-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FbGdNP4WVLf1GNPeAl9ABV2WK8S/Ae83fljNDBG6sMNQJ2/iXPdH8zMpQ4zHJ2f0 TW+tVNlsqsusgj4D+Xqu1w== 0000950135-99-001720.txt : 19990402 0000950135-99-001720.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950135-99-001720 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EKCO GROUP INC /DE/ CENTRAL INDEX KEY: 0000018827 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 112167167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07484 FILM NUMBER: 99580308 BUSINESS ADDRESS: STREET 1: 98 SPIT BROOK RD CITY: NASHUA STATE: NH ZIP: 03062 BUSINESS PHONE: 6038881212 MAIL ADDRESS: STREET 1: 98 SPIT BROOK RD CITY: NASHUA STATE: NH ZIP: 03062 FORMER COMPANY: FORMER CONFORMED NAME: CENTRONICS CORP DATE OF NAME CHANGE: 19880504 FORMER COMPANY: FORMER CONFORMED NAME: CENTRONICS DATA COMPUTER CORP DATE OF NAME CHANGE: 19870304 10-K 1 EKCO GROUP, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 COMMISSION FILE NO. 1-7484 EKCO GROUP, INC. (Exact name of registrant as specified in its charter) ------------------------ DELAWARE 11-21676167 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 98 SPIT BROOK ROAD, SUITE 102 NASHUA, NEW HAMPSHIRE 03062 (Address of principal executive offices) (Zip Code)
------------------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 888-1212 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered Common Stock, $.01 par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of voting capital stock held by non-affiliates (without admitting that any person whose shares are not included in determining such value is an affiliate) was approximately $71 million based upon the closing price of the shares on the New York Stock Exchange Composite Tape on March 26, 1999. As of March 26, 1999, there were issued and outstanding 19,101,326 shares of Common Stock of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Stockholders for the fiscal year ended January 3, 1999: Parts I and II. Portions of the registrant's definitive proxy statement with respect to the Annual Meeting of Stockholders to be held on May 25, 1999: Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL EKCO Group, Inc. ("EKCO" or the "registrant" and, together with its subsidiaries, the "Company") is a leading United States developer, manufacturer and marketer of branded consumer products that are broadly marketed primarily in the United States through major mass merchant, supermarket, home, hardware, specialty and department stores. The Company's products include household items such as bakeware, kitchenware, pantryware, brooms, brushes and mops, as well as non-poisonous and low-toxic household pest control products and small animal care and control products. In addition, the Company also markets pet products, such as ropes, chews, collars and leashes. The Company believes it is the leading United States supplier of metal bakeware, kitchen tools and gadgets and non-toxic pest control products. In addition, the Company believes it is a leading United States manufacturer and marketer of small animal care and control products, marketer of other kitchenware products and cleaning products (primarily brushes, brooms and mops), and marketer and supplier of pet supplies and accessories. The Company was incorporated in Delaware in 1968. The current business of the Company was established in 1987 through the Company's purchase of EKCO Housewares, Inc. and through subsequent acquisitions and internal development. The Company has acquired or developed the following businesses and product categories (net of divestitures): October 1987--acquisition of EKCO Housewares, Inc. ("EKCO Housewares"), a manufacturer and marketer of bakeware and kitchen tools and gadgets. January 1989--acquisition of Woodstream Corporation ("Woodstream"), a manufacturer and marketer of non-toxic pest control products. December 1989--acquisition of the non-toxic pest control product line of McGill Metal Products Company. December 1991--acquisition of the small animal care product line of Beacon Industries, Inc. April 1993--acquisition of Kellogg Brush Manufacturing Co., a supplier of brushes, brooms and mops. (Kellogg Brush Manufacturing Co.'s name was changed to EKCO Cleaning, Inc. ("EKCO Cleaning") in March 1998. January 1995--introduction of an internally developed line of upscale bakeware and kitchen tools, gadgets and other housewares products by B. VIA International Housewares, Inc. ("VIA"), a newly formed subsidiary of the Company. December 1996--sublicense of the FARBERWARE(R) brand name from Meyer Marketing Company Ltd. for use on certain of the Company's bakeware products. July 1997--formation of EKCO International, Inc. ("EKCO International"), a subsidiary organized to grow the Company's business in international markets. January 1998--acquisition of Aspen Pet Products, Inc. ("Aspen"), a marketer of dog and cat supplies and accessories, as well as other pet products. May 1998--acquisition of the exclusive North American rights to sell cutlery and flatware products under the Regent Sheffield(R) and Wiltshire(R) brands. 1 3 March 1999--license of the exclusive North American rights to the Cuisinart(R) brand name from Conair Corporation for use on certain of the Company's kitchen tools, gadgets and bakeware products. The Company's business strategy is to continue to focus on growth through its emphasis on marketing and sales of brand name consumer products, both in the United States and internationally. The Company seeks to create innovative and attractive products, introduce new products quickly and strengthen customer relationships. The Company also intends to pursue growth through acquisition of additional consumer product lines and businesses as opportunities arise. BUSINESS SEGMENTS The Company operates in three primary business segments: (i) Housewares Products, (ii) Pest Control and Small Animal Care and Control Products, and (iii) Pet Products. Financial information by industry segment for the three years ended January 3, 1999 is set forth in Note 14 of Notes to Consolidated Financial Statements appearing in Exhibit 13 hereto, incorporated herein by reference. Note 14 reflects the adoption by the Company of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131") which establishes new standards for reporting information about operating segments in annual financial statements, requires selected information about operating segments in interim financial reports and establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective beginning with the Company's fiscal year ended January 3, 1999 ("Fiscal 1998"). ACQUISITIONS In January 1998, the Company completed the acquisition (the "Acquisition") of all of the outstanding equity securities of APP Holding Corporation ("APP"), the parent corporation and sole stockholder of Aspen, a leading marketer and supplier of pet accessories, such as ropes, chews, collars and leashes. Pursuant to the stock purchase and sale agreement, the Company paid approximately $25 million in cash (including $450,000 of expenses incurred in connection with the Acquisition) and refinanced APP's outstanding bank debt of approximately $9.1 million. In addition, if Aspen achieves certain predetermined financial results during Fiscal 1998, 1999, 2000, 2001 and 2002, the Company will make annual payments to certain former APP stockholders. The Company funded the Acquisition with its existing cash and borrowings made pursuant to a December 15, 1997 amendment to its bank credit facility. See Notes 2 and 5 of Notes to Consolidated Financial Statements appearing in Exhibit 13 hereto, incorporated herein by reference, for information about the Acquisition and the amendment to the Company's credit facility. In May 1998, the Company completed the acquisition of the exclusive North American rights to sell cutlery and flatware products under the Regent Sheffield(R) and Wiltshire(R) brands. The Company paid approximately $2.5 million in cash for the rights and inventory with a value of approximately $2.3 million, and is obligated to make future royalty payments pursuant to a license agreement and to pay for subsequently acquired inventory. RECENT DEVELOPMENTS DIVESTITURES. In Fiscal 1998, the Company continued the repositioning program it initiated two years ago by selling the assets of two businesses which no longer fit its strategic plans: The Wright-Bernet, Inc. and Cleaning Specialty Co. divisions of the Company's Housewares Products segment's cleaning products business and Woodstream's animal leg trap product line. During the fourth quarter, the Company decided to sell the business and assets of the Wright-Bernet, Inc. and Cleaning Specialty Co. divisions. The sale was completed in January 1999 and was effective as of December 31, 1998. The expected proceeds consist of $5.8 million, including a $747,000 note due in July 1999, a $500,000 cash payment made in January 1999 and $4.5 million of additional 2 4 cash payments to be received in fiscal 1999. The sale agreement also provided for royalty payments over a five-year period with minimum annual payments of $200,000. The Company recorded a special charge of $16.2 million in the fourth quarter of Fiscal 1998 in connection with this transaction. See Note 17 of Notes to Consolidated Financial Statements appearing in Exhibit 13 hereto, incorporated herein by reference, for information about the sale and special charge in connection with this sale. In January 1999, the Company also completed the sale of the assets of Woodstream's animal leg trap product line for consideration and on terms