)................... 2,222 1,319 (3,541)(3) -- --
-------- -------- -------- ---- --------
Net income (loss)........... 8,961 (208) (8,609) (106) 38
======== ======== ======== ==== ========
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56
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(IN THOUSANDS)
BASIS OF PRESENTATION
(1) The pro forma statements of operations assume the Transactions took place as
of January 1, 1998 and combine Holmes' statements of operations for the year
ended December 31, 1998 and Rival's unaudited statements of operations for
the year ended December 31, 1998.
Rival operates on a June 30 fiscal year end. Accordingly, Rival's twelve
month period ended December 31, 1998 has been derived by combining the
unaudited results for the quarters ended March 31, June 30, September 30,
and December 31, 1998.
The pro forma provision for income taxes may not represent the amounts that
would have resulted had Holmes and Rival filed consolidated income tax
returns during the period presented.
(2) Reflects adjustments to interest expense on debt incurred in connection with
the Transactions in excess of historical interest expense assuming
consummation of the Transactions on January 1, 1998, computed as follows:
YEAR ENDED
DECEMBER 31,
1998
------------
Interest expense on the Old Notes, including discount
amortization.......................................... $ 3,192
Interest expense on $40,000 Term Loan A at a LIBOR
based rate + 3.0%.................................. 3,200
Interest expense on $85,000 Term Loan B at a LIBOR
based rate + 3.5%.................................. 7,225
Interest expense on remaining Credit Facility
borrowings at a LIBOR based rate + 3.0%............ 9,061
Commitment fee of 0.5% on unused availability under
the Credit Facility................................ 434
Amortization of deferred financing costs.............. 1,500
-------
Net increase in interest expense...................... 24,612
Elimination of historical interest expense (Holmes)... (2,254)
Elimination of historical interest expense (Rival).... (9,848)
Amortization of historical deferred financing costs
(Holmes)........................................... (276)
Amortization of historical deferred financing costs
(Rival)............................................ (84)
-------
Net increase in interest expense...................... $12,150
=======
A 0.125% increase in the interest rate under the Credit Facility would
increase interest expense by $300, for the year ended December 31, 1998.
(3) Reflects the income tax benefits generated on the pro forma interest expense
and the write-off of the existing Rival deferred financing costs as a result
of the Transactions at an assumed rate of 30%.
(4) Reflects incremental expense required to properly reflect amortization of
goodwill generated in the Acquisition based on an estimated useful life of
35 years.
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57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussions of the financial condition and results of
operations of Holmes and Rival should be read in conjunction with their
respective consolidated financial statements, including the notes thereto,
included or incorporated by reference in this Prospectus.
OVERVIEW
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. Holmes believes that it has the leading U.S. market share in each of
these product categories, which, in the aggregate, accounted for approximately
93% of Holmes' net sales for the year ended December 31, 1998. In addition,
Holmes markets and distributes a variety of decorative and home office lighting
products, as well as various replacement filters and accessories for its
products. Holmes believes that its strong market position and success are
attributable to its continuous product innovation, engineering and manufacturing
expertise, close customer partnerships, breadth of product offerings and
reputation for quality.
Holmes completed a recapitalization transaction in November, 1997, in which
it issued $105 million of senior subordinated notes due in November, 2007,
bearing interest at 9 7/8%, and entered into a $100 million line of credit
facility, of which approximately $27.5 million was initially drawn. The proceeds
of these borrowings were used to repay all existing indebtedness (primarily a
line of credit and other current debt facilities) and redeem a significant
portion of the previous majority shareholder's common stock (collectively, the
"1997 Transactions"). Accordingly, commencing in November, 1997, the Company had
a significantly higher level of borrowing and a corresponding higher level of
interest expense than in the past. The Rival acquisition (the "Acquisition") and
the related financing transactions consummated on February 5, 1999 further
increased the Company's indebtedness and will further increase interest expense
substantially.
Rival is a leading designer, manufacturer and marketer of a variety of
products including small kitchen appliances, such as Crock-Pot(R) slow cookers
and can openers; products for the home environment, such as heaters, air
purifiers, showerheads, utility pumps, humidifiers and fans; and building supply
and industrial products, such as household ventilation systems, door chimes,
ceiling fans and industrial fans. Rival markets its products under a variety of
well known brand names, including Rival, Crock-Pot(R), Bionaire, Pollenex,
Patton, Simer and White Mountain. Holmes believes that Rival has the leading
market share in slow cookers and enjoys a leading market share in several of its
other product categories.
Holmes believes that, following a transition period for the integration of
certain of Holmes' and Rival's operations, the Company will be able to achieve
substantial annual cost savings as compared with the companies' existing
operations. Holmes estimates that cost savings of at least $5.1 million per year
can be achieved by sourcing components and manufacturing certain of Rival's
products through Holmes' Far East operations. These potential cost savings would
require relatively little integration of the two companies' operations. Holmes
also estimates that Rival's previously announced restructuring involving the
closing of three facilities in Indiana and North Carolina will result in cost
savings of approximately $4.4 million per year. Finally, Holmes believes that
additional cost savings may be realized through consolidation of certain of the
companies' selling, general and administrative functions.
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58
In addition to the $7.7 million restructuring charge incurred by Rival
during the quarter ended September 30, 1998, and a further charge of
approximately $0.7 million during the quarter ended December 31, 1998, the
Company anticipates that additional related one-time facility closing costs of
approximately $2.2 million will be incurred during 1999. Cash expenditures in
connection with the restructuring are expected to be approximately $4.0 million.
The Company anticipates that it will incur additional non-recurring
integration costs of approximately $6.5 million in the aggregate during 1999 and
2000 in connection with the Acquisition, primarily for integration of the
companies' operations, integration consulting assistance and other related
costs. In addition, management believes that there may be incremental annual
integration expenses, as well as capital expenditures such as computer systems
upgrades, which the Company will incur during 1999 and in future periods in
order to more fully realize the benefits of the Acquisition.
THE FOREGOING DISCUSSION OF POTENTIAL COST SAVINGS, RESTRUCTURING CHARGES
AND EXPENDITURES IS FORWARD-LOOKING IN NATURE AND IS BASED ON A NUMBER OF
ASSUMPTIONS, JUDGMENTS AND ESTIMATES. ACTUAL RESULTS WILL LIKELY DIFFER FROM
THOSE DESCRIBED HEREIN, POSSIBLY TO A MATERIAL EXTENT. SEE "RISK FACTORS."
RESULTS OF OPERATIONS
HOLMES
Holmes' historical results of operations discussed below do not include
Rival's results of operations. The Acquisition will be accounted for as a
purchase, and Rival's results of operations will be included in the Company's
financial information in future periods.
Comparison of Years Ended December 31, 1998 and December 31, 1997
NET SALES. Net sales for fiscal 1998 were $214.5 million compared to
$192.2 million for fiscal 1997, an increase of $22.3 million or 11.6%. This
increase was attributable to an increase in all of the major product categories:
fans, heaters, humidifiers and air purifiers, which resulted from a strong 1998
for retailers, as well as continued growth in filter and accessory sales due to
the growing installed base of products requiring filters and accessories. The
Company's Far East operations also had a significant increase in external sales
versus 1997.
GROSS PROFIT. Gross profit for fiscal 1998 was $68.0 million compared to
$55.4 million for fiscal 1997, an increase of $12.6 million or 22.7%. As a
percentage of net sales, gross profit increased to 31.7% for fiscal 1998 from
28.8% for fiscal 1997. The increase was primarily due to the above mentioned
increases in net sales in humidifiers, heaters and filters and accessories which
are relatively higher margin contributors, as well as continued reductions in
raw material prices at the Company's manufacturing operations in the Far East.
SELLING EXPENSES. Selling expenses for fiscal 1998 were $20.5 million
compared to $15.6 million for fiscal 1997, an increase of $4.9 million or 31.4%.
As a percentage of net sales, selling expenses increased to 9.6% for fiscal 1998
from 8.1% for fiscal 1997. The increase in selling expenses was primarily due to
an increase in co-operative advertising of higher margin products and new sales
promotions with several major retailers. To a lesser extent, shipping costs
increased as a result of the higher sales level. Also, there were continued
expenses associated with the redesign of some of the Company's product
packaging.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for fiscal 1998 were $16.6 million compared to $20.9 million for fiscal 1997, a
decrease of $4.3
56
59
million or 20.6%. As a percentage of net sales, general and administrative
expenses decreased to 7.7% for fiscal 1998 from 10.9% for fiscal 1997. The
higher amount in 1997 resulted from incremental incentive compensation expenses
paid in connection with the 1997 Transactions. This overall decrease was offset
in part by increased expenditures on management and information systems support,
increases in personnel costs to improve operating efficiencies at all the
Company's locations and ongoing expenses associated with the recapitalization of
the Company in November, 1997.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for fiscal 1998
were $6.3 million compared to $5.5 million for fiscal 1997, an increase of $.8
million or 14.6%. As a percentage of net sales, product development expenses
remained constant at 2.9% for fiscal 1998 and 1997. The increase was primarily
due to increased expenditures for royalties and outside consultants as part of
the Company's continuing effort in developing new technologies for both existing
and new product lines.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net for
fiscal 1998 was $13.4 million compared to $7.2 million for fiscal 1997, an
increase of $6.2 million or 86.1%. The increase in interest expense was
primarily due to the additional borrowings resulting from the recapitalization
of the Company in November, 1997. The Company's interest expense in future
periods will be higher than 1998 as a result of the Rival acquisition.
INCOME TAX EXPENSE. In 1997, the Company recorded a $3.6 million valuation
allowance related to deferred tax assets generated as a result of certain
limitations on the deductibility of interest paid to Pentland. This 1997
non-recurring charge comprises the majority of the 15% change in the Company's
effective tax rate from 35% in 1997 to 20% in 1998.
NET INCOME. As a result of the foregoing factors, net income for fiscal
1998 was $9.0 million, compared to net income of $3.8 million in fiscal 1997.
Comparison of Years Ended December 31, 1997 and December 31, 1996
NET SALES. Net sales for fiscal 1997 were $192.2 million compared to
$194.3 million for fiscal 1996, a decrease of $2.2 million or 1.1%. The decrease
in net sales was primarily due to a reduction in sales of $10.9 million of
dehumidifiers and air conditioners resulting from a strategic management
decision to reduce dehumidifier volume and eliminate the air conditioner
category because of the relatively low profit margins of these product lines. In
addition, an increase in sales of heaters was offset by decreases in sales of
fans, air purifiers and lighting products.
GROSS PROFIT. Gross profit for fiscal 1997 was $55.4 million compared to
$48.4 million for fiscal 1996, an increase of $7.0 million or 14.5%. As a
percentage of net sales, gross profit increased to 28.8% for fiscal 1997 from
24.9% for fiscal 1996. The increase in gross profit is attributable, in large
part, to the factors described above. In addition, air purifier filter and
humidifier filter sales, which generate relatively high gross profit margins,
increased significantly for the year ended December 31, 1997 as compared to the
year ended December 31, 1996.
SELLING EXPENSES. Selling expenses for fiscal 1997 were $15.6 million
compared to $13.2 million for fiscal 1996, an increase of $2.4 million or 18.3%.
As a percentage of net sales, selling expenses increased to 8.1% for fiscal 1997
from 6.8% for fiscal 1996. The increase in selling expenses was primarily due to
an increase in co-operative advertising of higher margin products with a number
of major retailers.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for fiscal 1997 were $20.9 million compared to $14.1 million for fiscal 1996, an
increase of $6.8 million or 48.3%. As a percentage of net sales, general and
administrative expenses increased to 10.9% for fiscal 1997 from 7.2% for fiscal
1996. The increase in general and administrative expenses was primarily due to
approximately $6.9 million of incremental incentive compensation expenses paid
in connection with the closing of the 1997 Transactions. These incentive
compensation amounts were deducted from the purchase price of the capital stock
in the 1997 Transactions. In addition, general and administrative expenses
increased due to additional management and information systems support to
improve operating efficiencies at the Company's manufacturing facilities in
China.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for fiscal 1997
were $5.4 million compared to $5.5 million for fiscal 1996, a decrease of $.1
million or 0.1%. As a percentage of net sales, product development expenses
remained relatively constant at 2.9% and 2.8% for fiscal 1997 and 1996,
respectively.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net for
fiscal 1997 was $7.2 million compared to $6.2 million for fiscal 1996, an
increase of $1.0 million or 15.9%. The increase in interest expense was
primarily due to the additional borrowings resulting from the 1997 Transactions,
which were outstanding for one month in 1997. On a pro forma basis, giving
effect to the 1997 Transactions as if they had occurred on January 1, 1997,
interest expense would have been approximately $14.3 million.
INCOME TAX EXPENSE. The Company's effective tax rate increased to 35.0% of
pre-tax income for fiscal 1997 from 29.6% of pre-tax income for fiscal 1996. The
increase in the effective tax rate was principally a result of limitations
placed on the Company's ability to deduct for tax purposes approximately $3.6
million of interest paid to or guaranteed by the Company's former majority
stockholder, Pentland Group plc ("Pentland") and its affiliates. This was offset
by an increase in profitability of the Company's manufacturing operations in
China, which are taxed at significantly lower rates than the Company's U.S.
operations. While the interest limitation may be carried forward indefinitely,
because of the Company's current highly leveraged structure it is uncertain
whether the Company will be able to deduct this amount in the future. Therefore,
management has recorded a valuation allowance on the entire amount of deferred
tax asset arising from this carryforward, which has the impact of increasing the
effective tax rate. This limitation primarily arose as a result of the incentive
compensation expenses described above. The Company had no such limitation in
previous years, and because interest is no longer paid to foreign affiliates,
this limitation is not expected to be applicable in the future. If the Company
is able to utilize this deduction, it will reduce income tax expense in future
years.
NET INCOME. As a result of the foregoing factors, net income for fiscal
1997 was $3.8 million, compared to net income of $6.2 million in fiscal 1996.
RIVAL
Three and Six Month Periods Ended December 31, 1998 Compared to Three and Six
Month Periods Ended December 31, 1997
NET SALES. Net sales were $114.8 million for the three months ended
December 31, 1998 compared to $127.9 million in the prior year. For the six
months ended December 31, 1998, sales were $194.9 million compared to $224.5
million for the six months ended December 31, 1997. Year to date sales declined
in each of Rival's business units. Kitchen electrics business unit sales
declined 7% as lower sales of novelty massagers and of opening price point
products in price sensitive categories such as toasters, mixers and irons more
than offset sales growth in the Crock-Pot(R) slow cooker category and strong
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sales of the Edge(TM) can opener. Home environment sales declined 23% due
primarily to reduced retail placement in seasonal products including heaters and
humidifiers. Sales of Rival's building products declined resulting in 9% lower
revenue levels in the industrial business unit. International sales declined by
26% due to mild weather in Canada adversely impacting humidifier sales and the
weak currencies in Eastern Europe and Latin America lowering shipments to these
regions.
GROSS PROFIT. Gross profit, excluding restructuring charges, was $31.2
million (27.1% of sales) for the three months ended December 31, 1998 compared
to $34.2 million (26.7% of sales) in the prior year. For the six months ended
December 31, 1998, gross profit, excluding restructuring charges, decreased to
$51.6 million (26.5% of sales) from $59.8 million (26.6% of sales) in the prior
year. Improved sales mix resulting from the higher volumes of Crock-Pot(R) slow
cookers and the Edge(TM) can openers together with lower sales of low priced
promotional products were sufficient to offset continued margin pressure caused
by the competitive environment. While gross margin dollars were lower, the
improved sales mix enabled Rival to record modest improvements in gross margins
as a percentage of sales for the second quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling expenses were $14.6
million (12.7% of sales) for the current quarter compared to $15.1 million
(11.8% of sales) in the prior year. For the first six months, selling expenses
were $26.8 million (13.7% of sales) compared to $28.1 million (12.5% of sales)
in the prior year. The higher selling expenses as a percentage of sales were
primarily due to spreading fixed costs over the smaller sales base. Commission
expense increased as a percentage of sales due to a higher percentage of total
sales made through independent sales representatives. General and administrative
expenses decreased 10% for the three and the six months periods, primarily due
to lower legal expenses.
RESTRUCTURING CHARGES. Rival recorded restructuring charges of $0.7
million (pretax) during the three months and $8.4 million for the six months
ended December 31, 1998 related to the closing of two manufacturing plants and
three distribution centers. The charges include $3.3 million in cost of sales to
recognize the cost of components in excess of their salvage value on products
being transferred to overseas manufacturers, together with inefficiencies
resulting from the announcement at plants scheduled for closure. The balance of
the $8.4 million charge represents estimated loss on disposal of properties
together with severance and other costs.
INTEREST EXPENSE. Interest expense for the six months ended December 31,
1998 declined from $5.5 million to $5.2 million due to a $4.0 million payment on
long-term debt and lower borrowings on Rival's revolving credit agreement.
OTHER NON-OPERATING EXPENSE. Other non-operating expense of $0.4 million
primarily represents losses from foreign currency exchange relative to the
Canadian dollar and the Mexican peso.
NET EARNINGS. Net earnings for the three months ended December 31, 1998
were $5.6 million compared to net earnings of $7.4 million in the prior year.
For the six month period, net earnings were $1.7 million compared to net
earnings of $11.2 million in the prior year. Excluding the after tax cost of
restructuring, in the amount of $0.4 million for the quarter and $5.2 million
for the six months, net earnings for the quarter and six month periods were $6.0
million and $6.9 million, respectively.
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
NET SALES. Net sales increased slightly from $376.5 million for the year
ended June 30, 1997 ("fiscal 1997") to $376.9 million for the year ended June
30, 1998 ("fiscal
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1998"). Sales of kitchen electrics increased 2% as strong sales of Rival's new
oval-shaped Crock-Pot(R) slow cooker more than offset lower sales of
promotionally priced toasters and novelty massagers. The international business
unit experienced 22% sales growth to $43.7 million due to improved placement of
kitchen electric products with Canadian retailers and increased fan sales into
Latin America. Sales in the home environment business unit declined 10% to
$104.9 million due to decreases in sales of Bionaire air purifiers and
humidifiers and Patton space heaters that more than offset a near doubling of
Pollenex showerhead sales. The sales declines were generally the result of
products that were nearing the end of their life cycles. Rival has introduced
new products in each of these categories for fiscal 1999. A similar investment
in new showerhead development resulted in the fiscal 1998 sales growth in this
category. Industrial sales declined slightly during fiscal 1998 as Rival
solidified its customer base through improved service during the year.
GROSS PROFIT. Gross profit was $95.9 million (25.5% of net sales) in
fiscal 1998 compared to $98.0 million (26.0% of net sales) in fiscal 1997. The
decline in gross margin was the result of a decrease in sales of high margin
novelty massagers together with increased manufacturing costs, in particular
higher labor rates, which were not accompanied by price increases. Rival is
transferring the production of some of its products to overseas sources and is
restructuring its manufacturing operations in an effort to reduce costs and
improve gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $63.3 million (16.8% of net sales) in fiscal
1998 compared to $63.8 million (16.9% of net sales) in fiscal 1997. The decline
was achieved despite an increase of $0.9 million in product development
spending. Legal and professional expenses also increased in fiscal 1998 due to
higher spending to protect Rival's intellectual property. These increases were
more than offset by savings generated from consolidation of administrative
functions in Canada, lower advertising expenditures and a decline in fixed
selling expenses from reducing the size of the direct sales force.
RESTRUCTURING CHARGE. A restructuring charge of $3.0 million was
recognized in fiscal 1997 as a result of the decision to close the Montreal,
Canada production and shipping facility together with the consolidation of
certain Canadian administrative functions.
INTEREST EXPENSE. Interest expense was $10.1 million in both fiscal 1998
and fiscal 1997. Total average borrowings were $150 million in fiscal 1998, down
slightly from $154 million in the prior year. The decline in borrowings was
offset by a small increase in average interest rates.
OTHER NON-OPERATING EXPENSE. During fiscal 1998, Rival recognized a
litigation charge of $3.8 million related to the settlement of a lawsuit in
Montreal. The litigation resulted from an action taken by minority shareholders
of Biotech Electronics, Inc., which was a predecessor to Bionaire. The lawsuit
originated in 1985 (over 10 years prior to the acquisition of Bionaire by
Rival). In January 1998, the Canadian Court of Appeal affirmed a lower court
decision and substantially increased the damages awarded to the plaintiffs. In
the settlement reached by Rival in June 1998, the plaintiffs dropped all actions
against Rival and released Rival and its affiliates from any further liability.
INCOME TAXES. Effective income tax rates were 41.6% in fiscal 1998
compared to 40.7% in fiscal 1997. The statutory rate was 35% in each year. The
difference between the statutory rate and the effective rate is primarily due to
non-deductible amortization of goodwill recorded as a result of the 1986
acquisition of Rival and the 1996 acquisition of Bionaire. Additional
differences arise due to state income taxes and differences between the rate of
taxation between Rival's U.S. and international operations. Additionally, in
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fiscal 1998, a portion of the Canadian litigation loss was non-deductible, which
resulted in the higher effective tax rate.
NET EARNINGS. Net earnings were $9.2 million in fiscal 1998 compared to
$10.7 million in fiscal 1997 due to the lower gross margins and the litigation
charge discussed above. Excluding the fiscal 1998 Canadian litigation charge and
the fiscal 1997 Canadian restructuring charge, net earnings were $12.2 million
in fiscal 1998 compared to $12.8 million in fiscal 1997.
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
NET SALES. Net sales increased $62.6 million to $376.5 million for fiscal
1997 compared to $313.9 million for the year ended June 30, 1996 ("fiscal
1996"). The acquisitions of Fasco, Bionaire and Dazey between January 1996 and
January 1997 contributed $64.1 million in incremental sales. Excluding these
acquired businesses, sales in the kitchen electrics business unit increased
approximately $3.5 million or two percent due to new product introductions in
the iron and massager categories. Industrial sales were adversely affected by a
$4.0 million decrease in sales of fans and drum blowers due to unusually mild
weather. The growth in the home environment and international business units was
generally consistent with incremental sales from the Fasco and Bionaire
acquisitions.
GROSS PROFIT. Gross profit was $98.0 million (26.0% of net sales) in
fiscal 1997 compared to $83.7 million (26.7% of net sales) in fiscal 1996. The
decline in gross margins was the result of unfavorable manufacturing variances
caused by excess plant capacity together with high service returns from retail
customers. The under-utilization in manufacturing was the result of recent
acquisitions and resulted in the closing of two plants in Montreal, Canada, and
in Peru, Indiana. Additionally, production in the Sweet Springs, Missouri, plant
was significantly curtailed as the facility is now being used as a centralized
return center to more effectively process and inspect customer returns.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $63.8 million (16.9% of net sales) in fiscal
1997 compared to $50.6 million (16.1% of net sales) in fiscal 1996. Selling
expenses increased as a percentage of net sales from 12.7% to 13.4%. The higher
expenses as a percentage of net sales are due, in part, to the full year impact
of the international and industrial sales contributed by the Bionaire and Fasco
acquisitions. Selling expenses of these two business units are higher as a
percentage of sales than the kitchen electrics and home environment business
units. Distribution expenses also increased as a percentage of net sales due to
inefficiencies caused by congestion in the Clinton, Missouri, distribution
center. A new distribution center was opened in July 1997 in Sedalia, Missouri,
in order to increase shipping capacity and improve efficiency. General and
administrative expenses were $13.5 million (3.6% of net sales) in fiscal 1997
compared to $10.7 million (3.4% of net sales) in fiscal 1996. Costs incurred by
the product engineering group were $3.8 million in fiscal 1997 compared to $2.7
million in fiscal 1996 as Rival increased its spending on product development.
Other general and administrative costs increased at rates consistent with the
sales growth.
RESTRUCTURING CHARGE. A restructuring charge of $3.0 million was
recognized in fiscal 1997 as a result of the decision to close the Montreal,
Canada, production and shipping facility together with the consolidation of
certain Canadian administrative functions. The Montreal facility was acquired as
part of the Bionaire acquisition in April 1996. The closing reflects efforts by
Rival to reduce its excess plant capacity. The restructuring cost
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reflects the estimated cost of future lease obligations in excess of projected
sublease income as well as severance costs.
INTEREST EXPENSE. Interest expense was $10.1 million in fiscal 1997
compared to $7.1 million in fiscal 1996. Total average borrowings increased from
$106 million to $154 million due to the three acquisitions made between January
1996 and January 1997 together with higher working capital requirements. Average
interest rates declined from 6.7% in fiscal 1996 to 6.4% in fiscal 1997 due to
lower rates on the revolving credit facility.
INCOME TAXES. Effective income tax rates were 40.7% in fiscal 1997
compared to 38.8% in fiscal 1996. The statutory rate was 35% in each year. The
difference between the statutory rate and the effective rate is primarily due to
nondeductible amortization of goodwill recorded as a result of the 1986
acquisition of Rival and the 1996 acquisition of Bionaire. Additional
differences arise due to state income taxes and differences between the rate of
taxation between Rival's U.S. and international operations. In fiscal 1997,
Rival's Canadian operations operated at a loss as a result of the aforementioned
restructuring charge. The tax benefit recognized by Rival on the Canadian loss
was below the U.S. statutory rate.
NET EARNINGS. Net earnings were $10.7 million in fiscal 1997 compared to
$14.2 million in fiscal 1996 due to the higher interest costs and the 1997
restructuring charge discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used for) Holmes' operations during fiscal 1998 and 1997
was $24.3 million and $(46.4) million, respectively. Cash provided by operations
in fiscal 1998 primarily reflected the Company's net income of $9.0 million and
increases in accrued expenses and accrued income taxes, and decreases in
accounts receivable and inventories, which were partially offset by increases in
prepaid expenses and other current assets and deposits and other assets. The
increase in accrued liabilities was due to the accrued interest on the long-term
debt, an increase in the accrual for advertising costs and increases in
commissions and duties payable. The $2.5 million increase in accrued income
taxes payable was primarily due to the higher profitability of the Company. The
decrease in inventory was mainly due to increased levels of warehouse shipments.
The increase in prepaid expenses and other current assets and deposits and other
assets was due to an increase in advertising credits arising from a transfer of
inventory to be used to purchase advertising media, merchandise or services.
Cash used for operations in 1997 primarily reflected the repayment of trade
acceptance and amounts due to affiliates in connection with the 1997
Transactions.
Cash (used for) provided by Holmes' financing activities for fiscal 1998
and 1997 was $(18.8) million and $53.3 million, respectively. Cash used for
financing activities in fiscal 1998 reflected the payback of borrowings under
the credit facility entered into as part of the 1997 Transactions. The cash
provided by financing activities in fiscal 1997 reflected borrowings for working
capital purposes under the previous line of credit from Pentland, the issuance
of long-term debt and common stock and the repurchase of treasury stock
associated with the 1997 Transactions.
Holmes' capital expenditures, including assets acquired under capital
leases, for fiscal 1998 and 1997 were $4.7 million and $5.8 million,
respectively, primarily for molds and tooling. The Company is also subject to
certain minimum royalty payment commitments
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under various license agreements. See Note 13 of Notes to Consolidated Financial
Statements incorporated by reference in this Prospectus.
The Company issued $105.0 million of 9 7/8% Senior Subordinated Notes due
November, 2007 (the "Notes") in November, 1997, and an additional $31.3 million
of Notes in February, 1999. The Notes are not redeemable at the Company's option
prior to November 15, 2002. Thereafter, the Notes are subject to redemption at
any time at the option of the Company, in whole or in part, at stated redemption
prices. Annual interest payments on the Notes are approximately $13.5 million.
The payment of principal and interest on the Notes is subordinated to the prior
payment in full of all senior debt of the Company, including borrowings under
the Credit Facility.
The Company entered into the Credit Facility in February, 1999. The Credit
Facility amended and restated the Company's prior $100 million credit facility.
The Credit Facility consists of a six-year tranche A term loan of $40.0 million,
an eight-year tranche B term loan of $85.0 million and a $200.0 million,
six-year revolving credit facility. The Credit Facility bears interest at
variable rates based on either the prime rate or LIBOR, at the Company's option,
plus a margin which, in the case of the tranche A term loan and the revolving
credit facility, varies depending upon certain financial ratios of the Company.
The Credit Facility, and the guarantees thereof by the Company's domestic
subsidiaries, are secured by substantially all of the Company's domestic and
certain foreign assets. The Credit Facility and the Notes Indentures include
certain financial and operating covenants, which, among other things, restrict
the ability of the Company to incur additional indebtedness, grant liens, make
investments and take certain other actions. The ability of the Company to meet
its debt service obligations will be dependent upon the future performance of
the Company, which will be impacted by general economic conditions and other
factors. See "Disclosure Regarding Forward-Looking Statements."
Following the closing of the Rival acquisition and the other Transactions
on February 5, 1999, the Company will fund its liquidity requirements with cash
flows from operations and borrowings under the Credit Facility. The Company's
primary liquidity requirements are for working capital and to service the
Company's indebtedness. The Company believes that existing cash resources, cash
flows from operations and borrowings under the Credit Facility will be
sufficient to meet the Company's liquidity needs for the foreseeable future.
SEASONALITY
HOLMES
Sales of most of Holmes' products follow seasonal patterns which affect
Holmes' results of operations. In general, Holmes' sales of fans and
dehumidifiers occur predominantly from January through June, and Holmes' sales
of heaters and humidifiers occur predominantly from July through December.
Although air purifiers, lighting products and accessories generally are used
year-round, the nature of these products tend to draw increased sales during the
winter months when people are indoors and, as a result, sales of these products
tend to be greatest in advance of the winter months from July through December.
In addition to the seasonal fluctuations in sales, Holmes experiences
seasonality in gross profit, as margins realized on fan products tend to be
lower than those realized on heater, humidifier and air purifier products. See
"Risk Factors."
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RIVAL
Certain of Rival's product lines are also seasonal, with sales of heaters
and humidifiers highest during the fall and winter, and ice cream freezers,
pumps and fans sold primarily during the spring or summer. In addition, a
significant percentage of the products sold by Rival are given as gifts and, as
such, sales volumes are higher in anticipation of the Christmas season. See
"Risk Factors."
YEAR 2000
The Year 2000 problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly read the Year 2000. If a system used by the Company or by a
third party fails because of the inability to properly read the Year 2000 date,
the results could have a material adverse effect on the Company. As described
below, Holmes and Rival have developed plans to address the possible exposures
related to their computer systems from the Year 2000. However, there can be no
assurance that such measures will be sufficient to avoid Year 2000-related
problems.
HOLMES
Holmes has identified its Year 2000 risk to be in two general categories:
Information Technology Systems, including Electronic Data Interchange Systems
("EDI"), and General Business Systems.
INFORMATION TECHNOLOGY SYSTEMS INCLUDING EDI. Holmes is currently in the
process of transitioning to Rival's computer software system. The system is
fully Year 2000 compliant, according to the vendor, and the Company anticipates
that it will be operational by the third quarter of 1999. In addition, all of
Holmes' computer hardware has been or is in the process of being tested for Year
2000 compliance. Those systems that fail will be upgraded or replaced during the
second quarter of 1999. As part of its transition to the Rival system, Holmes is
implementing a new EDI system that will be fully Year 2000 compliant to prevent
any interruption of data interchange from the many customers using this
platform. Holmes anticipates that this system will be completed during the
second quarter of 1999. Holmes intends to use both internal and external
resources to test, reprogram or replace the software and hardware for Year 2000
modifications. The total specific project costs are difficult to determine as
many of the upgrades and new implementations would have been made regardless of
the Year 2000 issue. The majority of project costs, related to the purchase of
hardware and software to meet both Year 2000 and company specific requirements,
will be capitalized. All other remaining project costs will be expensed during
1999 and 2000.
GENERAL BUSINESS SYSTEMS. Holmes' general business systems encompass the
following: telecommunications systems, departmental specific application
systems, machinery and equipment, building and utility systems and, finally,
third party vendors and service providers. Holmes has created a Year 2000
committee consisting of one member from each department. The committee is in the
final stages of reviewing all aspects of Holmes' business systems to determine
if they are Year 2000 compliant, and testing systems as necessary. This process
will continue through the second quarter of 1999.
Holmes has sent out a comprehensive questionnaire to all significant
customers and suppliers regarding their Year 2000 compliance. The questionnaires
that Holmes has received back to date have tended to provide only vague
assurances regarding Year 2000 matters, however. While Holmes intends to
carefully monitor its supplier risks, Holmes
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cannot fully control each supplier, and there can be no guarantee that a Year
2000 problem that may originate with a supplier will not materially adversely
affect Holmes. Holmes has not designed a specific contingency plan in the event
of a Year 2000 failure caused by a supplier or other third party, but is working
to identify issues as soon as possible. Finally, Holmes has determined that
products that it manufactures and sells have no exposure related to the Year
2000 issue.
RIVAL
INFORMATION TECHNOLOGY SYSTEMS INCLUDING EDI. Rival implemented its
current corporate computer system in 1995. The system is Year 2000 compliant,
according to the vendor, as confirmed by full systems testing performed on
August 8, 1998. The testing included rolling the date forward to January 15,
2000 and testing all function programs. The EDI system installation was
completed by September 30, 1998. Rival has used both internal and external
resources for testing. EDI transactions sets have been verified and registered
with the National Retailers Foundation. Rival believes that any additional
issues with computers will be limited to stand alone personal computers. The
upgrade of these computers is expected to be completed by June 30, 1999.
GENERAL BUSINESS SYSTEMS. Rival's business systems encompass the
following: telecommunications systems, machinery and equipment, building and
utility systems and third party vendors and service providers. Rival created a
cross-departmental Year 2000 committee in 1997. The committee reviewed all
aspects of Rival's business systems to determine if they are Year 2000
compliant. Any vendor supplying goods and/or services to Rival was required to
submit a letter stating their Year 2000 status. Rival has determined that
products that it manufactures and sells have no exposure to the Year 2000 issue.
ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income." This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements.
The Company has adopted Statement of Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
Statement requires an enterprise to report financial and descriptive information
about its reportable operating income. Operating segments are components that
are evaluated regularly by chief operating decision makers in deciding how to
allocate resources and in assessing performance. This Statement requires a
business enterprise to report a measure of segment profit or loss, certain
specific revenue and expense items (including interest, depreciation, and income
taxes), and segment assets. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. This Statement is required to be adopted in the Company's
fiscal year ending December 31, 2000. Management anticipates that, due to its
limited use of derivative instruments, the adoption of this Statement will not
have a significant effect on the Company's results of operations or its
financial position.
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BUSINESS
Except as otherwise noted, the historical financial and other information
set forth herein for the fiscal year ended December 31, 1998 and prior periods
relates only to the business and operations of Holmes Products Corp. and its
subsidiaries prior to the Rival acquisition, which occurred on February 5, 1999.
The Rival acquisition will be accounted for as a purchase, and Rival's results
of operations will be included in the Company's financial information in future
periods.
BACKGROUND OF THE COMPANY PRIOR TO THE RIVAL ACQUISITION
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. Holmes believes that it has the leading U.S. market share in each of
these product categories, which, in the aggregate, accounted for approximately
93% of Holmes' net sales for the fiscal year ended December 31, 1998. In
addition, Holmes markets and distributes a variety of decorative and home office
lighting products, as well as various replacement filters and accessories for
its products. Holmes believes that its strong market position and success are
attributable to its continuous product innovation, engineering and manufacturing
expertise, close customer partnerships, breadth of product offerings and
reputation for quality. From 1993 to 1998, Holmes' net sales increased from
$61.8 million to $214.5 million, a compound annual growth rate of 28.3%.
The Company's products are sold to consumers through major retail chains,
including mass merchants, do-it-yourself home centers, warehouse clubs, hardware
stores and national drugstore chains. Major customers in these channels include
Wal-Mart, Kmart, Target, Home Depot, Costco, BJ's Wholesale Club, TruServ
(formerly True Value and ServiStar) and Walgreens. Holmes believes that the
strength, scope and visibility of its retail account base provide a competitive
advantage with respect to brand recognition, access to shelf space and
penetration of the consumer market.
Holmes was founded in 1982 by its current Chief Executive Officer, Jordan
A. Kahn, an innovator in the home comfort market with over 30 years of industry
experience. Holmes opened its first manufacturing facility in China in 1989, and
currently operates two facilities in China where it manufactures its products
and electric motors for use in its products. The Company's vertically integrated
manufacturing facilities provide the Company with control over the production
process and product quality. These facilities also enhance operational
flexibility and allow the Company to quickly respond to changes in consumer
demand and to specialized production needs. The Company maintains offices in
Hong Kong and Taiwan that are responsible for sourcing raw materials, processing
orders and shipping the Company's products. The Company coordinates product
development, marketing, sales and distribution from the Company's Milford,
Massachusetts headquarters. The Company markets and distributes products
primarily under the Holmes(R) brand name. The principal executive offices of the
Company are located at 233 Fortune Boulevard, Milford, Massachusetts 01757 and
the telephone number is (508) 634-8050.
THE RIVAL COMPANY ACQUISITION
On December 17, 1998, Holmes entered into a definitive agreement to acquire
Rival. Pursuant to the Agreement and Plan of Merger (the "Merger Agreement")
among Holmes, Moriarty Acquisition Corp., a wholly owned subsidiary of Holmes
("Merger Sub"), and Rival, Holmes agreed to acquire all of Rival's outstanding
shares of common stock for $13.75 per share in cash, or an aggregate
consideration of approximately $129.4 million, including payments to the holders
of certain Rival stock options.
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Rival is a leading designer, manufacturer and marketer of a variety of
products including small kitchen appliances, such as Crock-Pot(R) slow cookers
and Rival can openers; products for the home environment, such as heaters, air
purifiers, showerheads, utility pumps, humidifiers and fans; and building supply
and industrial products, such as household ventilation systems, door chimes,
ceiling fans and industrial fans. Rival markets its products under a variety of
well known brand names, including Rival(R), Crock-Pot(R), Bionaire(R),
Pollenex(R), Patton(R), Simer(R), and White Mountain(R). Holmes believes Rival
has the leading market share for slow cookers and enjoys a leading market share
in several of its other product categories.
On February 5, 1999, Holmes and Merger Sub completed a cash tender offer
for all outstanding shares of common stock of Rival and purchased approximately
98.4% of Rival's common stock. Immediately following the tender offer, Merger
Sub was merged with and into Rival, with Rival surviving the merger as a wholly
owned subsidiary of Holmes (the "Rival Acquisition").
On January 29, 1999, in connection with the Rival Acquisition, the Company
offered and sold $31.3 million of 9 7/8% Senior Subordinated Notes due in
November 2007 (the "Offering").
In connection with the Rival Acquisition and the Offering, the Company
entered into a $325.0 million senior credit facility with BankBoston N.A. and a
syndicate of other lenders (the "Credit Facility"). In addition, Holmes sold
$50.0 million of common stock to investment funds affiliated with Berkshire
Partners LLC ("Berkshire Partners"), Holmes' majority stockholder, and to
certain other investors (the "Equity Investment"). The initial borrowings under
the Credit Facility together with the net proceeds of the Equity Investment and
Offering were used to consummate the Rival Acquisition and refinance Rival's
existing indebtedness of approximately $142.9 million. Holmes had no outstanding
borrowings under its existing credit facility at the closing of the Rival
Acquisition. The Rival Acquisition, the tender offer, the merger, the Offering,
the Equity Investment, the entering into and borrowings under the Credit
Facility and the refinancing of existing indebtedness of Rival are collectively
referred to herein as the "Transactions."