which are not material. LICENSE. In March 1999, the Company announced that it entered into an exclusive licensing agreement with Conair Corporation for the design, manufacture and distribution of kitchen tools, gadgets and bakeware under the Cuisinart(R) brand name in the United States and Canada. The license agreement provides for an initial six year term, which renews automatically for successive one-year periods subject to certain limitations. The addition of the new Cuisinart(R) line of kitchen tools, gadgets and bakeware is intended to further broaden the Company's market position in high-end distribution channels, such as department and specialty stores. HOUSEWARES PRODUCTS BAKEWARE. The Company manufactures and markets a broad line of metal bakeware for home use, including the following: Non-stick coated bakeware marketed under a group of Baker's Secret(R) trademarks; uncoated bakeware marketed under the EKCO(R) trademark; insulated non-stick coated "no burn" bakeware marketed under the Baker's Secret(R) trademark; non-stick coated and uncoated bakeware marketed under the FARBERWARE(R) brand name and baking equipment, such as cooling racks, cookie cutter sets and cast aluminum ovenware, marketed under the VIA(R) brand name. Through EKCO Housewares, the Company has over 100 years of experience in the metal bakeware market, and its bakeware products include cookie sheets, muffin tins, brownie pans, loaf pans and similar metal bakeware items. The Company emphasizes value, quality, functionality and, in the case of coated products, ease of cleaning and release. Sales of bakeware accounted for 28.8% of consolidated net revenues for Fiscal 1998. The Company believes it is the leading United States supplier of metal bakeware in the United States. KITCHENWARE. The Company markets and sells a broad line of kitchenware products which it sources from third parties, including the following: Kitchen tools and gadgets, such as spoons, spatulas, ladles and other cooking accessories, and peelers, corkscrews, whisks, can openers and similar items, marketed under the EKCO(R), EKCO PRO(TM), Baker's Secret(R) and VIA(R) trademarks; pantryware, such as canister sets, spice racks and napkin and paper towel holders, under the VIA(R) trademark; stainless steel and porcelain-on-steel tea kettles and carafes under the EKCO(R) and VIA(R) trademarks; and cookware under the EKCO(R) trademark. The Company also markets stainless steel and carbon steel cutlery, stainless steel flatware, mixing bowls and colanders. The Company markets more than 1,000 kitchenware items, including multiple colors of the same item and various packaging combinations particularly in its line of kitchen tools and gadgets. Sales of kitchenware accounted for 32.2% of consolidated net revenues for Fiscal 1998. The Company believes that it is the leading United States supplier of kitchen tools and gadgets and a leading United States supplier of other kitchenware products. CLEANING PRODUCTS. The Company markets a line of cleaning products for home use, including brooms, brushes and mops, marketed under the EKCO(R) and Clean Results(R) trademarks. Sales of cleaning products accounted for 16.4% of consolidated net revenues for Fiscal 1998 and includes sales of cleaning products of the Wright-Bernet, Inc. and Cleaning Specialty Co. divisions, which were sold as of December 31, 1998. The Company believes that it is a leading marketer of cleaning brushes for household and personal use. NEW PRODUCT OFFERINGS. The Company continually updates its lines of Housewares Products and develops new products to capitalize on its high consumer brand recognition and broad retail distribution. New product development efforts are conducted by the Company's internal staff and by third parties on a contract basis. During Fiscal 1998, the Company launched its FARBERWARE(R) line of heavy gauge non-stick coated and uncoated steel baking pans, cookie sheets and roasting pans; Baker's Secret(R) line of travel bakeware products; EKCO(R) line of uncoated 3 5 insulated bake pans; EKCO(R) lines of 18/10 stainless steel cookware and EKCO(R) line of non-stick roasting pans; EKCO(R) line of bar tools; EKCO(R) line of upscale kitchenware; and EKCO(R) line of laundry care items. At the International Housewares Show in January 1999, the Company introduced many new product offerings, including Regent Sheffield(R) and Wiltshire(R) lines of cutlery and flatware; VIA(R) line of heavy gauge stainless steel flatware; VIA(R) line of barware; VIA(R) line of salad and serving pieces; and EKCO(R) line of non-stick coated aluminum cookware. The Company also broadened its EKCO(R) and VIA(R) tea kettle lines with new offerings and relaunched its j-hook and zip-strip impulse merchandising display program. New product offerings were also added to the Company's Baker's Secret(R) line of baking pans and FARBERWARE(R) line of heavy-duty baking and roasting pans. Cleaning product introductions included, among other things, an EKCO(R) line of feather dusters. PRINCIPAL FACILITIES AND MANUFACTURE OF BAKEWARE AND CLEANING PRODUCTS. Principal facilities are located in Franklin Park, Illinois and Massillon, Ohio, and the Housewares Products segment's principal warehousing facilities are located in Bolingbrook, Illinois and Monroe, Ohio. The Company manufactures most of its bakeware in Massillon, Ohio and utilizes a variety of standard manufacturing processes, including metal stamping and spray coating. During Fiscal 1998, the Company manufactured most of its brooms, brushes and mops utilizing standard manufacturing processes, including injection molding, wire twisting and solid-back bristling. DISTRIBUTION AND CUSTOMERS. Management believes that the Company's Housewares Products segment has one of the broadest distribution networks in the housewares industry. The Company markets its housewares products primarily in the United States through substantially all distribution channels that sell housewares products for everyday home use, including mass merchandisers, supermarkets, hardware stores, drug stores, specialty stores and other retail channels. The Company sells its housewares products to more than 76 of the 100 largest housewares retailers (as ranked in the January 1999 Home World Business Magazine category analysis of the top 100 retailers), including Wal-Mart and Kmart, and to 88% of the 75 largest U.S. and Canadian food companies (as ranked in the January 25, 1999 Supermarket News magazine analysis of the top 75 food companies in North America). The Company's housewares products are distributed through the following retail channels: Bakeware is distributed primarily through mass merchandisers, supermarkets and specialty stores; kitchenware is distributed primarily through supermarkets and mass merchandisers, as well as hardware and drug stores; VIA(R) and FARBERWARE(R) products are distributed primarily through department stores and specialty stores; and cleaning products are marketed primarily to mass merchandisers and supermarkets. Two customers accounted for a substantial portion of this segment's business, and the loss of either customer could have a material adverse effect on the segment. PEST CONTROL AND SMALL ANIMAL CARE AND CONTROL PRODUCTS PRODUCTS. The Company manufactures and markets non-toxic pest control and small animal care and control products under the Victor(R) and Havahart(R) trademarks, respectively. The Company's products include spring-action and other rodent and insect traps marketed under the Victor(R) trademark, pet cages marketed under the Havahart(R) trademark and live animal cage traps marketed under the Havahart(R) trademark, which are used to control garden pests and other nuisance animals such as raccoons. In Fiscal 1998, the Company introduced a line of Victor(R) poison-free aerosol products which kill a variety of bugs and flying insects, and a line of Havahart(R) birdfeeders, birdhouses and accessories. Sales of pest control and small animal care and control products accounted for 12.6% of consolidated net revenues for Fiscal 1998. The Company believes it is the leading supplier of non-toxic pest control products, rodent traps and live animal cage traps in the United States. PRINCIPAL FACILITIES AND MANUFACTURE OF PRODUCTS. Principal facilities are located in Lititz, Pennsylvania. The Company manufactures most of its pest control and small animal care and control products and utilizes a variety of standard manufacturing processes, including mesh welding, wire forming and automatic staple setting. 4 6 DISTRIBUTION AND CUSTOMERS. The Company's pest control and small animal care and control products are marketed to mass merchandisers, supermarkets, hardware, drug and variety stores, agricultural centers, farm stores, home centers and professional pest control companies. The Company sells its pest control and small animal care and control products to many of the largest hardware chains, including Home Depot U.S.A., True-Serve, Ace Hardware Corp. and Lowe's Co., Inc. The loss of any single customer would not have a material adverse effect on this segment. PET PRODUCTS PRODUCTS. The Company markets and supplies a broad line of pet products which it sources from third parties, including leashes and collars, dog toys and cat pan liners marketed under the Aspen Pet(R) and Banana Pet(TM) brand names, as well as litter boxes, cat toys and furniture, ropes, tugs, rings and chews for dogs and birds, bird toys and accessories marketed under the BOODA(TM) brand name. During Fiscal 1998, the Company introduced a line of Aspen Pet(R) identification tags, tubes, bells and whistles for training and safety and a line of Aspen Pet(R) upscale dog collars and leashes. The Company expanded its Booda Velvets(R) line of dog chews made with corn starch and BOODA(TM) line of biodegradable dog and cat toys. During the fourth quarter of 1998, the Company introduced a line of super-premium dry dog food under the VITARX(TM) brand name. Sales of pet products accounted for 10% of consolidated net revenues in Fiscal 1998. The Company believes that it is a leading United States marketer of dog and cat supplies and accessories, such as ropes, chews, collars and leashes. PRINCIPAL FACILITIES. Principal facilities are located in Denver, Colorado. DISTRIBUTION AND CUSTOMERS. The Company's pet products are primarily distributed in the United States through pet superstores, mass merchandisers, supermarkets, pet specialty stores and catalogs. Two customers accounted for a substantial portion of this segment's business, and the loss of either customer could have a material adverse effect on this segment. SALES, MARKETING AND CUSTOMERS The Company markets its products directly through its own sales and marketing organization and through a network of representatives and brokers. Outside the United States, the Company's Housewares Products are marketed through its Canadian and United Kingdom subsidiaries, the export division of EKCO International and distributors and agents who provide marketing support to supermarkets, mass merchandising stores, specialty stores and department stores. The Company's agreements with its distributors and agents are generally terminable upon 30 days notice and are not deemed to be material by the Company. In addition, the Company's Pest Control and Small Animal Care and Control Products are also marketed by the Company's Canadian subsidiary. Of its customers, sales by the Company to Wal-Mart and Kmart accounted for 13.0% and 10.2%, respectively, of the Company's net revenues in Fiscal 1998. RAW MATERIALS The Company purchases primary raw materials, including steel, wood, wire, corrugated boxes and card stock for packaging, from a number of suppliers for the manufacture of the Housewares Products segment's bakeware and the Pest Control and Small Animal Care and Control products. All of these materials are of a commodity nature and are subject to price fluctuations as supply and demand change, which may adversely affect the Company's profitability. The Company also purchases complete products, primarily the Housewares Products segment's kitchenware products, the Pet Products segment's products and, since the end of Fiscal 1998, the Housewares Products segment's cleaning products from several foreign and domestic suppliers. The Company believes that raw materials and complete products are available from numerous other suppliers, and that the loss of any one of its suppliers would not have a material adverse effect on the Company. 5 7 TRADEMARKS, PATENTS AND LICENSES The Company believes that its EKCO(R) trademark, as well as its Baker's Secret(R) and VIA(R) trademarks, and its license of the FARBERWARE(R), Regent Sheffield(R) and Wiltshire(R) trademarks are significant to the competitive position of its Housewares Products segment. The Company's Havahart(R) and Victor(R) trademarks are likewise significant to the competitive position of its Pest Control and Small Animal Care and Control segment, and its Aspen Pet(R) and BOODA(TM) trademarks are significant to its Pet Products segment. The Company holds a number of patents, none of which is believed to be material to the business of the Company. COMPETITION The Company believes that the markets for all of its products in all segments are highly competitive. Competition for retail sales to consumers is based on several factors, including brand name recognition, value, quality, price, innovation and availability. Primary competitive factors with respect to selling such products to retailers are brand reputation, number of product categories offered, broad product coverage within each product category, support and service to the retailer and price. The Company competes with many well-established companies, several of which have substantially greater resources than those of the Company. There are no substantial regulatory or other barriers to entry by new competitors. However, suppliers that are able to maintain, or increase, the amount of retail space allocated to a product may gain a competitive advantage in that product market. The Company believes that the allocation of space by retailers is influenced by many factors, including those mentioned above. The Company believes that its ability to compete successfully is based on the wide recognition of its brand names, its multiple category product offerings, its ability to design, develop, acquire, manufacture and market competitively priced products, its broad product coverage within most product categories, its attention to retailer and consumer needs and its access to major channels of distribution. There can be no assurance that the Company will be able to compete successfully against current and future sources of competition or that the competitive pressures faced by the Company will not adversely affect its profitability or financial performance. SEASONALITY Many of the Company's product categories are affected by seasonal consumer purchasing patterns in each of the Company's segments, including as to the Housewares Products segment, holiday cooking and baking in the second half of the year; and as to the Pest Control and Small Animal Care and Control segment's pest control products, the fourth quarter increase in the sale of rodent traps. The Pet Products segment is not significantly affected by seasonal trends. Historically, the Company's revenues in the last half of the fiscal year have been greater than in the first half. See Note 16 of Notes to Consolidated Financial Statements appearing in Exhibit 13 hereto, incorporated herein by reference, for information regarding quarterly results of operations. BACKLOG Information as to backlog is not material to an understanding of any of the Company's business segments because most of the Company's net revenues result from short lead-time customer orders. The Company generally is able to fill orders from inventory, and, with respect to the products which it manufactures, has generally been able to adjust production levels to meet increases in customers' orders that cannot be filled from inventory. PRODUCT DEVELOPMENT Information as to Company-sponsored research and development activities is not material to an understanding of any of the Company's business segments. 6 8 COMPANY EMPLOYEES As of January 3, 1999, the Company employed 1,067 persons in the United States, of whom 492 were represented under collective bargaining agreements which expire on dates ranging from February 2000 to February 2002. The Company also employed 48 persons in Canada, 19 of whom were represented under a collective bargaining agreement which expires in January 2000, and 30 persons in the United Kingdom. The Company considers its employee relations to be satisfactory. BUSINESS OUTLOOK This annual report on Form 10-K, including, but not limited to, "Business," "Properties," "Legal Proceedings" and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Exhibit 13 hereto, contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: the impact of the level of the Company's indebtedness; restrictive covenants contained in the Company's various debt documents; general economic conditions and conditions in the retail environment; the Company's dependence on a few large customers; price fluctuations in the raw materials used by the Company; competitive conditions in the Company's markets; the timely introduction of new products; the impact of competitive products and pricing; certain assumptions related to consumer purchasing patterns; the seasonal nature of the Company's business; the timely implementation by the Company of its Year 2000 Project, the future costs associated with its Year 2000 Project and the timely conversion by key vendors, customers, suppliers and other third parties on which the Company relies; and the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company). As a result, the Company's operating results may fluctuate, especially when measured on a quarterly basis. These forward-looking statements represent the Company's best estimate as of the date of this Annual Report on Form 10-K. The Company assumes no obligation to update such estimates except as required by the rules and regulations of the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Cuisinart(R) is a registered trademark of Conair Corporation and is used under license. FARBERWARE(R) is a registered trademark of Farberware Inc. and is used under license. Regent Sheffield(R) is owned by Regent-Sheffield, Ltd. and is used under license. Wilshire(R) is owned by McPherson's Limited and is used under license. ITEM 2. PROPERTIES As of January 3, 1999, the Company owned or leased for use in its business the properties set forth in the table and footnotes below: 7 9