The following table sets forth the approximate sources and uses of funds in
connection with the Transactions ($ in millions):
SOURCES OF FUNDS: USES OF FUNDS:
- ----------------- --------------
Credit Facility(a)............ $213.1 Cash purchase price(b)........ $129.4
Refinance Rival
Issuance of the Notes......... 30.0 indebtedness(c)............... 142.9
Equity Investment............. 50.0 Fees and expenses(d).......... 20.8
------ ------
Total sources of funds...... $293.1 Total uses of funds........... $293.1
====== ======
- -------------------------
The above sources and uses of funds reflects the refinancing of actual
Rival debt at the closing date of the Transactions. This amount is $21.2 million
less than the amount shown as drawn in the pro forma sources and uses of funds
at December 31, 1998 due to the higher debt balances at that time.
(a) The Credit Facility provides for total availability of $325.0 million. See
"Description of Credit Facility."
(b) Includes payments to holders of shares of Rival common stock and holders of
certain Rival stock options.
(c) Includes accrued interest of $1.4 million.
(d) Includes prepayment premium on Rival debt of approximately $6.0 million.
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BUSINESS STRATEGY
The Company's strategy is to capitalize on Holmes' and Rival's core
strengths to achieve further growth in net sales, profitability and cash flow
by: (1) growing Rival's core kitchen franchise, (2) consolidating home
environment product lines, (3) penetrating new and existing distribution
channels, (4) improving the Company's overall cost structure and (5) expanding
geographically.
LEVERAGE CORE COMPETENCIES TO STRENGTHEN KITCHEN FRANCHISE. Holmes has
become a leader in the home comfort appliance market as a result of its
successful product innovations that meet consumer and customer needs, coupled
with its expertise in marketing and distribution. Rival has a long-standing
reputation as a leader in the small kitchen appliance market. Holmes believes
that combining its strengths with Rival's core kitchen franchise will enhance
growth in Rival's existing product lines and the development of new products.
LEVERAGE AND GROW BRANDS. The addition of Rival's home comfort brands
allows Holmes to increasingly differentiate its home comfort offerings among
customers and consumers. Through additional brands, the Company can offer a
step-up brand strategy for increased presence in both mass merchandise and other
distribution channels.
FURTHER PENETRATE EXISTING DISTRIBUTION CHANNELS. The Company believes
that it can further penetrate its existing distribution channels as a result of
favorable industry dynamics and Holmes' and Rival's strong relationships and
execution with mass merchant retailers. The Company believes that mass merchants
will continue to consolidate their vendor base and focus on a smaller number of
sophisticated suppliers that can (1) provide a broad array of differentiated,
quality products, (2) efficiently and consistently fulfill logistical
requirements and volume demands and (3) provide full product support from design
to category management, point-of-sale and after-market service with the
consumer.
DEVELOP NEW DISTRIBUTION CHANNELS. The Company continues to develop new
channels of distribution by providing customized product offerings that appeal
to the specific needs of each channel. For example, since 1996, Holmes has
marketed selected products through an arrangement with the QVC electronic
retailing network. Holmes has also partnered with Evenflo to market Holmes'
products under the Evenflo brand name and expand into the juvenile distribution
channel.
PURSUE TARGETED MARKETING OPPORTUNITIES. As part of its strategy, Holmes
enters into strategic alliances in order to promote awareness of its products.
For example, Holmes has developed a strategic marketing partnership with the
Brita Products Company, a subsidiary of Clorox Company, to market a humidifier
that integrates the Brita(R) water filter. Holmes also markets humidifiers and
filters with the Microban(R) anti-bacterial technology.
IMPROVE THE OVERALL COST STRUCTURE. Holmes, through its manufacturing
facilities in China and related Far East sourcing capabilities, is a low-cost,
high quality, flexible producer of appliance products. By applying these
capabilities to certain of Rival's products, along with Rival's two recent plant
closings, the Company believes it can reduce overall manufacturing costs.
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EXPAND INTO NEW GEOGRAPHIC REGIONS. The Company believes that the
European, Latin American and Asian home comfort markets are underdeveloped and
represent significant growth opportunities. As a result, Holmes has begun to
focus on marketing its products in these regions. Holmes currently sells its
products in Europe and Asia on a original equipment manufacturer basis and its
branded home comfort products in France. Rival has warehouse and distribution
facilities in Ontario, Canada and the Netherlands, as well as a distribution
arrangement in Mexico. The Company believes that combining Rival's larger
international presence with Holmes' product offerings will accelerate
international growth.
The Company's ability to achieve revenue enhancements and recognize cost
savings from the Rival Acquisition will depend to a significant extent on its
ability to successfully integrate the operations of Rival and other factors,
including economic conditions and the retail environment. See "Risk Factors" for
a discussion of certain factors that could impact the Company's ability to
realize expected revenue enhancements and cost savings.
In furtherance of its strategic objectives, the Company will consider the
possible disposition of certain non-core business assets that do not support its
current growth strategy, and may from time to time engage in discussions
regarding mergers, acquisitions or other types of business combination
transactions with other parties in the consumer products industry.
PRODUCTS
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers, which allow consumers to better control aspects of their home
environment, such as temperature and air quality. In addition, Holmes markets
and distributes a variety of decorative and home office lighting products,
including table, floor and wall-mounted lighting products used principally in
residential and commercial settings, as well as various replacement filters and
accessories for its products.
Rival is a leading developer, manufacturer and marketer of small kitchen
and personal care appliances including Crock-Pot(R) slow cookers, toasters, can
openers and massagers. In addition, Rival also develops, manufactures and
markets home comfort products in many of the same product categories as Holmes,
including fans, heaters, humidifiers and air purifiers.
Holmes' and Rival's respective product lines are discussed separately
below, as are certain other aspects of the Company's business. The Rival
Acquisition was consummated in February, 1999, and the Company is in the process
of assessing Rival's products and operations relative to those of Holmes. Among
other things, the Company may determine to combine certain product lines, to
reduce or eliminate certain redundant products, to market products produced by
one company under a brand name of the other, or to rationalize each of the
business lines as part of the combined Company's overall integration strategy.
HOLMES
Holmes' product categories are as follows:
FANS. Holmes currently manufactures and markets approximately 60 different
fan models, including table, stand, window, window-to-floor, box, commercial
grade, high
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velocity and oscillating fans, typically for purchase and use by household
consumers. Retail prices for Holmes' fans range from $5 to $80.
HEATERS. Portable electric space heaters are used to heat areas of the
house not adequately reached by central heat and to heat an individual room
while that room is in use. Holmes currently manufactures and markets
approximately 50 different heater models, including plastic, ceramic, metal,
radiant and baseboard styles. Retail prices for Holmes' heaters range from $20
to $70. In recent years, Holmes has expanded its products to cover virtually
every segment and price point in the heater category, and to include innovations
with strong consumer appeal.
HUMIDIFIERS. Consumers use humidifiers to provide greater comfort by
increasing moisture in the home environment. Holmes currently manufactures and
markets approximately 33 different humidifiers, including cool mist, warm mist,
ultrasonic and console models that range in moisture output from one to 12
gallons per day. Retail prices for Holmes' humidifiers range between $20 and
$150. Holmes also sells a variety of humidifier accessories, replacement parts
and chemical treatments.
AIR PURIFIERS. Air purifiers circulate a room's air through filters that
remove contaminants from the air. In recent years, high efficiency particulate
arresting ("HEPA") filters have come to dominate the industry. This product
category has experienced tremendous growth as consumers have become more
concerned with their home environment and have learned about the benefits of air
purifiers. Holmes currently manufactures and markets approximately 22 different
air purifier models. Retail prices for Holmes' air purifiers range between $20
and $280. Air purifiers represent one of the fastest growing categories of
Holmes' home comfort product line.
FILTERS/ACCESSORIES. Most humidifiers and air purifiers require
accessories including replacement filters and chemical treatments. Air purifiers
periodically need new replacement filter cartridges and humidifiers need new
replacement wick filters. As the installed base of these products continues to
expand, the Company expects that the market for these accessories will grow as
well. In addition, the Company believes that sales of filters and accessories
increase brand awareness and customer loyalty.
LIGHTING PRODUCTS. Holmes began marketing portable lighting equipment in
1993, and currently sells over 90 different lighting models. These products
complement Holmes' traditional home comfort product line, provide an additional
non-seasonal category for the Company, and are distributed through the same
distribution channels as the Company's home comfort appliances. Holmes' lighting
products are manufactured by subcontractors in China and in the United States.
Retail prices for these products range between $5 and $100.
ELECTRIC MOTORS. Holmes' indirect wholly owned subsidiary, Raider Motor
Corporation ("Raider"), has proven strengths in the design and manufacture of a
variety of electric motors for use in home and commercial appliances. In
addition to supplying most of the motors for Holmes' products, Raider has
sufficient manufacturing capacity to supply other manufacturers of appliances
with electric motors. In October, 1998, Holmes entered into a joint venture with
General Electric ("GE") for motor manufacturing, sales and distribution to third
parties. The joint venture entity is owned 49% by Holmes and 51% by GE.
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RIVAL
Rival manages its operations through four business units, divided by
product line and geography as follows:
KITCHEN ELECTRICS AND PERSONAL CARE. Kitchen electric appliances
constituted Rival's primary product line for over sixty years, and continue to
account for approximately 50% of Rival's net sales. The kitchen electrics and
personal care business unit sells products including Crock-Pot(R) slow cookers,
toasters, ice cream freezers, can openers, food slicers, mixers, indoor grills,
irons, potpourri simmerers, fryers, skillets and massagers to retailers and
distributors throughout the United States.
HOME ENVIRONMENT. This group sells products including fans, air purifiers,
humidifiers, electric space heaters, sump, well and utility pumps, showerheads,
and household ventilation systems to retail customers throughout the United
States.
INDUSTRIAL AND BUILDING SUPPLY. This group sells products including
industrial fans and drum blowers, household ventilation systems, ceiling fans,
door chimes, electric heaters and household convenience items to electrical and
industrial wholesale distributors throughout the United States.
INTERNATIONAL. This group sells Rival's products in Canada and Europe from
its sales and distribution facilities in Toronto and the Netherlands. It also
ships products from the United States to distributors in Latin America and Asia.
Rival's future sales growth is expected to be generated primarily from the
introduction of new products and product lines, as well as through geographic
expansion.
PRODUCT DEVELOPMENT
Holmes has an internal product development team dedicated to new product
development and product enhancements. Holmes maintains its own engineering and
product development department to research new product concepts as well as
activities relating to improving existing products. The product design and
research development team consists of an aggregate of approximately 50 employees
located in both Milford, Massachusetts and in the Far East. Holmes also retains
the services of outside consultants to assist its internal team.
Holmes utilizes state-of-the-art design technology including advanced CAD
design software and a laser-based stereolithography technique to design and
engineer new products. Management believes this technology allows the company to
design and develop new products quickly thus enabling Holmes to accurately
assess the feasibility, cost and tooling requirements of new products before
manufacturing the products. Management believes this technology gives Holmes a
competitive advantage in the design and development of new products and product
line extensions.
Holmes' expenditures for new product development and tooling totaled
approximately $9.9 million, $9.5 million and $9.4 million for the years ended
December 31, 1996, 1997 and 1998, respectively.
Rival also has an internal product development team dedicated to product
line enhancements and the introduction of new products. As part of this effort,
Rival maintains its own engineering and development department consisting of
over 60 people, including engineers, product designers, draftsmen and product
managers. Rival also retains the services of outside engineering and design
consultants from time to time.
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Rival's expenditures for product engineering and development (excluding
tooling) were $3.1 million, $4.5 million, and $5.4 million for Rival's fiscal
years ended June 30, 1996, 1997 and 1998, respectively.
MANUFACTURING
Holmes manufactures most of its products at its manufacturing facilities in
China. These facilities are highly integrated and produce most of the electric
motors, injection molded plastic components and other components used in the
manufacturing and assembly process. The balance of Holmes' products are produced
through subcontracted manufacturers in China and the United States, generally
under the supervision of Holmes employees. The management, coordination and
control of all manufacturing operations are centralized at the Company's
principal offices in Milford, Massachusetts.
Rival's manufacturing plants, all of which are located in the United
States, manufacture and assemble more than 60% of the products Rival sells.
Rival's remaining products are produced to its specifications, primarily in
China. Rival's plants are highly integrated and produce electric motors,
injection molded plastic components, screw machine parts, stampings and
stoneware.
Rival operates four manufacturing and assembly facilities in Missouri
(Clinton, Sedalia, Sweet Springs and Warrensburg), near Kansas City, which
specialize in the production of kitchen electrics. A facility in Flowood,
Mississippi produces the stoneware for Rival's Crock-Pot(R) slow cookers and
other products.
In July, 1998, Rival announced plans to close its New Haven, Indiana and
Fayetteville, North Carolina manufacturing plants, as well as its Peru, Indiana
warehouse facility, and to expand its current operations in Warrensburg and
Sedalia, Missouri. The New Haven manufacturing facility was closed in December,
1998, and the Fayetteville facility was closed in March, 1999. These facilities
produced home environment and building supply products. The majority of the
products manufactured in these facilities will be moved to Rival's Missouri
plants while some production will be outsourced to overseas suppliers, which may
include Holmes. Concentrating production in fewer facilities will increase
efficiency by more closely aligning capacity with the seasonal nature of Rival's
products, taking advantage of vertical integration in its Missouri plants and
reducing the infrastructure associated with transportation of materials,
production planning and other activities.
The Company believes that it has a cost advantage as a result of its degree
of vertical integration, its purchasing power, and low labor costs at its
Chinese manufacturing facilities. In addition, by operating its own
manufacturing facilities, the Company has control over the quality of its
products from design through final distribution. The Company believes that the
addition of Rival's domestic manufacturing capabilities will improve inventory
management and enhance its flexibility in order to satisfy customers' needs for
just-in-time delivery.
MARKETING AND DISTRIBUTION
Holmes' products are sold in the United States, Canada and Europe to the
retail trade by an internal sales staff consisting of ten sales managers. Holmes
relies on its management's ability to determine the existence and extent of
available markets for its products. The internal sales managers, with assistance
from an internal sales support staff and from regional independent manufacturers
representative organizations, market Holmes' products through all major channels
of distribution including mass merchants, do-it-
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yourself home centers, warehouse clubs, hardware stores and national drugstore
chains. Holmes' sales managers are actively involved in servicing all aspects of
each retail account.
In order to respond most efficiently to the demands of its retail customers
and ensure timely delivery, Holmes balances direct shipments from its
manufacturing facilities with shipments from its domestic and international
warehouses. The Company believes that the addition of Rival's extensive domestic
distribution capabilities will further enhance the Company's ability to satisfy
customer demands.
Holmes' marketing department consists of 12 individuals who are responsible
for market analysis, new product development, pricing strategy, promotions and
overall category development. Holmes believes that its packaging is one of its
most powerful marketing tools because most consumers typically purchase fans,
heaters and humidifiers without the benefit of knowledgeable retail sales staff.
Holmes' packaging and point-of-purchase support provide written information and
illustrations regarding product features, usage instructions, safety features
and product operation. Holmes has an in-house art department that develops most
of the packaging and marketing materials on state-of-the-art desktop graphics
systems.
Rival's products are sold in the same channels of distribution as Holmes',
with mass merchants representing the largest class of customer. In addition,
Rival's products are sold through department stores, household specialty stores,
military exchanges, mail order companies and premium companies. Rival also sells
industrial and building supply products to electrical and industrial wholesale
distributors. Rival reaches its customers through its sales organization, which
consists of a combination of in-house sales managers, field sales associates and
independent manufacturers' representative firms. As part of its integration
strategy, the Company intends to consolidate home environment sales at Holmes'
Milford, Massachusetts headquarters.
MAJOR CUSTOMERS
Holmes' three largest retail customers, Wal-Mart (including Sam's Wholesale
Club), Kmart and Target, each accounted for over 10%, and in the aggregate
approximately 48%, of Holmes' net sales during 1998. Rival's largest customer,
Wal-Mart (including Sam's Wholesale Club), accounted for 26% of Rival's net
sales in each of Rival's three fiscal years ended June 30, 1998. Rival's next
five largest customers represented an aggregate of 21% of net sales during
fiscal 1998. Holmes and Rival do not have long-term agreements with their major
customers, and purchases are generally made through the use of individual
purchase orders. A significant reduction in purchases by any of these customers
could have a material adverse effect on the Company's business.
SEASONALITY
Sales of Holmes' products are highly seasonal, and counter-seasonal weather
can adversely affect the Company's results of operations. In general, Holmes'
sales of fans and dehumidifiers occur predominantly from January through June,
and sales of heaters and humidifiers occur predominantly from July through
December. Although air purifiers, lighting products and accessories generally
are used year-round, the nature of these products tend to draw increased sales
during the winter months when people are indoors and, as a result, sales of
these products tend to be greatest in advance of the winter months from July
through December. In addition to the seasonal fluctuations in sales, Holmes
experiences seasonality in gross profit, as margins realized on fan products
tend to be lower than those realized on heater, humidifier, and air purifier
products.
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Rival's sales are also highly seasonal. A significant percentage of the
products sold by Rival are given as gifts and, as such, sell at larger volumes
during the holiday season. When holiday shipments are combined with seasonal
products such as heaters and humidifiers, Rival's sales during the months of
August through November are generally at a higher level than during the other
months of the year.
COMPETITION
The Company believes that the markets for its products are developed and
highly competitive. Management believes that competition is based on several
factors, including price, access to retail shelf space, product features,
product enhancements, brand names, new product introductions, and marketing
support and distribution systems.
The Company competes with many well-established companies, some of which
have substantially greater facilities, personnel, financial and other resources
than those of the Company. Holmes' major competitors include AdobeAir, Catalina
Lighting, Cheyenne, Fedders, Frigidaire, Honeywell Consumer Products (maker of
Duracraft and Enviracare brands), Kenmore, Norelco, Sunbeam, Tensor and
Windmere. Holmes also competes with importers and foreign manufacturers of
unbranded products.
Rival's home environment products compete with many of the same companies
as Holmes'. Rival also competes with a number of other companies across its
broader product line. Significant competitors include Sunbeam/Oster, Hamilton
Beach/Proctor Silex, Wayne Home Equipment, Masco, Nortek, Teledyne, National
Presto, Salton/Maxim (Toastmaster) and West Bend. Several of these competitors
each generate higher annual sales of small electric household appliances than
Rival. Smaller manufacturers compete with Rival on a limited basis. A few
European manufacturers, such as Braun, Group SEB and Moulinex, have established
niches in the small electric household appliance market, particularly in the
high-end department store trade.
The Company believes that its most important competitive strengths are the
quality, design and competitive pricing of its products, its attention to
retailer and consumer needs, its access to major channels of distribution, the
development of new products and innovation in existing products, its ability to
provide timely shipment through its manufacturing and distribution facilities
and the capabilities of its management team.
PATENTS AND TRADEMARKS
Holmes holds a number of patents and trademarks registered in the United
States, Canada, and other countries for various products and technologies.
Additional patent applications are pending in the United States, Canada and
Mexico. Holmes also registers trademarks on product names and unique features in
the United States and other countries. The Company believes that none of Holmes'
product lines is dependent upon any single patent, group of patents or other
intellectual property rights.