Approximate Owned or Lease Description of Property(1)(2) Location Square Footage Leased Expires - ------------------------------------------------------------------------------------------------------------------- Executive offices Nashua, New Hampshire 8,000 Leased 11/06/02 Administrative offices for Franklin Park, 190,000 Leased 01/31/04 Housewares Products segment; Illinois and warehousing and distribution center for Housewares Products segment's VIA(R)products Manufacturing, warehousing Massillon, Ohio 244,000 Owned N/A and distribution center for Housewares Products segment's bakeware products Warehousing and distribution Bolingbrook, 260,000 Leased 06/30/02 center for Housewares Illinois 108,000 Leased 11/10/99 Products Warehousing and distribution Monroe, Ohio 116,000 Leased 07/31/02 for Housewares Products segment's cleaning products Manufacturing, warehousing, Lititz, 300,000 Owned N/A distribution and office facility Pennsylvania for Pest Control and Small Animal Care and Control Products Office and warehousing facility Denver, Colorado 82,000 Leased 06/30/04 for Pet Products Office and warehousing facility Niagara Falls, 120,000 Owned N/A for products for sale and Ontario, Canada distribution in Canada Office and warehousing facility Chepstow, Gwent 45,000 Leased 06/03/14 for products for sale and U.K. distribution in the U.K. and internationally - -------------------------------------------------------------------------------------------------------------------
(1) In addition to the properties listed in the table, as of January 3, 1999 the Company owned approximately 839,000 square feet of floor space which is being held for sale or lease. The Company leases other real properties not set forth above which, in the aggregate, are not deemed material. The Company subleased its 100,000 sq. ft. facility in Hamilton, Ohio to the purchaser of the assets of the Housewares Products segment's Wright-Bernet, Inc. and Cleaning Specialty Co. divisions for an initial term expiring in December 2003. 8 10 (2) Substantially all of the properties owned by the Company are subject to mortgage liens granted in connection with the Company's credit facility. The Company believes that its properties are generally suitable and adequate for its purposes for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS LITIGATION The Company is a party to several pending legal proceedings and claims, including the matters described below. Although the outcome of such proceedings cannot be determined with certainty, the Company's management, after consultation with legal counsel, is of the opinion that the expected final outcome should not have a material adverse effect on the Company's financial position, results of operations or liquidity. ENVIRONMENTAL REGULATION AND CLAIMS From time to time, the Company has had claims asserted against it by regulatory agencies or private parties for environmental matters relating to the generation or handling of hazardous substances by the Company or its predecessors, and the Company has incurred obligations for investigations or remedial actions with respect to certain of such matters. While the Company does not believe that any such claims asserted or obligations incurred to date will result in a material adverse effect upon the Company's financial position, results of operations or liquidity, the Company is aware that at its facilities at Massillon and Hamilton, Ohio; Easthampton, Massachusetts (more fully described in Note 13 of Notes to Consolidated Financial Statements appearing in Exhibit 13 and incorporated herein by reference); Chicago, Illinois and Lititz, Pennsylvania, and at its previously owned facility in Hudson, New Hampshire, hazardous substances, oil or both have been detected and that additional investigations will be, and remedial actions will or may be, required at such facilities. Operations at these and other facilities currently or previously owned or leased by the Company utilize, or in the past have utilized, hazardous substances. There can be no assurance that activities at these or any other facilities or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 9 11 EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE OFFICE HELD Malcolm L. Sherman 67 Chief Executive Officer, December 1996 to present; Chairman of the Board, July 1996 to present; and Consultant to the Company, February 1993 to December 1996. Since February 1993, Mr. Sherman has served as Chairman of the Board of Advisors of the several Gordon Brothers companies (a group of companies which provide retail, merchant and financial services to the retail community as well as serve as wholesalers of fine jewelry). He was Chairman and Director of K.T. Scott, Ltd. (a chain of wallpaper and window treatment stores) from January 1991 to August 1995. Mr. Sherman has had many years of experience in the retail and housewares industries, including service to Zayre Stores (a chain of general merchandise discount stores) in a number of executive capacities which included Chairman from 1982 to 1987, and from 1975 to 1987 service to Zayre Corporation (a group of companies engaged in retail businesses) as its Executive Vice President. Donato A. DeNovellis 54 Executive Vice President, Finance and Administration, October 1994 to present; Chief Financial Officer, July 1993 to present; Vice President, July 1993 to October 1994; Senior Vice President and Chief Financial Officer of EKCO Housewares, Inc. from September 1996 to present. Jeffrey A. Weinstein 48 Executive Vice President, April 1985 to present; President and Managing Director, EKCO International, Inc., July 1997 to present; Secretary, February 1988 to October 1997; General Counsel, October 1978 to October 1997; and President, EKCO Consumer Plastics, Inc., July 1996 to April 1997. J. Jay Althoff 34 Vice President, Secretary and General Counsel, October 1997 to present. Prior to joining the Company, from September 1993 to September 1997 Mr. Althoff was an associate with Ropes & Gray (a law firm) working with corporate clients. From August 1987 through October 1989, Mr. Althoff was an associate in the Capital Markets Group of Westpac Banking Corporation (an Australian bank). Stuart W. Cohen 52 Vice President, Strategic Planning and Business Development, June 1995 to present. Prior to joining the Company, from May 1991 to December 1994 Mr. Cohen served as First Vice President of Van Kampen Merritt, Inc. (an investment products and management firm), where he was responsible for strategic planning and business development. 10 12 Peter D. Conopask 48 Vice President, Information Technology, and Chief Information Officer, February 1999 to present. Prior to joining the Company, from June 1996 to February 1999, Mr. Conopask served as Chief Information Officer and Director of Information Systems and Telecommunications of Toray Plastics (America), Inc. (a Japanese process manufacturer of plastic films and chemicals), and from 1990 to May 1996, he served as Director of Information Services & Telecommunications for Cranston Print Works Co. (a manufacturer and designer of textiles, chemicals and related services). Brian R. McQuesten 49 Vice President, February 1996 to present; and Controller, May 1987 to present. The executive officers of the Company are elected annually by the Board of Directors and serve, subject to the provisions of any employment agreement between the executive and the Company, until their respective successors are chosen and qualified or until their earlier resignation or removal. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth in the section entitled "Common Stock Price Range and Dividends" appearing in Exhibit 13 hereto is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth in the section entitled "Selected Consolidated Financial Data" appearing in Exhibit 13 hereto is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing in Exhibit 13 hereto is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk inherent in interest rates, foreign currency exchange rates, and certain commodity prices. The Company does not hold or issue derivative financial or derivative commodity instruments for any purposes. In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks include those risks inherent in doing business in any country, credit risk and legal risk and are not included in the following discussion. In the ordinary course of business, the Company is exposed to interest rate risk. For fixed rate debt, interest rate changes affect the fair value, but do not impact earnings or cash flow. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value, but do impact future earnings and cash flow. A one percentage point increase in interest rates may decrease the fair value of the Company's $125 million 9.25% fixed rate Senior Notes by approximately $5.8 million. The pre-tax earnings and cash flow impact for one year based upon the amounts outstanding at January 3, 1999 under the Company's variable rate bank credit facilities for a one-percentage point change in interest rates would be $113,000. The Company does not undertake any specific actions to cover its exposure to interest rate risk and the Company is not party to any interest rate risk management transactions. The Company manufactures products in the United States and also sources products, principally from third parties in the Far East under US dollar contracts. The Company has sales subsidiaries in Canada and the United Kingdom. The Company's earnings and cash flow are subject to fluctuations due to exchange rate variation. The Company's third party export sales are in the currency of the Company's selling entity. The Company does not hedge its foreign currency exposure arising from intercompany receivables and payable transactions with its foreign subsidiaries. A 10% change in the Canadian and British exchange rates based upon the U.S. dollar liabilities of the Company's Canadian and United Kingdom subsidiaries at January 3, 1999 could affect the Company's pre-tax earnings by $800,000 and $900,000, respectively. 