Rival holds many United States and foreign trademarks, and considers its
various trademarks to be a valuable tool in the marketing of its products. Of
particular importance are the Rival(R), Rival Select(R), Simer(R), Pollenex(R),
Patton(R), Bionaire(R), White Mountain(R) and Crock-Pot(R) trademarks. In the
course of its operations, Rival also files patent applications covering various
aspects of the items produced. While Rival's mechanical and design patents in
the aggregate are considered to be important, the Company believes that Rival's
business is not dependent upon any single patent or group of patents.
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REGULATION
The Company is subject to federal, state and local regulations concerning
the environment, occupational safety and health, trade-related issues and
consumer products safety. Most of the Company's products are listed by
Underwriters Laboratories, Inc. ("UL"), the Canadian Underwriters Laboratories,
Inc. ("CUL"), or similar organizations in other markets. UL and CUL are
independent, not-for-profit corporations engaged in the testing of products for
compliance with certain public safety standards. The Company is also regulated
by, and holds ongoing discussions regarding specific products with, the United
States Consumer Products Safety Commission and the Canadian Standards
Association. The Company believes that it is in material compliance with all of
the regulations applicable to it. There can be no assurance, however, that such
regulations will not negatively affect the Company in the future. The Company
has implemented and is currently engaged in certain voluntary product recalls
for which it has incurred expenses, and the Company may in the future incur
expenses or accrue reserves for additional product recalls. The Company's
operations could also be adversely affected by other regulations relating to its
foreign operations, including changes in trade laws, increased import duties,
import/export regulations and changes in foreign laws.
EMPLOYEES
Holmes has approximately 4,300 employees, of which approximately 4,064 were
located at the Company's manufacturing facilities in Dongguan, China,
approximately 60 were located in Hong Kong and Taiwan and 176 were located in
the United States and Canada at December 31, 1998.
Rival has approximately 2,100 full-time employees, including approximately
250 salaried personnel. Historically, during August through November, employment
increases by approximately 15%. Approximately 320 hourly employees at Rival's
Flowood, Mississippi plant are represented by a labor organization under a
collective bargaining agreement, which expires in December, 2001.
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PROPERTIES
HOLMES
The following table sets forth Holmes' principal facilities (all of which
are leased), the primary activity at each of the facilities listed and the
expiration date of the applicable lease.
LOCATION SIZE PRIMARY USE LEASE EXPIRATION
- -------- ---- ----------- ----------------
Milford, MA.............. 83,000 square feet Headquarters and 2001
Distribution
Dongguan, China (1)...... 466,000 square feet Manufacturing and 2006
Assembly
Dongguan, China (1)...... 269,000 square feet Motor Manufacturing 2006
Clinton, MA.............. 207,000 square feet Distribution 2000
Worcester, MA............ 156,000 square feet Distribution 2003
Vernon, CA............... Varies Distribution At will
Mississaugua, Ontario.... Varies Distribution At will
Hong Kong................ 10,300 square feet Office 1999
Taipei, Taiwan........... 1,700 square feet Office 2000
- -------------------------
(1) These facilities are located in Guangdong Province, China, approximately 70
miles from Hong Kong. These facilities include 20 buildings on two separate
campuses that include manufacturing, assembly, warehousing, and employee
dormitory operations. The lease expiration date assumes the exercise of the
Company's options to extend the lease on the primary manufacturing building.
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RIVAL
The following table sets forth information regarding Rival's principal
facilities.
LOCATION SIZE PRIMARY USE OWNED/LEASED
- -------- ------------------- ------------------------------- ------------
Kansas City, MO.......... 32,000 square feet General Offices Leased
Sedalia, MO.............. 157,000 square feet Manufacturing and Assembly Owned
67,000 square feet Manufacturing and Assembly Leased
216,000 square feet Warehousing and Distribution Owned
Clinton, MO.............. 164,000 square feet Manufacturing and Assembly Owned
279,000 square feet Warehousing and Distribution Owned
Sweet Springs, MO........ 125,000 square feet Manufacturing/Return Processing Owned
Warrensburg, MO.......... 68,000 square feet Manufacturing and Assembly Owned
Flowood, MS.............. 142,000 square feet Manufacturing Owned
Mississaugua, Ontario.... 55,000 square feet General Office, Warehousing and Leased
Distribution
Oosterhout,
Netherlands............ 50,000 square feet General Office, Warehousing and Leased
Distribution
New Haven, IN*........... 302,000 square feet Manufacturing and Distribution Owned
Peru, IN*................ 172,000 square feet Warehousing Owned
Fayetteville, NC*........ 282,500 square feet Manufacturing and assembly Owned
- -------------------------
* Each of these facilities has been closed or is scheduled to be closed during
1999, and Rival plans to sell the properties. The New Haven, Indiana property
is currently under agreement to be sold.
Approximately 67,000 square feet of the Sedalia plant is occupied under a
long-term lease, which gives Rival the option to purchase the property at a
nominal cost. The general offices are occupied under a lease through 2005. The
Mississauga and Netherlands facilities are each leased through July, 2002.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incident to its normal
business operations, including product liability and patent and trademark
litigation. The Company believes that the outcome of such litigation will not
have a material adverse effect on its business, financial condition or results
of operations. The Company has product liability and general liability insurance
policies in amounts it believes to be reasonable. There can be no assurance,
however, that such insurance will be adequate to cover all potential product or
other liability claims against the Company. The Company also faces exposure to
product recalls in the event that its products are alleged to have manufacturing
or safety defects. The Company does not maintain product recall insurance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are directors and executive officers of the Company:
NAME AGE POSITION
- ---- --- --------
Jordan A. Kahn..................... 57 President, Chief Executive Officer
and Director
Stanley Rosenzweig................. 35 Chief Operating Officer and
Director
Gregory F. White................... 35 Executive Vice President, Sales and
Marketing and Director
Ira B. Morgenstern................. 46 Senior Vice President -- Finance
Fred Adair......................... 48 Senior Vice President, Human
Resources and Organizational
Performance
(Tommy) Woon Fai Liu............... 46 Managing Director of Holmes' Far
East operations
David Dusseault.................... 45 Chief Financial Officer
Richard K. Lubin................... 53 Director
Randy Peeler....................... 34 Director
Thomas K. Manning.................. 57 Director
JORDAN A. KAHN, founder of the Company, has served as President and Chief
Executive Officer and a director since its organization in 1982. Since 1968, Mr.
Kahn has also been President of Jordan Kahn Co., Inc. a manufacturer's
representative representing small electric personal appliance manufacturers,
including the Company, to retailers across the Northeast.
STANLEY ROSENZWEIG has served the Company since 1991, initially as Vice
President -- Operations, and since 1993 as Chief Operating Officer and a
director. From 1987 to 1988, Mr. Rosenzweig served as a management consultant
with Bain & Company, and from 1988 to 1989 as a sales manager with Jolson
Corporation, a Canadian appliance company.
GREGORY F. WHITE has served as Executive Vice President, Sales and
Marketing since 1995, and from 1993 to 1995 as Vice President Marketing. He
became a director of the Company in 1997. Mr. White served as Account Supervisor
at Ammirati & Puris, an advertising agency, from 1992 to 1993 and as Account
Manager at the advertising agency D'Arcy, Masius, Benton & Bowles from 1991 to
1992.
IRA B. MORGENSTERN joined the Company as Senior Vice President Finance in
August, 1998 from Diageo, PLC, a combination of the food and beverage businesses
of Grand Metropolitan PLC and Guinness PLC, where he spent over six years in a
number of financial management positions in the U.S. and London, including Vice
President of Strategic Marketing Finance in the U.S. drinks division. Prior to
Diageo, Mr. Morgenstern served as Vice President of Ditri Associates, Inc., a
leveraged acquisition firm, consultant for Touche Ross, and internal auditor
with Atlantic Richfield.
FRED ADAIR joined Holmes as Senior Vice President, Human Resources and
Organizational Performance in May, 1998 following a 17-year career at Mercer
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Management Consulting. Mr. Adair was Vice President and Partner in charge of
Mercer's reengineering and organization change practice from 1992 to 1996, and
built a significant practice focused on the organizational performance
challenges of growth companies.
(TOMMY) WOON FAI LIU became Managing Director of the Company's Far East
operations upon the closing of the 1997 Transactions. From 1993 to 1997, Mr. Liu
served as Chief Financial Officer and Executive Director of Asco General
Supplies Far East Limited, a subsidiary of Pentland, as well as Executive
Director of Holmes Far East since 1994. From 1989 to 1993, Mr. Liu was Finance
Director for Johnson & Johnson Hong Kong.
DAVID DUSSEAULT has served as Chief Financial Officer of the Company since
1992 and from 1988 to 1992 as Controller of the Company. From 1981 to 1987, Mr.
Dusseault served as Controller at Leach and Garner Refining.
RICHARD K. LUBIN is a Managing Director of Berkshire Partners, which he
co-founded in 1986. He became a director of Holmes in 1997, and has been a
director of many of Berkshire's manufacturing, retailing and transportation
investments, including, among others, InteSys Technologies, Inc. and English
Welsh & Scottish Railway, Ltd. In addition, Mr. Lubin is Treasurer of the
Dana-Farber Cancer Institute and a Trustee of Beth Israel Deaconess Medical
Center.
RANDY PEELER is a Vice President of Berkshire Partners, where he has been
employed since 1996. From 1994 to 1996, he was responsible for new business
ventures at Health Advances, a healthcare industry consulting firm. From 1993 to
1994, he served as Chief of Staff to the Assistant Secretary for Economic Policy
at the U.S. Department of the Treasury. Prior to that, he was a consultant with
Cannon Associates. Mr. Peeler became a director of Holmes in 1997, and also
serves as a director of Miami Cruisline Services, B.V., Charrette Corporation
and Weigh-Tronix, Inc.
THOMAS K. MANNING became a director of the Company in February, 1999 upon
the closing of the Rival Acquisition. He was Chairman of the Board and Chief
Executive Officer of Rival, and has served with Rival for over 20 years.
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COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth information concerning
the compensation paid or accrued by the Company with respect to the Company's
Chief Executive Officer and certain other persons who served as executive
officers of the Company during the fiscal year ended December 31, 1998.
ANNUAL LONG-TERM COMPENSATION
COMPENSATION -----------------------------
------------------- OTHER ANNUAL STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) SHARES COMPENSATION
- --------------------------- -------- -------- --------------- ------------ --------------
Jordan A. Kahn................. 1998 $402,776 $200,000 $23,400 297,717 $ --
President and Chief 1997 311,905 770,000 31,200 -- 3,964,000(2)
Executive Officer 1996 300,000 825,000 31,200 -- --
Stanley Rosenzweig............. 1998 253,960 125,000 15,600 297,717 4,800(6)
Chief Operating Officer 1997 228,859 296,000 15,600 -- 1,984,324(3)
1996 200,000 225,000 15,600 -- 632,892(4)
Gregory F. White............... 1998 205,054 100,000 10,200 297,717 4,800(6)
Executive Vice President, 1997 173,800 148,000 10,200 -- 509,237(5)
Sales and Marketing 1996 150,000 112,500 10,200 -- 4,673(6)
(Tommy) Woon Fai Liu........... 1998 200,000 100,000 43,701 60,000 --
Managing Director of 1997 270,513(7) 66,667(8) 2,083 -- --
Holmes Far East 1996 200,000(7) 25,000(8) -- -- --
David Dusseault(9)............. 1998 109,739 25,000 -- 14,100 4,073(6)
Chief Financial Officer 1997 90,803 50,000 -- -- 4,552(6)
- -------------------------
(1) Primarily represents automobile allowance, annual living expense allowance
or annual lease payments on automobile provided by the Company.
(2) Represents bonuses paid in connection with the 1997 Transactions pursuant to
a previous employment agreement with the Company.
(3) Includes $9,500 representing the Company's matching contribution under its
401(k) plan, $20,824 paid in 1997 on account of a previous employment
agreement with the Company and $1,954,000 which was paid in connection with
the 1997 Transactions.
(4) Includes $9,500 representing the Company's matching contribution under its
401 (k) plan, $77,392 paid in 1996 on account of a previous employment
agreement with the Company and $546,000 accrued for 1996 which was paid in
connection with the 1997 Transactions.
(5) Includes $9,237 representing the Company's matching contribution under its
401(k) plan and $500,000 which was paid in connection with the 1997
Transactions.
(6) Represents the Company's matching contribution under its 401(k) plan.
(7) Includes compensation paid to Mr. Liu by the Company and by an affiliate of
Pentland.
(8) Does not include any amounts paid by affiliates of Pentland for services
rendered to such affiliates.
(9) Mr. Dusseault did not earn in excess of $100,000 in 1996.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table describes stock options granted during 1998 to the
executive officers set forth in the Summary Compensation Table above.
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATE OF
SECURITIES TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM($)(2)
GRANTED EMPLOYEES PRICE EXPIRATION -------------------
NAME (#)(1) IN 1997 ($/SH) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------- ---------
Jordan A. Kahn.................... 297,717 20.2% 3.50 11-26-07 574,489 1,414,994
Stanley Rosenzweig................ 297,717 20.2% 3.50 11-26-07 574,489 1,414,994
Gregory F. White.................. 297,717 20.2% 3.50 11-26-07 574,489 1,414,994
(Tommy) Woon Fai Liu.............. 60,000 4.1% 3.50 11-26-07 115,779 285,169
David Dusseault................... 14,100 1.0% 3.50 11-26-07 59,858 147,432
- -------------------------
(1) These options to purchase the Company's common stock were granted under the
Company's 1997 Stock Option Plan. Approximately one-half of each option
grant consists of "incentive stock options" (except for Mr. Kahn, who
received only non-qualified options), vesting over a five-year period. The
remaining options are non-qualified options whose vesting is tied to
specific Company performance measures.
(2) Net gains from potential stock option exercises are estimated based on
assumed rates of stock price appreciation over the options' terms, as set
forth in rules promulgated by the Securities and Exchange Commission, and
are not intended to forecast future appreciation of the Company's common
stock. The actual net gains, if any, are dependent on the actual future
performance of the common stock, for which there is currently no public
market.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information concerning the number
and value of unexercised options to purchase the Company's common stock at
February 5, 1999, the date the Rival Acquisition was consummated.
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT YEAR-END(#) OPTIONS($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Jordan A. Kahn.............. -- -- 28,700 269,017 44,198 414,286
Stanley Rosenzweig.......... -- -- 28,700 269,017 44,198 414,286
Gregory F. White............ -- -- 28,700 269,017 44,198 414,286
(Tommy) Woon Fai Liu........ -- -- -- 60,000 -- 92,400
David Dusseault............. -- -- -- 14,100 -- 21,714
- -------------------------
(1) Represents the assumed value of shares of the Company's common stock covered
by outstanding options, less the aggregate option exercise price. There is
currently no public market for the Company's common stock, and no valuation
of such common stock existed as of December 31, 1998. The price of the
common stock, valued on February 5, 1999, the date of the Rival Acquisition,
was $5.04 per share.
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COMPENSATION OF DIRECTORS
The Company does not currently compensate its directors for services
rendered in such capacity.
EMPLOYMENT AGREEMENTS
Messrs. Kahn, Rosenzweig, White and Liu (the "Executives") have entered
into Employment and Non-Competition Agreements with the Company (or with Esteem
Industries Limited, an indirect subsidiary of the Company, in the case of Mr.
Liu), which provide for their continued employment in their present capacities
for an initial term through December 31, 2000. Each agreement will thereafter
renew for consecutive one-year terms unless terminated by either party. Under
these agreements, Mr. Kahn was entitled to a base salary of $400,000 per year,
Mr. Rosenzweig is entitled to a base salary of $250,000 per year, Mr. White is
entitled to a base salary of $200,000 per year, and Mr. Liu is entitled to a
base salary of $200,000 per year plus a $25,000 living expense allowance per
year. In addition, each Executive is entitled to an annual performance bonus
equal to up to 50% of his base salary based on achievement of certain
performance criteria. In connection with the Transactions, Mr. Kahn's employment
agreement was amended to provide for an initial term of three years from the
Closing Date and a base salary of $500,000 per year. The Board of Directors has
exercised its discretion under these agreements to increase the base salaries
payable to Messrs. Rosenzweig and White for 1999.
1997 STOCK OPTION PLAN
Holmes' 1997 Stock Option Plan, as amended (the "Option Plan"), provides
for the grant of incentive stock options and non-qualified stock options to
directors, management, and other employees of Holmes. The options and the common
shares purchasable upon exercise of options are subject to certain restrictions
and vesting schedules, which are generally time-based in the case of incentive
stock options and with accelerated vesting provisions based on performance
measures in the case of non-qualified options. The exercise price of options is
equal to the fair market value of the common shares at the time of issuance of
such options. In order to provide for the Company's larger size and the addition
of Rival's employees following the Rival Acquisition, the Option Plan was
amended to increase the number of shares available for grant from 1,563,020
shares to 4,260,978 shares.
EMPLOYEE STOCK PURCHASE PLAN
Holmes also maintains an Employee Stock Purchase Plan (the "Purchase
Plan"), which permits selected employees to purchase restricted shares of
Holmes' common stock. An aggregate of 350,000 shares have been purchased, or are
available for future purchases, under the Purchase Plan.
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SHARE OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock. Except as indicated in the footnotes to
this table, the Company believes that the persons named in this table have sole
voting and investment power with respect to all shares of common stock
indicated.
NAME AND ADDRESS OF NO. OF PERCENT OF
BENEFICIAL OWNER(1) SHARES OUTSTANDING SHARES(2)
- ------------------- ---------- ---------------------
Berkshire Fund IV, Limited Partnership(3)..... 15,052,594 74.2%
Berkshire Fund V, Limited Partnership
c/o Berkshire Partners LLC
One Boston Place
Boston, MA 02108
Jordan A. Kahn(4)............................. 2,621,330 12.9
Bain Securities, Inc.(5)...................... 928,992 4.6
c/o Bain Capital, Inc.
2 Copley Place
Boston, MA 02116
Stanley Rosenzweig (4)........................ 314,596 1.6
Gregory F. White (4).......................... 200,238 *
(Tommy) Woon Fai Liu(4)....................... 139,987 *
David Dusseault(4)............................ 14,359 *
Richard Lubin(6).............................. 15,052,594 74.2
Thomas K. Manning............................. 100,000 *
Randy Peeler(6)............................... 15,052,594 74.2
All directors and executive officers as a
group (10 persons)(7)(8).................... 18,531,711 91.0
- -------------------------
* Less than 1.0%
(1) Unless otherwise specified, the address of each person is c/o Holmes
Products Corp., 233 Fortune Boulevard, Milford, MA 01757.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and reflects general voting power and/or investment power with
respect to securities. Shares of common stock subject to options or warrants
currently exercisable are deemed outstanding.
(3) Includes shares beneficially owned by certain other affiliates of Berkshire
Partners.
(4) Includes shares which may be held by family members or affiliates and shares
subject to stock options. With respect to Mr. Kahn, includes 194,472 shares
held in trust for employees of the Company as to which Mr. Kahn is voting
trustee. Mr. Kahn disclaims beneficial ownership of such shares.
(5) Includes shares beneficially owned by an affiliated investment entity.
(6) This person is affiliated with Berkshire Partners and may be deemed to have
a beneficial interest in certain of the shares held by its affiliates. This
person disclaims beneficial ownership of such shares.
(7) Includes shares referred to in Note 6.
(8) Includes the following shares subject to stock options that are exercisable:
28,700 option shares held by each of Messrs. Kahn, Rosenzweig and White,
5,784 option shares held by Mr. Liu and 1,359 option shares held by Mr.