12 14 Due to the diversity of the Company's product lines, the Company does not have material sensitivity to any one commodity. The Company manages commodity price exposures primarily through the duration and terms of its vendor contracts. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth in the consolidated financial statements and notes thereto (including the note which sets forth certain supplementary information) and the Report of Independent Auditors appearing in Exhibit 13 hereto are incorporated herein by reference. Reference is also made to Item 14(a)2 with respect to Financial Statement Schedules filed herewith. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a) Directors - The information set forth in the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the Company's definitive proxy statement with respect to the 1999 Annual Meeting of Stockholders is incorporated herein by reference. b) Executive Officers - See "Executive Officers of the Registrant" appearing in Part I above. ITEM 11. EXECUTIVE COMPENSATION The information set forth in the sections entitled "Compensation of Directors" and "Compensation of Executive Officers" (except for the information under the captions "Report of the Compensation Committee on Executive Compensation," "Performance Graph" and "Repricing of Stock Options") appearing in the Company's definitive proxy statement with respect to the 1999 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the Company's definitive proxy statement with respect to the 1999 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth in the section entitled "Certain Relationships and Related Transactions" appearing in the Company's definitive proxy statement with respect to the 1999 Annual Meeting of Stockholders is incorporated herein by reference. 14 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K PAGE NUMBER IN EXHIBIT 13 --------------- (a) 1. FINANCIAL STATEMENTS: Report of independent auditors....................... 49 Consolidated balance sheets at January 3, 1999 and December 28, 1997................................ 13 Consolidated statements of operations for the fiscal years ended January 3,1999, December 28, 1997 and December 29, 1996.............. 14 Consolidated statements of stockholders' equity for the fiscal years ended January 3, 1999, December 28, 1997 and December 29, 1996.............. 16 Consolidated statements of cash flows for the fiscal years ended January 3, 1999, December 28, 1997 and December 29, 1996.............. 18 Notes to consolidated financial statements........................................... 19 PAGE NUMBER IN FORM 10-K --------------- Independent auditors' report.............................. 17 2. FINANCIAL STATEMENT SCHEDULE: II Valuation and Qualifying Accounts...................... 18 Schedules other than that listed above have been omitted because they are not required, not applicable or the required information is furnished in the consolidated financial statements or notes thereto. 3. EXHIBITS: (See Index to Exhibits beginning on page 19.) (b) REPORTS ON FORM 8-K - On October 1, 1998, the registrant filed a report on Form 8-K as of September 28, 1998 to report under "Item 5 Other Events" the filing of a press release announcing preliminary expectations for its third quarter sales and earnings. 15 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EKCO GROUP, INC. By: /s/ MALCOLM L. SHERMAN ---------------------- Malcolm L. Sherman, Chairman and Chief Executive Officer (Principal Executive Officer) Date: March 30, 1999 By: /s/ DONATO A. DENOVELLIS ------------------------ Donato A. DeNovellis, Executive Vice President, Finance and Administration, and Chief Financial Officer (Principal Financial Officer) Date: March 30, 1999 By: /s/ BRIAN R. MCQUESTEN ---------------------- Brian R. McQuesten, Vice President and Controller (Principal Accounting Officer) Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ GEORGE W. CARMANY, III Director March 30, 1999 - -------------------------- George W. Carmany, III /s/ MICHAEL G. FRIEZE Director March 30, 1999 - --------------------- Michael G. Frieze /s/ AVRAM J. GOLDBERG Director March 30, 1999 - --------------------- Avram J. Goldberg /s/ KENNETH J. NOVACK Director March 30, 1999 - --------------------- Kenneth J. Novack /s/ STUART B. ROSS Director March 30, 1999 - ------------------ Stuart B. Ross /s/ MALCOLM L. SHERMAN Director March 30, 1999 - ---------------------- Malcolm L. Sherman /s/ ALAN D. SOLOMONT Director March 30, 1999 - -------------------- Alan D. Solomont /s/ BILL W. SORENSON Director March 30, 1999 - -------------------- Bill W. Sorenson /s/ HERBERT M. STEIN Director March 30, 1999 - -------------------- Herbert M. Stein 16 18 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders EKCO Group, Inc. Under date of February 12, 1999, we reported on the consolidated balance sheets of EKCO Group, Inc. and subsidiaries as of January 3,1999 and December 28, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended January 3, 1999, as contained in the 1998 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in this annual report on Form 10-K for the fiscal year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in Item 14(a)2 of this report. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP ------------------------- Boston, Massachusetts March 19, 1999 17 19 EKCO GROUP, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------------ --ADDITIONS TO RESERVES-- --DEDUCTIONS FROM RESERVES-- BALANCE AT ADDITIONS CHARGED TO SETTLEMENTS BALANCE BEGINNING CHARGED TO OTHER OR WRITE- AT CLOSE DESCRIPTION OF PERIOD INCOME OR LOSS ACCOUNTS PAYMENTS OFFS OF PERIOD - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED JANUARY 3, 1999: Allowance for doubtful accounts $ 957 $ (54) $ 49 (1) $ - $ 309 $ 643 ------ ------- ------ ------ ------ ------ YEAR ENDED DECEMBER 28, 1997: Allowance for doubtful accounts $ 760 $ 183 $ 14 $ - $ - $ 957 Provisions related to consolidation of cleaning business 1,697 - - 1,697 - - Provision for disposal of discontinued operations 5,500 - - 5,500 - - ------ ------- ------ ------ ------ ------ $7,957 $ 183 $ 14 $7,197 $ - $ 957 ====== ======= ====== ====== ====== ====== YEAR ENDED DECEMBER 29, 1996: Allowance for doubtful accounts $ 948 $ 130 $ - $ - $ 318 $ 760 Provisions related to consolidation of cleaning business - 4,921 - - 3,224 1,697 Provision for disposal of discontinued operations - 5,500 - - - 5,500 ------ ------- ------ ------ ------ ------ $ 948 $10,551 $ - $ - $3,542 $7,957 ====== ======= ====== ====== ====== ====== (1) Included in valuation of assets of Aspen Pet Products, Inc. acquired during January 1998.
18 20 INDEX TO EXHIBITS Exhibit Number Exhibit Description - -------------------------------------------------------------------------------- 3.1(i)(a) Restated Certificate of Incorporation dated February 17, 1987, as amended, originally filed as Exhibit 3.1(a) to Form 10-K for the year ended December 31, 1989 (incorporated herein by reference to Exhibit 3.1(i)(a) to Form 10-K for the year ended December 31, 1995). 3.1(i)(b) Form of Certificate of Designations of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 3.1(i)(b) to Form 10-K for the year ended December 28, 1997). 3.1(i)(c) Certificate of Designations of Series B ESOP Convertible Preferred Stock, originally filed as Exhibit 3.1(d) to Form 10-K for the year ended January 1, 1989 (incorporated herein by reference to Exhibit 3.1(c) to Form 10-K for the year ended January 1, 1995). 3.1(ii) By-laws as currently in effect (incorporated herein by reference to Form 10-K for the year ended December 29, 1996). 4.1 Amended and Restated Rights Agreement dated as of March 21, 1997 with American Stock Transfer & Trust Company, including Form of Rights Certificate (incorporated herein by reference to Exhibit 4.1 to Form 8-K as of March 21, 1997). 4.2(a)(1) Indenture dated as of March 25, 1996 among the registrant, its U.S. operating subsidiaries and Fleet National Bank of Connecticut (incorporated herein by reference to Exhibit 4.2(a) to Form 10-K for the year ended December 31, 1995). 4.2(a)(2) First Supplemental Indenture dated as of January 16, 1998 among the registrant, its U.S. subsidiary guarantors and State Street Bank and Trust Company (incorporated herein by reference to Exhibit 4.2(a)(2) to Form 10-K for the year ended December 28, 1997). 4.2(b) Form of 9 1/4% Senior Note due 2006, included in Exhibit 4.2(a)(1) (incorporated herein by reference to Exhibit 4.2(b) to Form 10-K for the year ended December 31, 1995). 4.2(c) Registration Rights Agreement dated as of March 25, 1996 among the registrant, its U.S. operating subsidiaries, Bear, Stearns & Co. Inc. and Smith Barney Inc. (incorporated herein by reference to Exhibit 4.2(c) to Form 10-K for the year ended December 31, 1995). 4.3 EKCO Group, Inc. Dividend Reinvestment and Stock Purchase Plan (incorporated herein by reference to Exhibit 4.3 to Form 10-K for the year ended December 31, 1995). 10.1(a)* 1984 Restricted Stock Purchase Plan, as amended (incorporated herein by reference to Exhibit 10.1(a) to Form 10-K for the year ended December 29, 1996). - -------------------------------------------------------------------------------- (1) Numbered in accordance with Item 601 of Regulation S-K. (2) An asterisk (*) denotes the Company's management contracts or compensatory plans or arrangements. 19 21 10.1(b)* 1985 Restricted Stock Purchase Plan, as amended (incorporated herein by reference to Exhibit 10.1(b) to Form 10-K for the year ended December 29, 1996). 10.1(c)* Form of Restricted Stock Purchase Agreement, as amended (incorporated herein by reference to Exhibit 10.1(b) to Form 10-K for the year ended January 1, 1995, Exhibit 10.1(c)(3) to Form 10-K for the year ended December 31, 1995 and schedule thereto in Exhibit 10.1(c)(2) to Form 10-K for the year ended December 29, 1996). 10.1(d)* Form of Restricted Stock Purchase Agreement, as amended (incorporated by reference to Exhibits 10.1(d) to Form 10-K for the year ended December 31, 1995). 10.2(a)* 1987 Stock Option Plan, as amended, including forms of incentive stock option and non-qualified stock option agreements (incorporated herein by reference to Exhibit 10.2(a) to Form 10-K for the year ended December 28, 1997). 10.2(b)(1)* Form of Non-Qualified Stock Option and Repurchase Agreement, as amended (incorporated herein by reference to Exhibit 10.2(b)(2)(i) to Form 10-K for the year ended December 31, 1995). 10.2(b)(2) Schedule to Form of Non-Qualified Stock Option and Repurchase Agreement, as amended. 10.2(c)* Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.2(e) to Form 10-K for the year ended December 29, 1996). 10.2(d)(1)* Form of Non-Qualified Stock Option and Repurchase Agreement (incorporated herein by reference to Exhibit 10.2(e) to Form 10-K for the year ended December 28, 1997). 10.2(d)(2) Schedule to Form of Non-Qualified Stock Option and Repurchase Agreement. 10.2(e)* Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.2(f) to Form 10-K for the year ended December 28, 1997). 10.3 Form of Indemnity Agreement for officers and directors, originally filed as Exhibit 10.3(c) to Form 10-K for the year ended January 1, 1995. 10.4(a)(1)* EKCO Group, Inc. 1988 Directors' Stock Option Plan, as amended, and form of Non-Qualified Stock Option and Repurchase Agreement (incorporated herein by reference to Exhibit 10.4 to Form 10-K for the year ended December 28, 1997). 10.4(a)(2) Schedule to Form of Non-Qualified Stock Option and Repurchase Agreement. 10.5(a)* EKCO Group, Inc. Employees' Stock Ownership Plan ("ESOP") effective as of January 1, 1989, as amended (incorporated herein by reference to Exhibits 10.6(a)(1) and (2) to Form 10-K for the year ended January 1, 1995 and Exhibits 10.5(a)(2) and 10.5(a)(3) to Form 10-K for the year ended December 29, 1996). 10.5(b) Amendment dated June 26, 1998 to EKCO Group, Inc. Employees' Stock Ownership Plan. 10.6* Employment Agreement with Malcolm L. Sherman dated December 4, 1996, as amended. 20 22 10.7* Amended and Restated Employment Agreement with Donato A. DeNovellis dated as of May 25, 1995, as amended (incorporated herein by reference to Exhibit 10.3 to Form 10-Q for the quarterly period ended October 1, 1995, Exhibit 10.9(b) to Form 10-Q for the period ended June 30, 1996 and Exhibit 10.10 to Form 10-K for the year ended December 29, 1996). 10.8* Amended and Restated Employment Agreement with Jeffrey A. Weinstein dated as of May 25, 1995 (incorporated herein by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended October 1, 1995 and Exhibit 10.10 to Form 10-K for the year ended December 29, 1996). 10.9* Form of Amended and Restated Employment Agreement with Brian R. McQuesten and another officer dated as of May 25, 1995, as amended (incorporated herein by reference to Exhibit 10.5 to Form 10-Q for the quarterly period ended October 1, 1995). 10.10* Employment Agreement with Stuart W. Cohen dated as of June 12, 1995 (incorporated herein by reference to Exhibit 10.4 to Form 10-Q for the quarterly period ended October 1, 1995). 10.11* 1995 Restatement of Incentive Compensation Plan for Executive Employees of EKCO Group, Inc. and its Subsidiaries, as amended (incorporated herein by reference to Exhibit 10.12 to Form 10-K for the year ended December 28, 1997). 10.12* EKCO Group, Inc. Supplemental Executive Retirement Plan dated as of July 1, 1992, originally filed as Exhibit 10.12 to Form 10-K for the year ended January 2, 1994. 10.13* Form of Split Dollar Agreement, originally filed as Exhibit 10.14 to Form 10-K for the year ended January 2, 1994. 10.14* EKCO Group, Inc. Amended 1996 Performance Unit Rights Award Plan (incorporated herein by reference to Exhibit 10.14 to Form 10-K for the year ended December 29, 1996). 10.15(a) Indemnification Letter from American Home Products Corporation dated February 8, 1985 to The Ekco Group, Inc. (incorporated herein by reference to Exhibit 10.15(a) to Form 10-K for the year ended December 28, 1997). 10.15(b) Letter of Restatement and Confirmation of the Indemnification of American Home Products Corporation to The Ekco Group, Inc. from American Home Products Corporation to Centronics Corporation dated October 1, 1987 (incorporated herein by reference to Exhibit 10.15(b) to Form 10-K for the year ended December 28, 1997). 10.15(c) Letter from American Home Products Corporation dated December 19, 1988, originally filed as Exhibit 10.17(d) to Form 10-K for the year ended January 1, 1989 (incorporated herein by reference to Exhibit 10.18(c) to Form 10-K for the year ended January 1, 1995). 10.16(a) Amended and Restated Credit Agreement dated as of April 11, 1995 and amended and restated as of July 8, 1997 with Fleet National Bank (incorporated herein by reference to Exhibit 10.22 to Form 10-Q for the quarterly period ended June 29, 1997). 10.16(b) First Amendment to Amended and Restated Credit Agreement dated as of December 15, 1997 (incorporated herein by reference to Exhibit 10.16(b) to Form 10-K for the year ended December 28, 1997). 21 23 10.17 Subordinated Promissory Note dated March 28, 1997 made by Austin Products, Inc. to Ekco Consumer Plastics, Inc. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q for the quarterly period ended March 30, 1997). 10.18 Stock Purchase and Sale Agreement dated as of December 15, 1997 with APP Holding Corporation ("APP"), APP's stockholders and APP's warrantholder (incorporated herein by reference to Exhibit 2 to Form 8-K as of January 16, 1998). 11 Statement re: computation of per share earnings. (Reference is made to Note 12 of Notes to Consolidated Financial Statements in Exhibit 13 hereto.) 13 1998 Annual Report to Stockholders (Sections entitled "Common Stock Price Range and Dividends," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Consolidated Balance Sheets," "Consolidated Statement of Operations," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements" and "Report of Independent Auditors"). 21 Subsidiaries of the registrant. 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule. - -------------------------------------------------------------------------------- THE FOREGOING EXHIBITS WILL NOT BE INCLUDED IN COPIES OF THIS ANNUAL REPORT ON FORM 10-K SUPPLIED TO STOCKHOLDERS. A COPY OF THESE EXHIBITS WILL BE FURNISHED TO STOCKHOLDERS UPON WRITTEN REQUEST ADDRESSED TO DONATO A. DeNOVELLIS, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, EKCO GROUP, INC., 98 SPIT BROOK ROAD, SUITE 102, NASHUA, NEW HAMPSHIRE 03062. 22 24 INDEX TO EXHIBITS FILED WITH FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 EXHIBIT NO. DESCRIPTION 10.2(b)(2) Schedule to Form of Non-Qualified Stock Option and Repurchase Agreement, as amended. 10.2(d)(2) Schedule to Form of Non-Qualified Stock Option and Repurchase Agreement, as amended. 10.3* Form of Indemnity Agreement for officers and directors, originally filed as Exhibit 10.3(c) to Form 10-K for the year ended January 1, 1995. 10.4(a)(2)* Schedule to Form of Directors' Stock Option and Repurchase Agreement. 10.5(b) Amendment dated June 26, 1998 to EKCO Group, Inc. Employees' Stock Ownership Plan. 10.6* Employment Agreement with Malcolm L. Sherman dated December 4, 1996, as amended. 10.12* EKCO Group, Inc. Supplemental Executive Retirement Plan dated as of July 1, 1992, originally filed as Exhibit 10.12 to Form 10-K for the year ended January 2, 1994. 10.13 Form of Split Dollar Agreement, originally filed as Exhibit 10.14 to Form 10-K for the year ended January 2, 1994. 11 Statement re: computation of per share earnings. (Reference is made to Note 12 Notes to Consolidated Financial Statements in Exhibit 13 hereto.) 13 1998 Annual Report to Stockholders (Sections entitled "Selected Consolidated Financial Data," "Common Stock Price Range and Dividends," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Consolidated Balance Sheets," "Consolidated Statement of Operations," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements" and "Report of Independent Auditors"). 21 Subsidiaries of the registrant. 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule. - -------------------------------------------------------------------------------- (1) Numbered in accordance with Item 601 of Regulation S-K. (2) An asterisk (*) denotes the Company's management contracts or compensatory plans or arrangements. 23 EX-10.2(B)(2) 2 SCHED TO FORM OF NON-QUALIFIED STOCK OPTION AGREEM 1 EXHIBIT 10.2(b)(2) ------------------ SCHEDULE TO EKCO GROUP, INC. FORM OF NON-QUALIFIED STOCK OPTION AND REPURCHASE AGREEMENT, AS AMENDED The foregoing Form of Non-Qualified Stock Option and Repurchase Agreement, as amended, is the form utilized by the Company for each of the following stock option grants, including the December 14, 1998 grants which replaced and repriced non-exercised stock options granted at exercise prices above $5.00 per share, for each person who is currently an executive officer of the Company. Date of grant, number of shares granted and exercise price of each option are as noted below. An asterisk (*) in the Shares Granted column denotes the options which were repriced.