Dusseault.
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CERTAIN TRANSACTIONS
Pursuant to a letter agreement dated December 10, 1998 with two investment
funds affiliated with Berkshire Partners (the "Letter Agreement"), Berkshire
Partners received a fee of $2.0 million from the Company as of the closing of
the Rival Acquisition. Pursuant to a Management Agreement (the "Management
Agreement"), entered into in November, 1997 in connection with the 1997
Transactions, Berkshire Partners received a $1.5 million fee from the Company
and an annual fee of $400,000 per year for the provision of management and
advisory services to the Company. The Letter Agreement increases the annual
management fee to $500,000 following the closing of the Rival Acquisition. The
Management Agreement will be in effect until November, 2002, provided that the
Management Agreement will terminate on the later of the first date that (i)
Berkshire Partners owns less than 40.0% of the Company's common stock on a fully
diluted basis, and (ii) Berkshire Partners owns fewer common shares than the
members of the Company's management, taken as a group, or fewer shares than any
other single stockholder. Berkshire Partners is also entitled to designate two
of the Company's directors and has the right, at its election, to increase the
size of the Board of Directors and the number of directors designated by it by
an additional two directors. From time to time, the Company may pay additional
consulting or other fees to Berkshire Partners.
Since its inception in 1982, the Company has retained Jordan Kahn Co., Inc.
("JKC"), a corporation owned by Jordan A. Kahn, to serve as a sales
representative for the Company in the northeastern United States. Pursuant to a
representation agreement between the Company and JKC, the Company has agreed to
pay to JKC a commission on net sales to JKC's customers in its territory, which
fee is the same fee paid by the Company to other unaffiliated sales
representatives organizations representing the Company in other territories
throughout the United States. Pursuant to this arrangement, the Company paid a
total of $480,000, $367,000 and $368,000 to JKC for the years ended December 31,
1996, 1997 and 1998, respectively.
In connection with the 1997 Transactions, the Company purchased a portion
of the shares of common stock of Holmes beneficially owned by an affiliate of
Pentland, the Company's former majority stockholder, and issued to the Pentland
affiliate a warrant to purchase shares of the Company's common stock under
certain circumstances. In addition, the Company entered into new employment
agreements with Messrs. Kahn, Rosenzweig, White and Liu, and made certain
payments to Messrs. Kahn, Rosenzweig and White in connection with the 1997
Transactions.
During 1993, the Company entered into a revolving credit facility with an
affiliate of Pentland, pursuant to which such affiliate provided short-term
loans to the Company. Another affiliate of Pentland provided the Company with
trade acceptance and letter of credit financing for its purchases from foreign
manufacturers. The Company paid a commission for administrative services related
to the processing of these trade acceptances. In conjunction with the 1997
Transactions, all of the financing facilities provided by Pentland and its
affiliates were terminated and paid in full. In addition, a net payable of $10.0
million due to affiliates of Pentland was repaid in connection with the 1997
Transactions. See Note 3 of Notes to the Company's Consolidated Financial
Statements incorporated by reference herein.
In connection with the Transactions, the Company retained an affiliate of
Bain Securities, Inc., a stockholder of the Company, to perform acquisition
consulting services, for which the Company paid approximately $300,000 during
1998. This affiliate continues to provide post-acquisition consulting services
for the Company.
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DESCRIPTION OF CREDIT FACILITY
On February 5, 1999, Holmes, Rival and their subsidiaries (collectively,
the "Borrowers") entered into a $325.0 million revolving credit facility with
BankBoston, N.A. ("BankBoston"), and BancBoston Robertson Stephens, Inc.
("BRS"), as arranger. This senior bank credit facility is comprised of a tranche
A term loan of $40.0 million and a tranche B term loan of $85.0 million
(collectively, the "Term Loan Facility") and a revolving credit facility of up
to $200.0 million (the "Revolving Credit Facility" and, together with the Term
Loan Facility, the "Credit Facility"). The Credit Facility is secured by
substantially all of the assets of the Borrowers, and a pledge of stock of the
subsidiaries of Holmes, including all the shares of Common Stock of Rival.
MATURITY; AMORTIZATION. The tranche A term loans have a final maturity
date of February 5, 2005, and will be amortized in quarterly installments in
specified increments over the term. The tranche B term loans have a final
maturity date of February 5, 2007, with quarterly amortization in specified
increments over the term. The Revolving Credit Facility has a final maturity
date of February 5, 2005. Repayment of the Term Loans will be provided out of
the cash flow of the Borrowers or proceeds of further debt or equity financings,
and the Revolving Credit Facility will either be extended at maturity, or
refinanced through further debt or equity financings, although the Company has
no commitments for any such extension or refinancings at the present time.
INTEREST. The Revolving Credit Facility and the tranche A term loan bear
interest, at Holmes' option, at the Alternate Base Rate (as defined below) or a
LIBOR rate, plus specified margins based on the ratio of Borrowers' Total Debt
to EBITDA (each as defined therein). The Alternate Base Rate is the greater of
BankBoston's base rate as announced from time to time and the federal funds
effective rate plus 0.50%. The applicable margins is initially set at the
Alternate Base Rate plus 1.25% or the LIBOR rate plus 3.00%. Interest on the
tranche B term loan bears interest, at the Company's option, at the Alternate
Base Rate plus 1.75% or LIBOR plus 3.50%.
ADDITIONAL TERMS AND CONDITIONS. The Credit Facility provides for
customary additional terms and conditions, including: (1) restrictions on the
Borrowers' activity with respect to capital expenditures, liens, negative
pledges, additional indebtedness, contingent liabilities, investments,
dividends, distributions and management fees, affiliate transactions, mergers,
acquisitions, joint ventures, asset sales and sale leasebacks; (2) restrictions
on the Borrowers' ability to voluntarily prepay indebtedness other than under
the Credit Facility; (3) ERISA and environmental covenants; (4) satisfactory
insurance requirements; and (5) customary events of default, including without
limitation, a cross default to other indebtedness and a change of control
default.
The Credit Facility also requires the Company to maintain certain customary
financial ratios, measured on a consolidated basis, including without limitation
minimum interest coverage ratios and maximum ratios of total debt to EBITDA.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Company, the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the Indenture and Registration Rights Agreement will be made available as set
forth below under the caption "-- Additional Information." The definitions of
certain terms used in the following summary are set forth below under the
caption "-- Certain Definitions." For purposes of this Description of the
Exchange Notes, the term "Company" refers only to Holmes Products Corp. and not
to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior Debt
of the Company. As of December 31, 1998, after giving pro forma effect to the
Transactions, the Company would have had approximately $244.2 million of Senior
Debt outstanding, including outstanding borrowings under the Credit Facility. In
addition, the Company would have had $81.6 million of additional borrowings
available under the Credit Facility. The Indenture will permit the Company to
incur additional indebtedness, including additional Senior Debt, subject to
certain restrictions. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
All of the Company's Subsidiaries are Restricted Subsidiaries. However,
under certain circumstances, the Company will be able to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries are
not subject to many of the restrictive covenants set forth in the Indenture. The
Company's payment obligations under the Exchange Notes are jointly and severally
guaranteed, on a senior subordinated basis, by all of the Company's Domestic
Restricted Subsidiaries. See "-- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to
$31,250,000 and will mature on November 15, 2007. Interest on the Exchange Notes
will accrue at the rate of 9 7/8% per annum and will be payable semi-annually in
arrears on May 15 and November 15 of each year, commencing on November 15, 1999,
to holders of record on the immediately preceding May 1 and November 1. Interest
on the Exchange Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be payable at the office or agency of the
Company maintained for such purpose or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
holders of the Exchange Notes at their respective addresses set forth in the
register of holders of the Exchange Notes; provided that all payments of
principal, premium, interest and Liquidated Damages, if any, with respect to the
Exchange Notes the holders of which
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have given wire transfer instructions to the Trustee will be required to be made
by wire transfer of immediately available funds to the accounts specified by the
holders thereof. Until otherwise designated by the Company, the Company's office
or agency will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in denominations of $1,000 and integral multiples
thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash Equivalents
of all Senior Debt of the Company. The Exchange Notes will rank pari passu with
the Old Notes. Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Debt will be entitled to
receive payment in full in cash or Cash Equivalents of all Obligations due in
respect of such Senior Debt (including Post-Petition Interest) before the
holders of the Exchange Notes will be entitled to receive any payment with
respect to the Exchange Notes, and until all Obligations with respect to Senior
Debt are paid in full in cash or Cash Equivalents, any distribution to which the
holders of the Exchange Notes would be entitled shall be made to the holders of
Senior Debt (except that holders of the Exchange Notes may receive Permitted
Junior Securities and payments made from the trust described under the caption
"-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Exchange Notes, including pursuant to the redemption provisions of the Indenture
and pursuant to an offer to repurchase the Exchange Notes following a Change of
Control or with Excess Proceeds of Asset Sales (except, in each case, in
Permitted Junior Securities or from the trust described under the caption
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of or premium, or interest on any Designated Senior Debt occurs
and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to any Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and, in the case of clause (ii), the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company or the
agent under (in the case of the Credit Facility), or the holders of, such
Designated Senior Debt. Payments on the Exchange Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the date
on which such 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 Debt has been accelerated. No new period of payment
blockage may be commenced pursuant to clause (ii) above unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. 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 such default
shall have been cured or waived for a period of at least 30 days.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Exchange Notes is accelerated because of an
Event of Default.
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As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of the Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of
December 31, 1998, after giving pro forma effect to the Transactions, the
Company would have had approximately $244.2 million of Senior Debt outstanding,
including outstanding borrowings under the Credit Facility. In addition, the
Company would have had approximately $81.6 million of additional borrowings
available under the Credit Facility. The Company will be able to incur
additional Senior Debt in the future, subject to certain limitations. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed by each of the Company's current and future Domestic
Restricted Subsidiaries. The Guarantee of each Guarantor will be subordinated in
right of payment to all existing and future Senior Debt of such Guarantor to the
same extent as the Exchange Notes are subordinated to Senior Debt of the
Company. See "-- Subordination." As of December 31, 1998, after giving pro forma
effect to the Transactions, the Guarantors would have had approximately $243.4
million of Senior Debt outstanding, including borrowings under or guarantees of
the Company's obligations under the Credit Facility. The Indenture will permit
the Company's Subsidiaries to incur additional indebtedness, including
additional Senior Debt, subject, in the case of the Company's Restricted
Subsidiaries, to certain restrictions. See "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor (other than to the Company or another Domestic Restricted Subsidiary),
or in the case the Company designates a Guarantor to be an Unrestricted
Subsidiary in accordance with the Indenture, then such Guarantor will be
released and relieved of any obligations under its Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of the Indenture. See "-- Repurchase at Option of
Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at the Company's option prior to
November 15, 2002. Thereafter, the Exchange Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on November 15 of the
years indicated below:
YEAR PERCENTAGE
- ---- ----------
2002.............................................. 104.938%
2003.............................................. 103.292
2004.............................................. 101.646
2005 and thereafter............................... 100.000
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Notwithstanding the foregoing, prior to November 15, 2000 (assuming full
participation in the Exchange Offer), the Company may redeem up to an aggregate
of 33% of the principal amount of the Exchange Notes at a redemption price of
109.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more offerings of Equity Interests (other than Disqualified
Stock) of the Company; provided that (i) at least 67% of the principal amount of
the Exchange Notes remain outstanding immediately after the occurrence of each
such redemption and (ii) notice of such redemption shall be given within 90 days
of the date of the consummation of each such public offering.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of the Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of the Exchange Notes to be redeemed at its registered address.
Notices of redemption may not be conditional. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Note. The Exchange Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on the Exchange Notes or portions of
them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under the caption "-- Repurchase at the Option of
Holders," the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each holder of the Exchange
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Exchange Notes at an offer price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Company will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase the Exchange Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Exchange Notes as a result of a Change of Control.
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On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange 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 Exchange Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of
Exchange Notes required by this covenant. The Company 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 with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the Exchange Notes to require that the
Company repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Facility will prohibit, and future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
prohibit, the Company from purchasing any Exchange Notes following a Change of
Control and/or provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Exchange
Notes, the Company could seek the consent of its lenders to the purchase of the
Exchange Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Exchange Notes.
The Company's failure to purchase tendered Exchange Notes following a Change of
Control would constitute an Event of Default under the Indenture which would, in
turn, constitute as default under the Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the holders of Exchange Notes. See "-- Subordination."
The Company will not be required to make a Change of Control Offer
following 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 the
Company and purchases all Exchange Notes validly tendered and not withdrawn
under such Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset
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Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of (a) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or such
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Exchange Notes or any guarantee thereof)
that are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary from
further liability and (b) any securities, notes or other obligations received by
the Company or such Restricted Subsidiary from such transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) shall be deemed to be cash for purposes of this
provision.
Within 360 days of the receipt of any Net Proceeds from an Asset Sale, the
Company or any of its Restricted Subsidiaries may apply such Net Proceeds, at
its option, (i) to repay Senior Debt of the Company or any of its Restricted
Subsidiaries or to provide cash collateral with respect to any letters of credit
outstanding under the Credit Facility (and, in each case, to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings) or
(ii) to the acquisition of a controlling interest in another business, the
making of a capital expenditure or the acquisition of other long-term assets.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt or otherwise invest such 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 $5.0 million, the Company will be required to
make an offer to all holders of Exchange Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Exchange Notes that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the principal amount thereof, 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 the aggregate amount
of Exchange Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of the Exchange Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Notes to be purchased on a pro rata basis.
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions (a) payable in Equity Interests
(other than Disqualified Stock) of the Company or (b) to the Company or any
Wholly Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or
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otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated to
the Exchange Notes or any Guarantee thereof, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such 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 pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clause (ii) through (iv) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period)
from January 1, 1998 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company
from the issue or sale since November 26, 1997 of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock), plus (iii) 50% of any
dividends received by the Company or a Wholly Owned Restricted
Subsidiary after November 26, 1997 from an Unrestricted Subsidiary of
the Company, to the extent that such dividends were not otherwise
included in Consolidated Net Income of the Company for such period.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such
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redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(iv) payments pursuant to the Transactions as described under "The Transactions;
Use of Proceeds" and "Management -- Employment Agreements;" (v) so long as no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed the
sum of (a) $500,000 in any twelve-month period plus (b) the aggregate net
proceeds received by the Company from the issuance after the Closing Date of
Equity Interests (other than Disqualified Stock) of the Company to members of
management or the Board of Directors of the Company or any of its Restricted
Subsidiaries; provided that the amount of any such net cash proceeds that are
utilized for any such repurchase, redemption or other acquisition or retirement
shall be excluded from clause (c)(ii) of the preceding paragraph; and (vi)
payments to Berkshire Partners pursuant to the Management Agreement in an amount
not to exceed $400,000 in any calendar year.
The amount of all Restricted Payments (other than cash) 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 the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company 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 such 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 Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
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 such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if
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such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-- Incurrence of Indebtedness and Issuance
of Preferred Stock," the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence immediately
following such designation.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock (other
than to the Company or another Restricted Subsidiary); provided, however, that
the Company and its Restricted Subsidiaries may incur Indebtedness (including
Acquired Debt) and the Company's Restricted Subsidiaries may issue shares of
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such preferred stock is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock had been issued at the beginning of
such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Facility in an aggregate amount not to
exceed the greater of (a) $100.0 million at any time outstanding,
less the aggregate amount of all Net Proceeds of Asset Sales applied
to repay any such Indebtedness pursuant to clause (i) of the second
paragraph of the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales" or (b) the
sum of 80% of the accounts receivable plus 50% of the inventory, in
each case of the Company and its Restricted Subsidiaries, net of
reserves, as shown on the most recent balance sheet of the Company
and its Restricted Subsidiaries;
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Exchange Notes and the Guarantees thereof;
(iii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by the Company 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 that was permitted
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to be incurred by the first paragraph of this covenant, or by
clauses (ii) through (viii) of the second paragraph of this
covenant;
(v) the incurrence of Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full
of all Obligations with respect to the Exchange Notes and (b) any
subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Company
or a Wholly Owned Restricted Subsidiary, and any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary, shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(vii) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $15.0
million at any time outstanding; and
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision
of this covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (viii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the
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Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the Closing Date, (b) the Credit Facility
as in effect as of the Closing Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Credit Facility as in effect on
the Closing Date, (c) the Indenture, the Exchange Notes and the Guarantees
thereof, (d) applicable law, (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or 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, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (i) restrictions with respect to a Subsidiary
of the Company imposed pursuant to a binding agreement which has been entered
into for the sale or disposition of all of the Capital Stock or all or
substantially all of the assets of such Subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that neither the Company nor any Guarantor may
consolidate or merge with or into (whether or not the Company or such Guarantor,
as the case may be, is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company or such Guarantor, as the case may be, is the
surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company or such Guarantor) or to
which such sale, assignment, transfer, lease, 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; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or such Guarantor) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company or such Guarantor, as the
case may be, under the Exchange Notes or such Guarantor's Guarantee thereof and
the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case of a merger of the
Company or a Guarantor with or into the Company or a Wholly Owned Restricted
Subsidiary of the Company, the Company, such Guarantor or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company or such Guarantor), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (a) will have Consolidated
Net Worth immediately after the transaction equal to or
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greater than the Consolidated Net Worth of the Company immediately preceding the
transaction and (b) will, at the time of such transaction and after giving pro
forma effect thereto (including pro forma expense and cost reductions) as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Company of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not prohibit (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business, (ii) transactions between or among the Company
and/or its Restricted Subsidiaries; and (iii) any Restricted Payment that is
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments."
LIMITATION ON OTHER SENIOR SUBORDINATED DEBT
The Indenture provides that neither the Company nor any Guarantor will
directly or indirectly incur any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of the Company or such Guarantor, as the
case may be, and senior in any respect in right of payment to the Exchange Notes
or such Guarantor's Guarantee thereof.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any Guarantor shall acquire
or create another Domestic Restricted Subsidiary after the date of the
Indenture, or any Unrestricted Subsidiary shall cease to be an Unrestricted
Subsidiary and shall become a Domestic Restricted Subsidiary, then such
Subsidiary shall execute a guarantee of the Exchange Notes and deliver an
opinion of counsel, in accordance with the terms of the Indenture.
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PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Exchange Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Exchange Notes unless
such consideration is offered to be paid or is paid to all holders of the
Exchange Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the holders of the Exchange Notes (i) all quarterly
and annual financial information (excluding exhibits and financial statement
schedules) that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto, the financial condition and results of operations of the
Company and its Restricted Subsidiaries separate from the financial information
and results of operations of the Unrestricted Subsidiaries of the Company) and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and its Restricted Subsidiaries will agree that, for so long as any
Exchange Notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Exchange Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Exchange Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company or any of its Restricted Subsidiaries to comply
with the provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of Holders -- Asset
Sales," "-- Certain Covenants -- Restricted Payments," "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the
Company or any of its Restricted Subsidiaries for 60 days after written notice
by the Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture or
the Exchange Notes; (v) default under any
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mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the Closing Date, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at final maturity (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express 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
$5.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million and
either (a) any creditor commences enforcement proceedings upon any such judgment
or (b) such judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any guarantee of the Exchange
Notes shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company, any of its Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute 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 Exchange Notes to be due and payable immediately, provided that
so long as any Indebtedness permitted to be incurred pursuant to the Credit
Facility shall be outstanding, no such acceleration shall be effective until the
earlier of (i) acceleration of any Indebtedness under the Credit Facility or
(ii) five business days after the giving of written notice of such acceleration
to the Company. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect to
the Company, any of its Restricted Subsidiaries that would constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Exchange
Notes may not enforce the Indenture or the Exchange Notes except as provided in
the Indenture. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Exchange 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.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Exchange Notes. If an Event of Default occurs prior
to November 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Exchange Notes prior to
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such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Exchange Notes.
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Exchange 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 Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or such Guarantor under the Exchange Notes, any Guarantee thereof, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and to have each
Guarantor's obligation discharged with respect to its Guarantee of the Exchange
Notes ("Legal Defeasance") except for (i) the rights of holders of outstanding
Notes to receive payments in respect of the principal of and premium, interest
and Liquidated Damages, if any, on the Exchange Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect to
the Exchange 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, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
and the Guarantors' obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and each
Guarantor released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under the caption "Events of Default" will no
longer constitute an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Exchange Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium,
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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 the
Company must specify whether the Exchange Notes are being defeased to maturity
or to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (a) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (b) since the Closing Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such 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 such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such 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 such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
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 the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound; (vi) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the holders of Notes over
the other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for or
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 and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Exchange Notes and the Guarantees thereof may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes), and any existing default or compliance with any provision of the
Indenture, the Exchange Notes or the Guarantees thereof may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Exchange Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, interest or
Liquidated Damages, if any, on the Exchange Notes (except a rescission of
acceleration of the Exchange Notes by the holders of at least a majority in
aggregate principal amount of the Exchange Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Exchange Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or premium, interest or
Liquidated Damages, if any, on the Exchange Notes, (vii) waive a redemption
payment with respect to any Note (other than a payment required by one of the
covenants described above under the caption "-- Repurchase at the Option of
Holders"), (viii) release any Guarantor from its Guarantee of the Exchange Notes
except as provided in the Indenture, or (ix) make any change in the foregoing
amendment and waiver provisions. In addition, any amendment to the provisions of
Article 10 of the Indenture (which relate to subordination) will require the
consent of the holders of at least 75% in aggregate principal amount of the
Exchange Notes then outstanding if such amendment would adversely affect the
rights of holders of Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company, a Guarantor (with respect to a Guarantee of the Exchange Notes) and
the Trustee may amend or supplement the Indenture, the Exchange Notes or any
Guarantee thereof to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
holders of Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the holders of Notes or
that does not adversely affect the legal rights under the Indenture of any such
holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as
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security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
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
certain 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 such 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 such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Holmes Products
Corp., 233 Fortune Boulevard, Milford, Massachusetts 01757, Attention: Chief
Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. or such other nominee as DTC may designate.
The Global Exchange Note (and any Exchange Notes issued in exchange therefor)
will be subject to certain restrictions on transfer set forth therein and in the
Indenture and will bear the respective legends regarding such restrictions.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificate Exchange Note"). Upon
the transfer of any Certificated Exchange Note initially issued to a Non-Global
Holder, such Certificated Exchange Note will, unless the transferee requests
otherwise or the Global Exchange Note has previously been exchanged in whole for
Certificated Exchange Notes, be exchanged for an interest in the Global Exchange
Note.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
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The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Exchange Notes and (ii) ownership
of the Exchange Notes evidenced by the Global Exchange Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Exchange Notes will be limited to such extent. For
certain other restrictions on the transferability of the Exchange Notes, see
"Notice to Investors."
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note holder will be considered the sole
holder under the Indenture of any Exchange Notes evidenced by the Global
Exchange Notes. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Notes will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of the
Global Exchange Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Exchange Note Holder in its
capacity as the registered holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Exchange Notes, are registered as the
owners thereof for the purpose of receiving such payments. Consequently, neither
the Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Exchange Notes. The Company
believes, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
ADDITIONAL INFORMATION CONCERNING EUROCLEAR AND CEDEL BANK
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear and Cedel Bank is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodian
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relationship with a Euroclear or Cedel Bank participant, either directly or
indirectly. The Company will have no direct control over the clearance and
settlement of such transactions.
When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and Citibank,
N.A., as depositaries for Euroclear and Cedel Bank, respectively) to the account
of a Euroclear participant or a Cedel Bank participant, the purchaser must send
instructions to Euroclear or Cedel Bank through a participant at least one
business day prior to settlement. Euroclear or Cedel Bank, as the case may be,
will instruct Morgan Guaranty Trust Company of New York or Citibank, N.A. to
receive the beneficial interests against payment. Payment will include interest
attributable to the beneficial interest from and including the last payment date
to and excluding the settlement date, on the basis of a calendar year consisting
of twelve 30-day calendar months. For transactions settling on the 31st day of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by Morgan Guaranty Trust
Company of New York or Citibank, N.A., as the case may be, to the Participant's
account against delivery of the beneficial interests. After settlement has been
completed, the beneficial interests will be credited to the respective clearing
systems and by the clearing system, in accordance with its usual procedures, to
the Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value date (which would be the
preceding business day when settlement occurs in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Euroclear or
Cedel Bank cash debit will instead be valued as of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank until
the beneficial interests are credited to their accounts one day later. Finally,
day traders that use Euroclear or Cedel Bank and that purchase beneficial
interests from Participants for credit to Euroclear participants or Cedel Bank
participants should note that these trades would automatically fall on the sale
side unless affirmative action were taken to avoid these potential problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A., to
another Participant. The seller must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement. In
these cases, Euroclear or Cedel Bank will instruct Morgan Guaranty Trust Company
of New York or Citibank, N.A., as the case may be, to credit the beneficial
interests to the Participant's account against payment. Payment will include
interest attributable to the beneficial interest from and including the last
payment date to and excluding the settlement date on the basis of a calendar
year consisting of twelve 30-day calendar months. For transactions settling on
the 31st day of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the Euroclear participant or Cedel Bank participant
the following business day, and receipt of the cash proceeds in the Euroclear or
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Cedel Bank participant's account will be back-valued to the value date (which
would be the preceding business day, when settlement occurs in New York). If the
Euroclear participant or Cedel Bank participant has a line of credit with its
representative clearing system and elects to draw on such line of credit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
may substantially reduce or offset any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
if trade fails), receipt of the cash proceeds in the Euroclear or Cedel Bank
participant's account would instead be valued as of the actual settlement date.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request, exchange such beneficial interest for
Exchange Notes in the form of Certificated Securities. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name of,
and cause the same to be delivered to, such person or persons (or the nominee of
any thereof). All such certificated Exchange Notes would be subject to the
legend requirements described herein under the caption "Notice to Investors." In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by the Global Exchange Note Holder of the Global Exchange Notes,
Exchange Notes in such form will be issued to each person that the Global
Exchange Note Holder and the Depositary identify as being the beneficial owner
of the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Notes (including principal, premium, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address.
The Exchange Notes represented by the Global Notes are expected to be
eligible to trade in the PORTAL market and to trade in the Depositary's Same-Day
Funds Settlement System, and any permitted secondary market trading activity in
such Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds,
although such settlement will not be within the Company's control.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on February 5, 1999. Pursuant to the Registration
Rights Agreement, the Company and the Guarantors agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Company and
the Guarantors are not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any holder
of Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(c) that it is a broker-dealer and owns Series C Notes acquired directly from
the Company or an affiliate of the Company, the Company and the Guarantors will
file with the Commission a Shelf Registration Statement to cover resales of the
Exchange Notes by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Company and the Guarantors will use their best efforts to cause
the applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Series C Note until (i) the date on which such Series C
Note has been exchanged by a person other than a broker-dealer for an Exchange
Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Series C Note for an Exchange Note, the date on which
such Exchange Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Series C
Note has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Series C Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the date of the Indenture, (ii) the
Company and the Guarantors will use their best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior to
150 days after the date of the Indenture, (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue, on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Series C Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company and the
Guarantors will use their best efforts to file the Shelf Registration Statement
with the Commission on or prior to 90 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 150 days after such obligation arises. If (a) the Company and the
Guarantors fail to file any of the Registration Statements required by the
Registration
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Rights Agreement on or before the date specified for such filing, (b) any of
such Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness, (c) the Company fails to
consummate the Exchange Offer within 30 business days of the effective date of
the Exchange Offer Registration Statement or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company and the Guarantors will pay Liquidated
Damages to each holder of Notes, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default, in an
amount equal to $.05 per week per $1,000 principal amount of Notes held by such
holder. The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.50 per week per $1,000 principal amount of
Notes. All accrued Liquidated Damages will be paid by the Company on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Series C Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"1997 Indenture" means the Indenture, dated November 26, 1997, by and among
the Company, the guarantors named therein and State Street Bank and Trust
Company, as trustee.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether
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through the ownership of voting securities, by agreement or otherwise; provided
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "-- Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by
the Company or any of its Subsidiaries of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary and (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"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 such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) 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 (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson or Keefe Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition and (vi) money market deposit accounts all of the investments of
which consist of cash or Cash Equivalents of the type described in clauses (i)
through (v) above.
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"Change of Control" means the occurrence of any of the following: (i) 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 the Company and its Restricted Subsidiaries,
taken as a whole, other than to the Principals; (ii) the adoption of a plan for
the liquidation or dissolution of the Company; (iii) prior to the consummation
of an Initial Public Offering, the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that the
Principals fail to be the "beneficial owners" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of at
least 51% of the aggregate voting power of the outstanding Voting Stock of the
Company; (iv) following the consummation of an Initial Public Offering, the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act), other than the
Principals, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of (a)
more than 35% of the aggregate voting power of the outstanding Voting Stock of
the Company or (b) more of the voting power of the outstanding Voting Stock of
the Company than that beneficially owned by the Principals; or (v) the first day
on which more than a majority of the members of the Board of Directors are not
Continuing Directors.
"Closing Date" means November 26, 1997.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), excluding, however,
amortization of debt issuance costs relating to Indebtedness incurred in
connection with the Transactions, (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period), (v) any compensation
expense resulting from the payment of cash bonuses as a result of the
Transactions as described under "Management -- Employment Agreements," and (vi)
any non-cash compensation expense resulting from compensation paid in Equity
Interests (other than Disqualified Stock) of the Company, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization 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 the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained) pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or
its stockholders.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not 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 Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income 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 or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date, plus (b) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (i) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Closing Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person,
(ii) all investments (other than Permitted Investments) as of such date in
unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries
and (iii) all unamortized debt discount and expense and unamortized deferred
charges as of such date, in each case, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Closing Date or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Credit Facility" means that certain credit agreement, dated as of the
Closing Date, by and among the Company, each Subsidiary of the Company party
thereto, the lenders party thereto and BankBoston, N.A., as Agent, as amended,
restated, extended, modified, renewed, refunded, replaced, substituted,
restructured or refinanced in whole or in part from time to time, whether with
the present lenders or any other lenders, including any Guarantees thereof.
"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.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt permitted under the Indenture the
principal amount of which is $10.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Exchange Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is
organized pursuant to the laws of any state or other jurisdiction in the United
States.
"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 in existence on the Closing Date
(other than Indebtedness under the Credit Facility), until such Indebtedness is
repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), excluding, however,
amortization of debt issuance costs relating to Indebtedness incurred in
connection with the Transactions, (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
(iii) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, 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 such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays 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 such incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness, or
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such issuance or redemption of preferred stock, 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, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
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 (including any
pro forma expense or cost reductions) and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the Closing Date.
"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 and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each of the Company's Domestic Restricted Subsidiaries
existing on the date of the Indenture, and each other Person that executes a
Guarantee of the Exchange Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, 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 such 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 such Person prepared in accordance with GAAP, (ii) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) up to the fair market value of such asset and (iii)
to the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person. Notwithstanding the foregoing, Indebtedness
shall not include payment, performance or surety bonds or standby letters of
credit issued in the ordinary course of business.
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"Initial Public Offering" means one or more underwritten public offerings
of the common stock of the Company registered under the Securities Act.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
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.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company 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 such Subsidiary not sold or disposed of in an
amount determined as provided in the third full paragraph of the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such 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 Agreement" means that certain agreement dated the Closing Date
between the Company and Berkshire Partners (of any of its Affiliates), as
amended, modified, renewed or extended from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company 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 the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any severance,
termination, closing, relocation or similar expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
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"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) 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 (other than the Exchange
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any recourse
to the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest (including Post-Petition
Interest), penalties, fees, expenses, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales;" (v) any acquisition of an Investment solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (vi) advances to employees in the ordinary course of business; and
(vii) other Investments in any Person (measured on the date each such Investment
was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (vii) and all
Investments made before the date of this Indenture pursuant to clause (vii) of
the definition of "Permitted Investments" set forth in the 1997 Indenture that
are at the time outstanding, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that (i) are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Exchange Notes are subordinated to Senior Debt pursuant
to Article 10 of the Indenture and (ii) have a maturity no earlier than the
maturity of the Exchange Notes and a Weighted Average Life to Maturity no
shorter than the Weighted Average Life to Maturity of the Exchange Notes.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries that was permitted by the terms of the Indenture or
the 1997 Indenture to be incurred; (ii) Liens in favor of the Company or any of
its Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of
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acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing, or created
pursuant to obligations existing, on the Closing Date; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefore; (viii) statutory or common law Liens of landlords, and
Liens of carriers, warehousemen, mechanics and materialmen, and other Liens
imposed by law created in the ordinary course of business for amounts not yet
due or which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves are being maintained; (ix) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (x) easements, rights of way and other similar Liens not materially
interfering with the ordinary conduct of the business of the Company and its
Restricted Subsidiaries or any of their respective properties; (xi) Liens with
respect to obligations that do not exceed $2.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; and (xii)
extensions, renewals or replacements of any Lien referred to in clauses (i)
through (xi) of this paragraph, provided that the principal amount of the
Indebtedness or Obligation secured thereby is not increased and that any such
extension, renewal or replacement is limited to the property originally
encumbered by the Lien being extended, renewed or replaced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later 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; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Exchange Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Exchange
Notes on terms at least as favorable to the holders of Notes as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Permitted Transferee" means each person or entity to whom Jordan A. Kahn
may transfer shares of common stock of the Company pursuant to Section 4.1 of
the Stock
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Purchase Agreement, dated as of October 27, 1997, between Jordan A. Kahn and
Holmes Acquisition LLC, as in effect on the Closing Date.
"Post-Petition Interest" means, with respect to any Senior Debt after the
commencement of any liquidation or dissolution of the Company, any bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, any assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, interest at the rate
specified in the documents governing such Senior Debt, whether or not a claim
therefor would be allowed in any such proceeding.
"Principals" means Berkshire Partners, Berkshire Fund IV, Berkshire Fund IV
Investment Corp., Berkshire Investors LLC and any of their respective
Affiliates, Jordan A. Kahn and his Affiliates, Stanley Rosenzweig and Gregory F.
White; provided, however, that for purposes of the provisions of the Indenture
set forth under "-- Repurchase at the Option of Holders -- Change of Control"
and the definition of "Change in Control," any shares of Capital Stock of the
Company owned by a Permitted Transferee on the Closing Date, and any shares of
Capital Stock of the Company owned by Jordan A. Kahn on the Closing Date but
that subsequently are transferred to a Permitted Transferee, will in each case
be deemed to be owned by Jordan A. Kahn.
"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 Debt" of a Person means (i) all Obligations of such Person
outstanding under the Credit Facility, (ii) any other Indebtedness of such
Person permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to any Senior Debt of such Person and (iii)
all Obligations of such Person with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt of a Person will not
include (a) any liability for federal, state, local or other taxes owed or owing
by such Person, (b) any Indebtedness of such Person 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 Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) 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 such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
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(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) 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 (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such 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 such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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PLAN OF DISTRIBUTION
Each participating broker-dealer ("Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that it will make this Prospectus, as amended
or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale, and Participating Broker-Dealers shall be
authorized to deliver this Prospectus in connection with the sale or transfer of
the Exchange Notes. In addition, until , 1999 (90 days after the
date of this Prospectus), all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. Any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that is an
"underwriter" within the meaning of the Securities Act.
The Issuer will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain of the material United
States federal income tax consequences to purchasers of the notes at original
issuance arising from the acquisition, ownership, and disposition of the notes.
This discussion is a summary for general information only and does not consider
all aspects of United States federal income taxation that may be relevant to a
prospective investor in light of that investor's particular circumstances. This
discussion also deals only with notes held by a holder as capital assets within
the meaning of Section 1221 of the United States Internal Revenue Code of 1986,
as amended to the date hereof (the "Code"). This summary does not address all of
the tax consequences that may be relevant to a holder of Exchange Notes, nor
does it address the federal income tax consequences to holders subject to
special treatment under the federal income tax laws, such as brokers or dealers
in securities or currencies, certain securities traders, tax-exempt entities,
banks, thrifts, insurance companies, other financial institutions, persons that
hold the notes as a position in a "straddle" or as part of a "synthetic
security," "hedging," "conversion" or other integrated instrument, persons that
have a "functional currency" other than the United States dollar, persons that
acquire notes in connection with the performance of services, investors in
pass-through entities and certain United States expatriates. Further, this
summary does not address (i) the income tax consequences to shareholders in, or
partners or beneficiaries of, a holder of the notes, (ii) the United States
federal alternative minimum tax consequences of the purchase, ownership or
disposition of the notes, or (iii) any state, local or foreign tax consequences
of the purchase, ownership or disposition of the notes.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.
Persons considering the purchase of Exchange Notes should consult their own
tax advisors concerning the application of federal income tax laws, as well as
the laws of any state, local, or foreign taxing jurisdiction, to their
particular situations.
U.S. HOLDERS
For purposes of this discussion, "U.S. Holder" generally means (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or any state, (iii) an estate the income of which is includible in its gross
income for United States federal income tax purposes without regard to its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over its administration and one or more United States
persons have the authority to control all substantial decisions of the trust.
Certain United States federal income consequences relevant to a holder other
than a U.S. Holder (a "Non-U.S. Holder") are discussed separately below.
PAYMENTS OF STATED INTEREST
Stated interest paid or accrued on the notes will constitute qualified
stated interest and will be taxable to a U.S. Holder as ordinary income in
accordance with the holder's method of accounting for federal income tax
purposes. Alternatively, a U.S. Holder may elect to include stated interest on
the notes (as well as any original issue discount ("OID"), market discount, de
minimis market discount and unstated interest on the notes, as adjusted by any
amortizable bond premium or acquisition premium) in gross income on
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a constant-yield basis. The mechanics and implications of such an election are
beyond the scope of this discussion and, as a result, U.S. Holders should
consult their own tax advisors regarding the advisability of making such an
election.
ORIGINAL ISSUE DISCOUNT
The notes will have OID for federal tax purposes, and accordingly, unless
the amount of OID is de minimis, U.S. Holders of Notes will be subject to
special tax rules, pursuant to which U.S. Holders of notes will generally be
required to include OID in gross income for U.S. federal income tax purposes on
an annual basis under a constant yield accrual method regardless of their
regular method of tax accounting, in advance of the receipt of cash attributable
to such income. However, U.S. Holders of the notes generally will not be
required to include separately in income cash payments (i.e., principal)
received on such notes, to the extent such payments constitute payments of
previously accrued OID.
The notes will be treated as issued with OID equal to the excess of the
"stated redemption price at maturity" of a Note over its "issue price." The
amount of OID will be considered de minimis and thus ignored for federal income
tax purposes if it is less than 1/4 of 1% of the stated redemption price at
maturity multiplied by the number of complete years to maturity. The issue price
of a Note is the first price at which a substantial portion of the notes are
sold for money (excluding sales to bond houses, brokers or similar persons or
organizations acting in similar capacity). The stated redemption price at
maturity of a Note is the total of all payments on the Note that are not
payments of "qualified stated interest." A qualified stated interest is interest
unconditionally payable, in cash or property (other than debt instruments of the
issuer), at least annually at a single fixed rate during the entire term of the
Note that appropriately takes into account the length of intervals between
payments. Stated interest on the notes will be treated as qualified stated
interest.