No. of Shares Name and Position Grant Date Granted Exercise Price - ----------------- ---------- ------------- -------------- John Jay Althoff, Vice President, Secretary & 12/14/98 7,099 $3.87500 General Counsel Stuart B. Cohen, Vice President, Strategic 12/14/98 4,577 3.87500 Planning & Business Development 12/14/98 8,384 3.87500 02/04/97 6,424 4.25000 Peter D. Conopask, Vice President, Information 02-16-99 10,000 3.53125 Technology, and Chief Information Officer Donato A. DeNovellis, Executive Vice President, 12/14/98 11,553 3.87500 Finance & Administration and Chief Financial 12/14/98 10,248 3.87500 Officer 12/14/98 14,628 3.87500 12/14/98 16,041 3.87500 02/04/97 12,269 4.25000 02/10/98 7,045 3.87500 12/14/98 9,880 3.87500 Brian R. McQuesten, Vice President & 01/18/90 8,500 2.56250 Controller 12/14/98 3,658 3.87500 12/14/98 3,425 3.87500 12/14/98 4,355 3.87500 12/14/98 4,168 3.87500 12/14/98 5,392 3.87500 02/04/97 4,131 4.25000 12/14/98 2,470 3.87500 Malcolm L. Sherman, Chairman & Chief 07/28/98 100,000 7.84380 Executive Officer Jeffrey A. Weinstein, Executive Vice President 01/18/90 22,000 2.56250 and President & Managing Director of Ekco 12/14/98 10,590 3.87500 International, Inc. 12/14/98 20,552 3.87500 12/14/98 11,273 3.87500 12/14/98 9,831 3.87500 12/14/98 10,763 3.87500 02/04/97 8,246 3.87500 02/14/98 7,410 3.87500
EX-10.2(D)(2) 3 SCHED TO FORM OF NON-QUALIFIED STOCK OPTION AGREEM 1 EXHIBIT 10.2(d)(2) ------------------ SCHEDULE TO FORM OF NON-QUALIFIED STOCK OPTION AND REPURCHASE AGREEMENT EKCO GROUP, INC. The following persons each have a Non-Qualified Stock Option and Repurchase Agreement with the Company which is identical in form to the foregoing Form of Non-Qualified Stock Option and Repurchase Agreement, except as to grant date, number of shares granted and exercise price of each such option:
No. of Shares Name and Position Grant Date Granted Exercise Price - ----------------- ---------- ------------- -------------- George W. Carmany, III, Director 10-28-97 10,000 $6.46875 Michael G. Frieze, Director 10-28-97 10,000 6.46875 Avram J. Goldberg, Director 10-28-97 10,000 6.46875 Stuart B. Ross, Director 10-28-97 10,000 6.46875 Bill W. Sorenson, Director 10-28-97 10,000 6.46875 Herbert M. Stein, Director 10-28-97 10,000 6.46875
EX-10.3 4 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.3 FORM OF INDEMNITY AGREEMENT This Agreement is made as of the [DATE], by and between Ekco Group, Inc., a Delaware corporation (the "Corporation"), and [NAME OF INDEMNITEE] ("Indemnitee") with reference to the following facts: Indemnitee [is currently serving/has agreed to serve] as a [director or] officer of the Corporation [or NAME OF SUBSIDIARY] and the Corporation wishes Indemnitee to [continue/serve] in such capacity. Indemnitee is willing, under certain circumstances, to continue in such capacity. In addition to the indemnification to which Indemnitee is or may be entitled pursuant to the Bylaws of the Corporation, and as additional consideration for Indemnitee's service, the Corporation [has, in the past, furnished/furnishes] at its expense directors' and officers' liability insurance protecting Indemnitee in connection with such service. Only a limited amount of such insurance is currently in effect. Indemnitee has indicated that [he/she] does not regard the indemnification provisions available under the Corporation's Bylaws and insurance in effect to be adequate to protect [him/her] against the risks associated with [his/her] service to the Corporation. [Indemnitee may not be willing to continue in office in the absence of obtaining insurance such as that which he/she has heretofore enjoyed.] In order to induce Indemnitee to continue to serve as a [director or officer] of the Corporation [or one or more of its Subsidiaries] and to encourage Indemnitee's free exercise of [his/her] entrepreneurial judgment on behalf of the Corporation and in consideration of [his/her] continued service, the Corporation hereby agrees to indemnity Indemnitee as follows: 1. The Corporation will pay on behalf of Indemnitee and [his/her] executors, administrators, or assigns, any amount which [he/she] is, or becomes, legally obligated to pay because of any claim or claims made against [him/her] after [EFFECTIVE DATE] because of any past, present or future act or omission or neglect or breach of duty, including any actual or alleged error or misstatement or misleading statement, which [he/she] may commit or suffer while [he/she] was, is or may hereafter be acting in [his/her] capacity as a director or officer of the Corporation and/or one of its Subsidiaries or solely because of [his/her] being a director or officer. The payments which the Corporation will be obligated to make hereunder shall include, INTER ALIA, damages, judgments, settlements and costs, cost of investigation (excluding salaries of officers or employees of the Corporation) and costs of defense of legal actions, claims or proceedings and appeals therefrom, and costs of attachment or similar bonds, provided however, that the Corporation shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise which it is prohibited by applicable law from paying as indemnity or for any other reason. 2. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within ninety days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful, in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. 3. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 4. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee: (a) for which payment is actually made to Indemnitee under a valid and collectible insurance policy, except with respect to any excess beyond the amount of payment under such 2 insurance; (b) for which Indemnitee is entitled to indemnity and/or payment by reason of having given notice of any circumstance which might give rise to a claim under any policies of insurance, the terms of which have expired prior to the effective date of this Agreement; (c) for which Indemnitee is indemnified by the Corporation otherwise than pursuant to this Agreement; (d) based upon or attributable to Indemnitee gaining in fact any personal profit or advantage to which [he/she] was not legally entitled; (e) based upon Section 174 of the Delaware General Corporation Law; (f) for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; or (g) brought about or contributed to by the dishonesty of Indemnitee, provided that Indemnitee shall be protected under this Agreement as to any claims upon which suit may be brought against [him/her] by reason of any alleged dishonesty on [his/her] part, unless a judgment or other final adjudication thereof adverse to Indemnitee shall establish that [he/she] committed (i) acts of active and deliberate dishonesty, (ii) with actual dishonest purpose and intent, and (iii) which acts were material to the cause of action so adjudicated. 5. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Corporation's consent, which consent shall not be unreasonably withheld. 6. Action taken in Indemnitee's capacity as an Officer or Director shall, without limitation, include any service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to any employee benefit plan, its participants, or beneficiaries or any service at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise. 7. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the damages, judgements, settlements and costs incurred, but not for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion to which Indemnitee is entitled. 8. Indemnitee, as a condition precedent to [his/her] right to be indemnified under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against [him/her] for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to 98 Spit Brook Road, Nashua, New Hampshire 03062, Attention: [President/Chief Executive Officer] (or such other address as the Corporation shall designate in writing to Indemnitee). Notice shall be deemed received if sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 9. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one instrument. 10. Nothing herein shall be deemed to diminish or otherwise restrict Indemnitee's right to indemnification under any provision of the Certificate of Incorporation or Bylaws of the Corporation, or under Delaware law. 3 11. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to expenses, judgments, fines and penalties with respect to any proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 12. This Agreement shall be binding upon any successor to the Corporation. 13. This Agreement shall be governed by and construed in accordance with Delaware law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. EKCO GROUP, INC. By ---------------------------------- [Title: ] ---------------------------- ------------------------------------- Indemnitee Date: ------------------- 4 SCHEDULE TO EKCO GROUP, INC. FORM OF INDEMNITY AGREEMENT SCHEDULE Each of the following persons has an Indemnity Agreement with Ekco Group, Inc. which is in form of the foregoing Form of Indemnity Agreement except that agreements executed between February 17, 1987 and April 29, 1988 bear the former company name of Centronics Corporation and agreements executed before February 17, 1987 bear the former company name of Centronics Data Computer Corp.:
NAME POSITION WITH THE COMPANY DATE OF AGREEMENT - ---- ------------------------- ----------------- J. Jay Althoff Vice President, General Counsel & Secretary 10-14-97 George W. Carmany, III Director 02-04-97 Stuart W. Cohen Vice President, Strategic Planning & 06-12-95 Business Development Edmond M. Coller Former Director 02-12-87 Peter D. Conopask Vice President, Information Technology & 02-16-99 Chief Information Officer Richard J. Corbin Former Officer 10-26-94 Donato A. DeNovellis Executive Vice President, Finance & 10-26-94 Administration, & Chief Financial Officer Andrew D. Dunn Former Director 08-03-87 Ronald N. Fox Former Officer 06-30-87 Michael G. Frieze Director 02-04-97 Avram J. Goldberg Director 02-04-97 Neil R. Gordon Former Officer 07-30-86 John T. Haran Senior Vice President, Finance & 02-06-96 Administration, EKCO Housewares, Inc. Thomas G. Kamp Former Director & Officer 07-30-86 Michael D. Kaufman Former Director 01-04-87 Robert W. Kilcullen, Jr. Former Director & Officer 07-30-86 Milton C. Lauenstein Former Director 08-18-87 T. Michael Long Former Director 05-18-93 Brian R. McQuesten Vice President & Controller 07-30-86 Linda R. Millman Associate General Counsel & 01-01-92 Assistant Secretary Paul S. Neustadt Former Officer 04-14-97 Kenneth J. Novack Director 08-10-87 Stuart B. Ross Director 02-14-89 Susan M. Scacchi Former Officer 02-04-97 Harold J. Seigle Former Director 08-03-87 Malcolm L. Sherman Chairman of the Board, Chief 05-25-95 Executive Officer & Director Alan D. Solomont Director 07-28-98 Bill W. Sorenson Director 03-15-88 Herbert M. Stein Director 08-03-87 Robert Stein Former Officer & Director 07-30-86 Robert Varakian President, EKCO Housewares, Inc. 07-23-96 Jeffrey A. Weinstein Executive Vice President 07-30-86
EX-10.4(A)(2) 5 SCHED TO FORM OF DIRECTORS STOCK OPTION AGREEMENT 1 EXHIBIT 10.4(a)(2) ------------------ SCHEDULE TO FORM OF DIRECTORS' STOCK OPTION AND REPURCHASE AGREEMENT EKCO GROUP, INC. Each of the following persons currently has a Directors' Stock Option and Repurchase Agreement, as amended, with the Company which is substantially similar in form to the foregoing Form of Directors' Stock Option and Repurchase Agreement, as amended, except as to the date, the number of shares and the exercise price: NO. OF DATE OF SHARES EXERCISE NAME AGREEMENT GRANTED PRICE - ---- --------- ------- -------- George W. Carmany, III 05-20-97 19,753 $5.0625 Michael G. Frieze 05-20-97 19,753 5.0625 Avram J. Goldberg 05-20-97 19,753 5.0625 Kenneth J. Novack 05-12-98 12,402 8.0630 Malcolm L. Sherman 05-25-95 16,162 6.1875 EX-10.5(B) 6 AMEND DATED 6/26/98 TO EMPL. STOCK OWNERSHIP PLAN 1 EXHIBIT 10.5(b) --------------- AMENDMENT TO THE EKCO GROUP, INC. EMPLOYEES' STOCK OWNERSHIP PLAN WHEREAS, Ekco Group, Inc. (the "Employer") heretofore adopted the Ekco Group, Inc. Employees' Stock Ownership Plan (the "Plan"); and WHEREAS, the Employer reserved the right to amend the Plan; and WHEREAS, the Employer desires to amend the Plan; NOW THEREFORE, the Plan is hereby amended, as follows: 1. Article 8: DIVERSIFICATION ELECTION, is amended in its entirety effective as of March 1, 1998, to read as follows: 1. Diversification election. This Article sets out procedures meant to comply with the diversification procedures required of ESOPs under Code Section 401(a)(28). The intent is to allow working participants who are nearing retirement age the opportunity to diversify their plan investments. This procedure permits such participants to elect to receive payments from their employer stock accounts which they may keep as income subject to applicable taxes, or which they may roll over, either to another defined contribution plan of the employer or to an individual retirement account. 2. Eligibility to diversify. Any participant who is age 55 or more and who has completed 10 years of active participation in this Plan is permitted to diversify his account investments according to the procedures set out in this Article. In addition to participants who are eligible under the preceding sentence, any participant who is a member of the Lodge No. 2906, District 98 of the International Association of Machinists and Aerospace Workers Union (the "Union" for purposes of this Article) who is age 40 or more and who has completed 10 years of active participation in this Plan is permitted to diversify his account investments according to the procedures set out in this Article. 3. Time when diversification elections may be made. A participant's diversification period starts with the plan year in which occurs the later of the participant's 55th (40th for Union participants) birthday or the conclusion of 10 plan years as a participant in the Plan. The participant's diversification period includes that plan year and each of the next five plan years; provided that the participant's diversification period will not end before the end of the plan year in which occurs the participant's 61st birthday. Elections to diversify may be made by a participant only within the 90-day diversification election periods following the close of each plan year in the participant's diversification period. 4. Amount available for diversification. The number of shares available for diversification is 25% (50% for Union participants) of the number of shares (or, for the last plan year in the participant's diversification period, 50% of the number of shares) in his employer stock accounts at the end of the plan year preceding the applicable election period (determined as if the participant had made no previous diversification elections under this Article, and then reduced by the number of shares previously diversified under this Article). This calculation will be made separately for preferred shares and common shares. 5. Payment to participant. A participant who is eligible for and who elects diversification will be paid the proper amount for the shares he has elected to diversify (not to exceed the number 2 available for diversification) within 90 days of the end of the election period. Determinations of amounts and forms of payment will be made in accordance with Committee procedures in effect from time to time. 2. Subsection (a) of Section 4 of Article 7: VESTING; PAYMENT FROM PLAN ACCOUNTS is amended, effective as of June 1, 1998, by adding the following new subsection (iii): iii. Notwithstanding the preceding subsections (i) and (ii), a participant (or beneficiary) may request payment for shares in his accounts that are readily tradable on a public exchange in the form of cash at the then value of such shares (determined in accordance with Section 4 of Article 6). In such event, the plan administrator will request the employer to purchase the shares in the participant's account for which the participant requested cash payment. The employer has no obligation to purchase any such shares. If the employer agrees to purchase some or all of such shares, the trustee will sell the shares to the employer at their then value (determined in accordance with Section 4 of Article 6), and the sale proceeds will be paid to the participant (or beneficiary) in accordance with the plan. 3. Except as hereinabove amended, the provisions of the Plan shall continue in full force and effect. IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused this Amendment to be executed on the 26th day of June, 1998. EKCO GROUP, INC. By: /S/ DONATO A. DENOVELLIS ------------------------ Donato A. DeNovellis Chief Financial Officer and Executive Vice President, Finance & Administration 2 EX-10.6 7 EMPLOYMENT AGREEMENT W/ MALCOLM L. SHERMAN 12/4/96 1 EXHIBIT 10.6 ------------ EKCO GROUP, INC. 98 Spit Brook Road, Suite 102 Nashua, NH 03062 December 4, 1996 (as amended February 10, 1999) Mr. Malcolm L. Sherman 10 Albion Road Wellesley, MA 02481 Re: EMPLOYMENT AGREEMENT Dear Mal: This letter is to confirm our understanding with respect to (i) your future employment by Ekco Group, Inc. (the "Company"), (ii) your agreement to protect and preserve information and property which is confidential and proprietary to the Company, and (iii) your agreement not to compete with the Company (the terms and conditions agreed to in this letter shall hereinafter be referred to as the "Agreement"). In consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, we have agreed as follows: 1. EMPLOYMENT. The Company will employ you, and you agree to be employed by the Company, as the Company's Chief Executive Officer and Chairman of the Board and you agree to perform such services and discharge such duties and responsibilities, consistent with that office, as may be prescribed by the Board of Directors of the Company from time to time. You shall devote your full time and best efforts in the performance of the foregoing services, provided, however, that you shall not be prevented or limited from continuing to serve as a member of the Board of Directors or Board of Trustees of those corporations or entities which you currently serve and such other positions as to which the Board of Directors may consent, from time to time, which consent will not be unreasonably withheld. 2. TERM OF EMPLOYMENT. (a) TERM; TERMINATION. Your employment hereunder shall commence on December 4, 1996 and shall continue thereafter on an "at-will" basis until terminated either by you or by the Company for any reason upon written notice to the other. The right of the Company to terminate your employment hereunder, to which you hereby agree, shall