The amount of OID includible in income by an initial U.S. Holder of a Note
is the sum of the "daily portions" of OID with respect to the Note for each day
during the taxable year or portion thereof in which such U.S. Holder holds such
Note ("accrued OID"). The daily portion is determined by allocating to each day
in any "accrual period" a pro-rata portion of the OID that accrued in such
period. The "accrual period" of a Note may be of any length and may vary in
length over the term of an OID note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
either on the first or last day of an accrual period. The amount of OID that
accrues with respect to any accrual period is the excess of (a) the product of
the Note's adjusted issue price at the beginning of such accrual period and its
yield to maturity, determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of such period, over (b) the
amount of qualified stated interest allocable to such accrual period. The
"adjusted issue price" of a Note at the start of any accrual period is equal to
its issue price increased by the accrued OID for each prior accrual period and
reduced by any prior payments made on such Note (other than payments of
qualified stated interest).
If the Company is required to pay Liquidated Damages with respect to the
notes as described under "Description of the Exchange Notes -- Registration
Rights; Liquidated Damages," such payment would result in ordinary income to a
U.S. Holder. Such amounts should be taxable to a U.S. Holder at the time it
accrues or is received in accordance with such holder's regular method of
accounting.
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EXCHANGE OFFER
A U.S. Holder will not recognize any taxable gain or loss on the exchange
of Old Notes for Exchange Notes pursuant to the Exchange Offer, and a U.S.
Holder's tax basis and holding period in the Exchange Notes will be the same as
in the Old Notes. See "The Exchange Offer -- Certain Federal Income Tax
Consequences of the Exchange Offer."
SALE OR REDEMPTION OF THE NOTES
Upon the disposition of a note by sale, exchange or redemption, a U.S.
Holder generally will recognize gain or loss equal to the difference, if any,
between (i) the amount realized on the disposition (other than amounts
attributable to accrued and unpaid interest) and (ii) the U.S. Holder's tax
basis in the note. A U.S. Holder's tax basis in a note generally will equal the
initial tax basis of the note to the U.S. Holder, increased by OID previously
included (or currently includible) in such holder's gross income to the date of
disposition, and reduced by any payments other than payments of qualified stated
interest made on such note. When a note is sold, disposed of or redeemed between
interest payment dates, the portion of the amount realized on the disposition
that is attributable to interest accrued to the date of sale must be reported as
interest income by a cash method investor and an accrual method investor that
has not included the interest in income as it accrued.
Assuming the note is held as a capital asset, such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain or
loss if the U.S. Holder has held such note for longer than one year.
NON-U.S. HOLDERS
The following discussion summarizes certain United States federal income
tax consequences relevant to a Non-U.S. Holder of a note.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to any particular Non-U.S. Holder in light
of that holder's personal circumstances with respect to such holder's purchase,
ownership or disposition of the notes, including, for example, such holder
holding the notes through a partnership.
STATED INTEREST AND OID ON THE NOTES
Under current United States federal income tax law, payments of stated
interest or OID on a note by the Company or any paying agent to a holder that is
a Non-U.S. Holder will not be subject to withholding of United States federal
income tax if (i) such payment is effectively connected with a trade or business
within the United States by such Non-U.S. Holder, or (ii) both (a) the holder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of stock of the Company and is not a controlled
foreign corporation related to the Company through stock ownership and (b) the
beneficial owner provides a statement signed under penalties of perjury that
includes its name and address and certifies (on an IRS Form W-8 or a
substantially similar substitute form) that it is a Non-U.S. Holder in
compliance with applicable requirements.
Interest on a note that is effectively connected with the conduct of a
trade or business in the United States by a Non-U.S. Holder, although exempt
from the withholding tax (assuming appropriate certification is provided), may
be subject to graduated United States federal income tax on a net income basis
and, in the case of a corporation, also an
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additional branch profits tax of 30% (or a lower rate provided in an applicable
treaty) as if such amounts were earned by a U.S. Holder.
SALE OR REDEMPTION OF NOTES
Except as described below and subject to the discussion concerning backup
withholding, a Non-U.S. Holder generally will not be subject to withholding of
United States federal income tax with respect to any gain realized upon the sale
or redemption of notes. Further, a Non-U.S. Holder generally will not be subject
to United States federal income tax with respect to any such gain unless (i) the
gain is effectively connected with a United States trade or business of such
Non-U.S. Holder, (ii) subject to certain exceptions, the Non-U.S. Holder is an
individual who holds such notes as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition, or (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of United States
tax law applicable to certain United States expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the notes held by a noncorporate U.S. Holder
within the United States. In addition, payments made on, and payments of
proceeds from the sale of, such notes to or through the United States office of
a broker are subject to information reporting unless the holder thereof
certifies as to its non-U.S. status or otherwise establishes an exemption from
information reporting and backup withholding.
Payments made on, and proceeds from the sale of, the notes may be subject
to a "backup" withholding tax of 31% unless the holder complies with certain
identification or exemption requirements. Any amounts so withheld will be
allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
NEW WITHHOLDING REGULATIONS
In October, 1997, the IRS issued final regulations relating to withholding,
backup withholding and information reporting with respect to payments made in
Non-U.S. Holders. The regulations generally apply to payments made after
December 31, 1999, subject to certain transition rules.
When effective, the new regulations will streamline and, in some cases,
alter the type of statements and information that must be furnished to claim a
reduced rate of withholding. The regulations also clarify the duties of United
States payors making payments to foreign persons and modify the rules concerning
withholding on payments made to Non-U.S. Holders through foreign intermediaries.
The regulations also eliminate the address rule under which dividends paid to a
foreign address were presumed to be paid to a resident at that address and
therefore eligible for the benefit of any applicable tax treaty and require a
foreign holder who wishes to claim the benefit of an applicable treaty rate to
satisfy certain certification and other requirements. Non-U.S. Holders are urged
to consult their advisor regarding the new final regulations.
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LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon on behalf of the Company by Posternak, Blankstein & Lund, L.L.P., Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of Holmes Products Corp. as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, incorporated by reference in this Prospectus by reference to
the Annual Report on Form 10-K of Holmes Products Corp. for the year ended
December 31, 1998, have been incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of The Rival Company and subsidiaries
as of June 30, 1998 and 1997, and for each of the three years in the three-year
period ended June 30, 1998 have been incorporated by reference in this
Prospectus in reliance upon the report of KPMG LLP, independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THE RIVAL COMPANY
Condensed Consolidated Balance Sheets as of December 31,
1997 and 1998 (unaudited) and June 30, 1998 (audited)..... F-2
Condensed Consolidated Statements of Operations for the
three and six months ended December 31, 1997 and 1998
(unaudited)............................................... F-3
Condensed Consolidated Statements of Cash Flows for the six
months ended December 31, 1997 and 1998 (unaudited)....... F-4
Notes to Condensed Consolidated Financial Statements........ F-5
F-1
128
THE RIVAL COMPANY AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 AND JUNE 30, 1998
(IN THOUSANDS)
DECEMBER 31,
1998 1997 JUNE 30, 1998
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash.......................................... $ 579 $ 59 $ 309
Accounts receivable........................... 100,601 106,905 75,106
Inventories................................... 102,444 98,498 101,714
Deferred income taxes......................... 2,314 2,549 2,379
Prepaid expenses.............................. 1,859 1,753 1,376
-------- -------- --------
Total current assets....................... 207,797 209,764 180,884
-------- -------- --------
Property, plant and equipment, net.............. 37,022 45,790 46,045
Goodwill........................................ 59,299 61,538 60,418
Other assets.................................... 9,940 5,124 4,767
-------- -------- --------
$314,058 $322,216 $292,114
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks........................ $ 78,090 $ 69,233 $ 58,200
Current portion of long-term debt............. 6,000 4,000 6,000
Trade accounts payable........................ 14,821 19,283 15,056
Income taxes payable.......................... 1,461 5,068 403
Other payables and accrued expenses........... 15,434 14,537 11,618
-------- -------- --------
Total current liabilities.................. 115,806 112,121 91,277
-------- -------- --------
Long-term debt, less current portion............ 78,000 84,000 78,000
Deferred income taxes and other liabilities..... 4,541 5,825 6,222
Stockholders' equity:
Common stock.................................. 98 98 98
Paid-in capital............................... 45,972 45,656 45,971
Retained earnings............................... 76,909 79,735 76,463
Treasury stock at cost.......................... (6,952) (4,952) (5,608)
Accumulated other comprehensive income.......... (316) (267) (309)
-------- -------- --------
Total stockholders' equity................. 115,711 120,270 116,615
-------- -------- --------
$314,058 $322,216 $292,114
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
F-2
129
THE RIVAL COMPANY AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net sales............................. $114,847 $127,852 $194,899 $224,549
Cost of sales......................... 83,673 93,680 143,250 164,799
Cost of sales, plant restructuring.... 500 -- 3,333 --
-------- -------- -------- --------
Total cost of sales................. 84,173 93,680 146,583 164,799
-------- -------- -------- --------
Gross profit.......................... 30,674 34,172 48,316 59,750
Selling expenses...................... 14,616 15,056 26,782 28,055
General and administrative expenses... 3,280 3,624 6,222 6,879
Plant restructuring expenses.......... 165 -- 5,052 --
Amortization of goodwill and other
intangibles......................... 685 706 1,370 1,485
-------- -------- -------- --------
Operating income.................... 11,928 14,786 8,890 23,331
Interest expense...................... 2,724 2,872 5,208 5,459
Other expense (income), net........... 19 (95) 364 (92)
-------- -------- -------- --------
Earnings before income taxes........ 9,185 12,009 3,318 17,964
Income tax expense.................... 3,603 4,572 1,570 6,801
-------- -------- -------- --------
Net earnings........................ 5,582 7,437 1,748 11,163
======== ======== ======== ========
Weighted average common shares
outstanding......................... 9,294 9,446 9,321 9,448
======== ======== ======== ========
Net earnings per share (Basic
EPS)............................. $ .60 $ .79 $ .19 $ 1.18
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding....... 9,379 9,598 9,412 9,631
======== ======== ======== ========
Net earnings per share (Diluted
EPS)............................. $ .60 $ .77 $ .19 $ 1.16
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
F-3
130
THE RIVAL COMPANY AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net earnings.............................................. $ 1,748 $ 11,163
Adjustments to reconcile net earnings to net cash used by
operating activities:
Depreciation and amortization............................. 5,455 5,621
Non-cash restructuring charges............................ 6,612 --
Deferred taxes............................................ (1,135) --
Other..................................................... 71 144
Changes in assets and liabilities:
Accounts receivable.................................... (26,000) (32,242)
Inventories............................................ (2,668) 6,789
Prepaid expenses....................................... (483) (378)
Accounts payable and accruals.......................... 1,907 4,877
Income taxes payable................................... 1,058 3,837
-------- --------
Net cash used by operating activities.................. (13,435) (189)
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (3,251) (3,185)
Other..................................................... (289) (21)
-------- --------
Net cash used by investing activities.................. (3,540) (3,206)
-------- --------
Cash flows from financing activities:
Net borrowings under working capital loans................ 19,890 4,158
Dividends paid............................................ (1,302) (1,134)
Treasury stock repurchases................................ (1,344) (514)
Other..................................................... 1 750
-------- --------
Net cash provided by financing activities.............. 17,245 3,260
-------- --------
Net increase (decrease) in cash............................. 270 (135)
-------- --------
Cash at beginning of period................................. 309 194
-------- --------
Cash at end of period....................................... $ 579 $ 59
======== ========
See accompanying notes to condensed consolidated financial statements.
F-4
131
THE RIVAL COMPANY AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
1.
In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals) considered necessary to present fairly the financial
position of The Rival Company (the "Company") as of December 31, 1998 and 1997
and the results of its operations and its cash flows for the three and six
months ended December 31, 1998 and 1997. The June 30, 1998, condensed
consolidated balance sheet has been derived from the audited consolidated
financial statements as of that date. These financial statements have been
prepared in accordance with the instructions to Form 10-Q. To the extent that
information and footnotes required by generally accepted accounting principles
for complete financial statements are contained in or consistent with the
audited consolidated financial statements incorporated by reference in the
Company's Form 10-K for the year ended June 30, 1998, such information and
footnotes have not been duplicated herein.
2. SEASONALITY
The results of operations for the three months and six months ended
December 31, are not indicative of the results to be expected for the full year
due to the seasonal nature of the Company's operations.
3. INVENTORIES
The following is a summary of inventories at December 31, 1998 and 1997 and
June 30, 1998 (in thousands):
DEC. 31, 1998 DEC. 31, 1997 JUNE 30, 1998
------------- ------------- -------------
Raw materials and work in progress.............. $ 37,582 $ 43,968 $ 40,518
Finished goods.................................. 71,177 60,420 67,061
-------- -------- --------
108,759 104,388 107,579
Less LIFO allowance............................. (6,315) (5,890) (5,865)
-------- -------- --------
$102,444 $ 98,498 $101,714
======== ======== ========
4. BUSINESS SEGMENTS
The Company manages its operations through four business units: kitchen
electrics and personal care (kitchen electrics), home environment, industrial
and building supply (industrial) and international. The kitchen electrics
business unit sells products including Crock-Pot(R) slow cookers, toasters, ice
cream freezers, can openers and massagers to retailers throughout the United
States. The home environment business unit sells products including fans, air
purifiers, humidifiers, showerheads, electric space heaters, and utility pumps
to retailers throughout the United States. The industrial group sells products
including industrial fans and drum blowers, household ventilation, ceiling fans,
door chimes and electric heaters to electrical and industrial wholesale
distributors throughout the United States. The international business unit sells
the Company's products outside the United States.
F-5
132
THE RIVAL COMPANY AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
The Company is reporting business segment information in accordance with
the provisions of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which was issued in June
1997.
The Company evaluates performance based upon contribution margin, which it
defines as gross margin less selling expenses. Administrative functions such as
finance and management information systems are centralized and are not allocated
to the business units. The various business units share manufacturing and
distribution facilities. Costs of operating the manufacturing plants are
allocated to the business units through full-absorption standard costing and
distribution costs are allocated based upon volume shipped from each
distribution center.
Summary financial information for each reportable segment, together with
non-business unit results consisting of sales directly to consumers, for the
three month periods ended December 31, 1998 and 1997 is as follows (in
thousands):
KITCHEN HOME
ELECTRICS ENVIRONMENT INDUSTRIAL INTERNATIONAL OTHER TOTAL
DECEMBER 1998 --------- ----------- ---------- ------------- ------ --------
Net sales................ $73,992 $20,630 $4,804 $13,649 $1,772 $114,847
Gross profit............. 21,031 4,766 929 3,420 1,028 31,174
Selling expenses......... 7,211 3,129 1,531 1,931 814 14,616
Contribution margin...... 13,820 1,639 (602) 1,489 212 16,558
KITCHEN HOME
ELECTRICS ENVIRONMENT INDUSTRIAL INTERNATIONAL OTHER TOTAL
DECEMBER 1997 --------- ----------- ---------- ------------- ------ --------
Net sales................ $74,809 $26,097 $5,839 $19,163 $1,944 $127,852
Gross profit............. 20,347 6,079 1,251 5,431 1,064 34,172
Selling expenses......... 6,996 3,379 1,783 2,513 385 15,056
Contribution margin...... 13,351 2,700 (532) 2,918 679 19,116
Summary financial information for the six-month periods ended December 31,
1998 and 1997 is as follows (in thousands):
KITCHEN HOME
ELECTRICS ENVIRONMENT INDUSTRIAL INTERNATIONAL OTHER TOTAL
DECEMBER 1998 --------- ----------- ---------- ------------- ------ --------
Net sales................ $115,746 $40,646 $13,626 $21,731 $3,150 $194,899
Gross profit............. 32,506 8,878 3,077 5,396 1,792 51,649
Selling expenses......... 12,373 6,099 3,513 3,348 1,449 26,782
Contribution margin...... 20,133 2,779 (436) 2,048 343 24,867
KITCHEN HOME
ELECTRICS ENVIRONMENT INDUSTRIAL INTERNATIONAL OTHER TOTAL
DECEMBER 1997 --------- ----------- ---------- ------------- ------ --------
Net sales................ $124,410 $52,463 $14,915 $29,483 $3,278 $224,549
Gross profit............. 34,302 11,677 3,677 8,271 1,823 59,750
Selling expenses......... 12,710 6,455 3,926 4,196 768 28,055
Contribution margin...... 21,592 5,222 (249) 4,075 1,055 31,695
Gross profit differs from that reported in the accompanying condensed
consolidated statement of operations as the cost of sales related to plant
restructuring has not been allocated to any reportable segment.
F-6
133
THE RIVAL COMPANY AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
5. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" which establishes rules for the reporting
of comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments as presented in the
following table. The adoption of Statement No. 130 had no impact on total
stockholders' equity.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------ -------
Net earnings................................. $5,582 $7,437 $1,748 $11,163
Foreign currency translation adjustments..... (11) 389 (7) 365
------ ------ ------ -------
Total comprehensive income................... $5,571 $7,826 $1,741 $11,528
====== ====== ====== =======
6. TREASURY STOCK PURCHASES
During the quarter ended December 1998, the Company did not repurchase any
shares of its common stock.
7. NET EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 ("APB 15") and related
interpretations. Statement No. 128 has been adopted in the accompanying
financial statements with retroactive application. Basic earnings per share
excludes dilution and is computed by dividing net earnings by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Diluted earnings per share is computed based upon the weighted average number of
common shares and dilutive common equivalent shares outstanding. Common stock
options, which are common stock equivalents, have a dilutive effect on earnings
per share and are therefore included in the computation of diluted earnings per
share for such period.
8. RESTRUCTURING CHARGES
The Company recorded restructuring charges during the September 1998
quarter totaling $7.7 million pretax ($4.7 million after tax) related to the
previously announced closing of three facilities in North Carolina and Indiana.
The charges include $2.8 million in cost of sales to recognize the cost of
components in excess of their salvage value on products being transferred to
overseas manufacturers. The balance of the $7.7 million charge represents the
estimated loss on disposal of properties together with severance and other
costs. During the December quarter, the Company incurred an additional
restructuring charge totaling $0.7 million ($0.3 million after tax), of which
$0.5 million was included in cost of sales, related to the previously announced
closings. The Company expects to incur approximately $2.2 million in additional
one-time facility closing costs.
F-7
134
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY HOLMES OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HOLMES SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, OTHER THAN THE SECURITIES TO
WHICH IT RELATES, OR ANY OFFER TO BUY THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN EACH JURISDICTION.
[HOLMES LOGO]
HOLMES PRODUCTS CORP.
OFFER TO EXCHANGE
$31,250,000
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES C
FOR
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES D
------------------
PROSPECTUS
------------------
, 1999
================================================================================
135
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Twelfth of the Company's by-laws provides that the Company, to the
extent legally permissible, will indemnify any person serving or who has served
as a director or officer of the Company against all liabilities and expenses
reasonably incurred by such director or officer in connection with the defense
or disposition of any action, suit or other proceeding in which the director or
officer may be involved, while serving as, or by reason of being or having been,
such a director or officer, except with respect to any matter as to which he or
she is adjudicated to have not acted in good faith or not with reasonable belief
that an action was in the best interest of the Company.
The Company maintains directors' and officers' liability insurance which
may cover liabilities under the Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles of Organization (as amended) of Holmes Products
Corp.(1)
3.2 Articles of Organization of Holmes Manufacturing Corp.(1)
3.3 Articles of Organization of Holmes Air (Taiwan) Corp.(1)
3.4 Certificate of Incorporation of Holmes Motor Corp.(4)
3.5 Restated Certificate of Incorporation (as amended) of The
Rival Company(4)
3.6 Certificate of Incorporation (as amended) of Patton Electric
Company, Inc.(4)
3.7 Certificate of Incorporation (as amended) of Patton Building
Products, Inc.(4)
3.8 Certificate of Incorporation (as amended) of Rival Consumer
Sales Corporation(4)
3.9 Bylaws (as amended) of Holmes Products Corp.(1)
3.10 By-laws of Holmes Manufacturing Corp.(1)
3.11 By-laws of Holmes Air (Taiwan) Corp.(1)
3.12 By-laws of Holmes Motor Corp.(4)
3.13 By-laws of The Rival Company(4)
3.14 By-laws of Patton Electric Company, Inc.(4)
3.15 By-laws of Patton Building Products, Inc.(4)
3.16 By-laws of Rival Consumer Sales Corporation(4)
4.1 Stockholders' Agreement dated November 26, 1997 among Holmes
Products Corp. and certain stockholders thereof(1)
4.2 Registration Rights Agreement dated November 26, 1997 among
Holmes Products Corp. and certain stockholders thereof(1)
II-1
136
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.3 Registration Rights Agreement dated November 26, 1997 among
Holmes Products Corp., Holmes Manufacturing Corp., Holmes
Air (Taiwan) Corp., BancBoston Securities Inc. and Lehman
Brothers Inc.(1)
4.4 Indenture dated November 26, 1997 among Holmes Products
Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp.
and State Street Bank and Trust Company(1)
4.5 Form of Notes -- (Included in Exhibit 4.4)(1)
4.6 Form of Guaranty -- (Included in Exhibit 4.4)(1)
4.7 First Supplemental Indenture and Guarantee dated October 14,
1998 among Holmes Products Corp., Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corp. and
State Street Bank and Trust Company(4)
4.8 Registration Rights Agreement dated February 5, 1999 among
Holmes Products Corp., Holmes Manufacturing Corp., Holmes
Air (Taiwan) Corp., Holmes Motor Corp., The Rival Company,
Patton Electric Company, Inc., Patton Building Products,
Inc., Rival Consumer Sales Corporation, BancBoston Robertson
Stephens Inc. and Lehman Brothers Inc.(3)
4.9 Indenture dated February 5, 1999 among Holmes Products
Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp.,
Holmes Motor Corp., The Rival Company, Patton Electric
Company, Inc., Patton Building Products, Inc., Rival
Consumer Sales Corporation and State Street Bank and Trust
Company(3)
4.10 First Amendment to Registration Rights Agreement dated
February 5, 1999 among Holmes Products Corp. and certain
stockholders thereof(4)
4.11 First Amendment to Stockholders' Agreement dated February 5,
1999 among Holmes Products Corp. and certain stockholders
thereof(4)
4.12 Second Supplemental Indenture and Guarantee dated February
5, 1999 among Holmes Products Corp., Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corp.,
Moriarty Acquisition Corp., The Rival Company, Patton
Electric Company, Inc., Patton Building Products, Inc.,
Rival Consumer Sales Corporation and State Street Bank and
Trust Company(4)
5.1 Opinion of Posternak, Blankstein & Lund, L.L.P.
10.1 Stock Purchase and Redemption Agreement dated as of October
27, 1997, as amended as of November 25, 1997, among Asco
Investments Ltd., Jordan A. Kahn, Holmes Products Corp.,
Holmes Products (Far East) Limited and Holmes Acquisition
LLC(1)
10.2 Stock Purchase Agreement dated as of October 27, 1997 among
Jordan A. Kahn and Holmes Acquisition LLC(1)
10.3 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Jordan A.
Kahn(1)
10.4 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Stanley
Rosenzweig(1)
II-2
137
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.5 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Gregory F.
White(1)
10.6 Executive Employment and Non-Competition Agreement dated May
1, 1998 among Esteem Industries Limited and (Tommy) Woon Fai
Liu
10.7 Holmes Products Corp. Amended and Restated 1997 Stock Option
Plan(4)
10.8 Non-transferable Common Stock Purchase Warrant dated
November 26, 1997 issued to Pentland Group plc(1)
10.9 Holmes Products Corp. Employee Stock Purchase Plan(4)
10.10 Agreement and Plan of Merger dated December 17, 1998, by and
among Holmes Products Corp., Moriarty Acquisition Corp. and
The Rival Company(2)
10.11 Tender and Voting Agreement dated December 17, 1998, by and
among Holmes Products Corp., Moriarty Acquisition Corp. and
the directors and certain executive officers of The Rival
Company(2)
10.12 Confidentiality Agreement dated October 1, 1998, by and
between Holmes Products Corp. and BancAmerica Securities,
Inc., on behalf of Holmes Products Corp.(2)
10.13 Purchase Agreement dated as of January 29, 1999 among Holmes
Products Corp., BancBoston Robertson Stephens Inc. and
Lehman Brothers Inc.(2)
10.14 Investors Subscription Agreement dated February 5, 1999 by
and among Holmes Products Corp. and certain investors(3)
10.15 Amended and Restated Revolving Credit and Term Loan
Agreement dated as of February 5, 1999 among Holmes Products
Corp., Moriarty Acquisition Corp., The Rival Company, Holmes
Products (Far East) Limited, Esteem Industries Limited,
Raider Motor Corporation, Holmes Products (Europe) Limited,
Bionaire International B.V., Patton Electric Hong Kong,
Limited, and The Rival Company of Canada, Ltd., BankBoston,
and the other lending institutions party thereto,
BankBoston, N.A. as Administrative Agent and Lehman
Commercial Paper Inc. as Documentation Agent, with
BancBoston Robertson Stephens Inc. as Syndication Agent and
Arranger and Lehman Brothers Inc. as Co-Arranger(3)
10.16 Employee Stockholders' Agreement dated April 23, 1998
10.17 Voting Trust Agreement
10.18 First Amendment to Executive Employment and Non-Competition
Agreement dated February 5, 1999 between Holmes Products
Corp. and Jordan A. Kahn
10.19 Management Agreement dated as of November 26, 1997 between
Berkshire Partners, LLC and Holmes Products Corp.
10.20 First Amendment to Management Agreement dated February 5,
1999 between Berkshire Partners, LLC and Holmes Products
Corp.
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Registrant(4)
23.1 Consent of PricewaterhouseCoopers LLP
II-3
138
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23.2 Consent of KPMG LLP
23.3 Consent of Posternak, Blankstein & Lund, L.L.P. (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature pages hereto).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company.
27.1 Financial Data Schedule of The Rival Company.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- -------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4, as amended (Registration No. 333-44473).
(2) Incorporated by reference to the Registrant's Tender Offer Statement on
Schedule 14D-1 dated December 23, 1998, as amended.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated February 5, 1999.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed with the Commission on March
31, 1999.
(b) Financial Statement Schedules.
For the years ended December 31, 1996, 1997 and 1998:
II-4
139
SCHEDULE II
HOLMES PRODUCTS CORP.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS DEDUCTIONS
--------------------- -------------
BALANCE AT CHARGED TO CHARGED WRITE-OFF OF BALANCE
BEGINNING COSTS AND TO OTHER UNCOLLECTIBLE AT END OF
OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
---------- ---------- -------- ------------- ---------
Allowance for doubtful accounts:
Year ended December 31, 1996................. $1,494 $505 $-- $886 $1,113
Year ended December 31, 1997................. 1,113 330 -- 984 459
Year ended December 31, 1998................. 459 523 -- 263 719
ADDITIONS
------------------------- DEDUCTIONS
NET --------------------
OPERATING NET
BALANCE AT CHARGED TO LOSSES OPERATING CHARGED BALANCE
BEGINNING INCOME TAX WITHOUT TAX LOSSES TO OTHER AT END OF
OF PERIOD EXPENSE BENEFIT(1) UTILIZED ACCOUNTS PERIOD
---------- ---------- ----------- --------- -------- ---------
Deferred tax valuation allowance:
Year ended December 31, 1996..... $ 524 $ -- $-- $ 55 $-- $ 469
Year ended December 31, 1997..... 469 1,447(1) -- 469 -- 1,447
Year ended December 31, 1998..... 1,447 -- -- -- 80 1,367
ADDITIONS DEDUCTIONS
---------- ----------
BALANCE AT CHARGED TO WRITE-OFF BALANCE
BEGINNING COSTS AND OF AT END OF
OF PERIOD EXPENSES INVENTORY PERIOD
---------- ---------- ---------- ---------
Inventory obsolescence reserve:
Year ended
December 31, 1996.................................. $2,878 $1,480 $2,355 $2,003
Year ended
December 31, 1997.................................. 2,003 2,268 807 3,464
Year ended
December 31, 1998.................................. 3,464 1,522 1,069 3,917
- -------------------------
(1) The Company was subject to certain limitations on interest paid to or
guaranteed by Pentland. See Note 9 of Notes to Consolidated Financial
Statements.
II-5
140
ITEM 22. UNDERTAKINGS.
Each 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 and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate, the changes in volume and price represent no
more than 20 percent 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 that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities
act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for a
director, officer or controlling person of the registrant in the successful
defense of any action suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
II-6
141
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.
(d) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10 (b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-7
142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts on May 6, 1999.
HOLMES PRODUCTS CORP.
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn, President and
Chief Executive Officer
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JORDAN A. KAHN President, Chief Executive Officer May 6, 1999
- --------------------------------------------------- and Director (Principal Executive
Jordan A. Kahn Officer)
/s/ IRA B. MORGENSTERN Senior Vice President, Finance May 6, 1999
- --------------------------------------------------- (Principal Financial and
Ira B. Morgenstern Accounting Officer)
/s/ STANLEY ROSENZWEIG Chief Operating Officer and May 6, 1999
- --------------------------------------------------- Director
Stanley Rosenzweig
/s/ GREGORY F. WHITE Executive Vice President, Sales May 6, 1999
- --------------------------------------------------- and Marketing, and Director
Gregory F. White
/s/ RICHARD K. LUBIN Director May 6, 1999
- ---------------------------------------------------
Richard K. Lubin
/s/ RANDY PEELER Director May 6, 1999
- ---------------------------------------------------
Randy Peeler
/s/ THOMAS K. MANNING Director May 6, 1999
- ---------------------------------------------------
Thomas K. Manning
II-8
143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
HOLMES MANUFACTURING CORP.
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JORDAN A. KAHN President, Treasurer and May 6, 1999
- --------------------------------------------------- Director
Jordan A. Kahn
II-9
144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
HOLMES AIR (TAIWAN) CORP.
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JORDAN A. KAHN President, Treasurer and May 6, 1999
- --------------------------------------------------- Director
Jordan A. Kahn
II-10
145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
HOLMES MOTOR CORPORATION
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JORDAN A. KAHN President, Treasurer and May 6, 1999
- --------------------------------------------------- Director
Jordan A. Kahn
II-11
146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
THE RIVAL COMPANY
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JORDAN A. KAHN Chief Executive Officer and May 6, 1999
- --------------------------------------------------- Director
Jordan A. Kahn
/s/ IRA B. MORGENSTERN Senior Vice President -- Finance May 6, 1999
- ---------------------------------------------------
Ira B. Morgenstern
II-12
147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
PATTON ELECTRIC COMPANY, INC.
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JORDAN A. KAHN President and Director May 6, 1999
- ---------------------------------------------------
Jordan A. Kahn
/s/ IRA B. MORGENSTERN Senior Vice President -- Finance May 6, 1999
- --------------------------------------------------- and Director
Ira B. Morgenstern
/s/ STANLEY ROSENZWEIG Director May 6, 1999
- ---------------------------------------------------
Stanley Rosenzweig
II-13
148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
PATTON BUILDING PRODUCTS, INC.
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JORDAN A. KAHN President and Director May 6, 1999
- ---------------------------------------------------
Jordan A. Kahn
/s/ IRA B. MORGENSTERN Senior Vice President -- Finance May 6, 1999
- ---------------------------------------------------
Ira B. Morgenstern
II-14
149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized, in the Commonwealth
of Massachusetts, on May 6, 1999.
RIVAL CONSUMER SALES CORPORATION
By: /s/ JORDAN A. KAHN
------------------------------------
Jordan A. Kahn
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn, Stanley Rosenzweig and Ira B.
Morgenstern his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JORDAN A. KAHN President and Director May 6, 1999
- ---------------------------------------------------
Jordan A. Kahn
/s/ IRA B. MORGENSTERN Senior Vice President -- Finance May 6, 1999
- --------------------------------------------------- and Director
Ira B. Morgenstern
/s/ STANLEY ROSENZWEIG Director May 6, 1999
- ---------------------------------------------------
Stanley Rosenzweig
II-15
150
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles of Organization (as amended) of Holmes Products
Corp.(1)
3.2 Articles of Organization of Holmes Manufacturing Corp.(1)
3.3 Articles of Organization of Holmes Air (Taiwan) Corp.(1)
3.4 Certificate of Incorporation of Holmes Motor Corp.(4)
3.5 Restated Certificate of Incorporation (as amended) of The
Rival Company(4)
3.6 Certificate of Incorporation (as amended) of Patton Electric
Company, Inc.(4)
3.7 Certificate of Incorporation (as amended) of Patton Building
Products, Inc.(4)
3.8 Certificate of Incorporation (as amended) of Rival Consumer
Sales Corporation(4)
3.9 Bylaws (as amended) of Holmes Products Corp.(1)
3.10 By-laws of Holmes Manufacturing Corp.(1)
3.11 By-laws of Holmes Air (Taiwan) Corp.(1)
3.12 By-laws of Holmes Motor Corp.(4)
3.13 By-laws of The Rival Company(4)
3.14 By-laws of Patton Electric Company, Inc.(4)
3.15 By-laws of Patton Building Products, Inc.(4)
3.16 By-laws of Rival Consumer Sales Corporation(4)
4.1 Stockholders' Agreement dated November 26, 1997 among Holmes
Products Corp. and certain stockholders thereof(1)
4.2 Registration Rights Agreement dated November 26, 1997 among
Holmes Products Corp. and certain stockholders thereof(1)
4.3 Registration Rights Agreement dated November 26, 1997 among
Holmes Products Corp., Holmes Manufacturing Corp., Holmes
Air (Taiwan) Corp., BancBoston Securities Inc. and Lehman
Brothers Inc.(1)
4.4 Indenture dated November 26, 1997 among Holmes Products
Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp.
and State Street Bank and Trust Company(1)
4.5 Form of Notes -- (Included in Exhibit 4.4)(1)
4.6 Form of Guaranty -- (Included in Exhibit 4.4)(1)
4.7 First Supplemental Indenture and Guarantee dated October 14,
1998 among Holmes Products Corp., Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corp. and
State Street Bank and Trust Company(4)
4.8 Registration Rights Agreement dated February 5, 1999 among
Holmes Products Corp., Holmes Manufacturing Corp., Holmes
Air (Taiwan) Corp., Holmes Motor Corp., The Rival Company,
Patton Electric Company, Inc., Patton Building Products,
Inc., Rival Consumer Sales Corporation, BancBoston Robertson
Stephens Inc. and Lehman Brothers Inc.(3)
4.9 Indenture dated February 5, 1999 among Holmes Products
Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp.
, Holmes Motor Corp., The Rival Company, Patton Electric
Company, Inc., Patton Building Products, Inc., Rival
Consumer Sales Corporation and State Street Bank and Trust
Company(3)
4.10 First Amendment to Registration Rights Agreement dated
February 5, 1999 among Holmes Products Corp. and certain
stockholders thereof(4)
4.11 First Amendment to Stockholders' Agreement dated February 5,
1999 among Holmes Products Corp. and certain stockholders
thereof(4)
151
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.12 Second Supplemental Indenture and Guarantee dated February
5, 1999 among Holmes Products Corp., Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corp.,
Moriarty Acquisition Corp., The Rival Company, Patton
Electric Company, Inc., Patton Building Products, Inc.,
Rival Consumer Sales Corporation and State Street Bank and
Trust Company(4)
5.1 Opinion of Posternak, Blankstein & Lund, L.L.P.
10.1 Stock Purchase and Redemption Agreement dated as of October
27, 1997, as amended as of November 25, 1997, among Asco
Investments Ltd., Jordan A. Kahn, Holmes Products Corp.,
Holmes Products (Far East) Limited and Holmes Acquisition
LLC(1)
10.2 Stock Purchase Agreement dated as of October 27, 1997 among
Jordan A. Kahn and Holmes Acquisition LLC(1)
10.3 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Jordan A.
Kahn(1)
10.4 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Stanley
Rosenzweig(1)
10.5 Executive Employment and Non-Competition Agreement dated
November 26, 1997 among Holmes Products Corp. and Gregory F.
White(1)
10.6 Executive Employment and Non-Competition Agreement dated May
1, 1998 among Esteem Industries Limited and (Tommy) Woon Fai
Liu
10.7 Holmes Products Corp. Amended and Restated 1997 Stock Option
Plan(4)
10.8 Non-transferable Common Stock Purchase Warrant dated
November 26, 1997 issued to Pentland Group plc(1)
10.9 Holmes Products Corp. Employee Stock Purchase Plan(4)
10.10 Agreement and Plan of Merger dated December 17, 1998, by and
among Holmes Products Corp., Moriarty Acquisition Corp. and
The Rival Company(2)
10.11 Tender and Voting Agreement dated December 17, 1998, by and
among Holmes Products Corp., Moriarty Acquisition Corp. and
the directors and certain executive officers of The Rival
Company(2)
10.12 Confidentiality Agreement dated October 1, 1998, by and
between Holmes Products Corp. and BancAmerica Securities,
Inc., on behalf of Holmes Products Corp.(2)
10.13 Purchase Agreement dated as of January 29, 1999 among Holmes
Products Corp., BancBoston Robertson Stephens Inc. and
Lehman Brothers Inc.(2)
10.14 Investors Subscription Agreement dated February 5, 1999 by
and among Holmes Products Corp. and certain investors(3)
10.15 Amended and Restated Revolving Credit and Term Loan
Agreement dated as of February 5, 1999 among Holmes Products
Corp., Moriarty Acquisition Corp., The Rival Company, Holmes
Products (Far East) Limited, Esteem Industries Limited,
Raider Motor Corporation, Holmes Products (Europe) Limited,
Bionaire International B.V., Patton Electric Hong Kong,
Limited, and The Rival Company of Canada, Ltd., BankBoston,
and the other lending institutions party thereto,
BankBoston, N.A. as Administrative Agent and Lehman
Commercial Paper Inc. as Documentation Agent, with
BancBoston Robertson Stephens Inc. as Syndication Agent and
Arranger and Lehman Brothers Inc. as Co-Arranger(3)
10.16 Employee Stockholders' Agreement dated April 23, 1998
10.17 Voting Trust Agreement
152
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.18 First Amendment to Executive Employment and Non-Competition
Agreement dated February 5, 1999 between Holmes Products
Corp. and Jordan A. Kahn
10.19 Management Agreement dated as of November 26, 1997 between
Berkshire Partners, LLC and Holmes Products Corp.
10.20 First Amendment to Management Agreement dated February 5,
1999 between Berkshire Partners, LLC and Holmes Products
Corp.
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Registrant(4)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
23.3 Consent of Posternak, Blankstein & Lund, L.L.P. (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature pages hereto).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company.
27.1 Financial Data Schedule of The Rival Company.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- -------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4, as amended (Registration No. 333-44473).
(2) Incorporated by reference to the Registrant's Tender Offer Statement on
Schedule 14D-1 dated December 23, 1998, as amended.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated February 5, 1999.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed with the Commission on March
31, 1999.
(b) Financial Statement Schedules.
For the years ended December 31, 1996, 1997 and 1998: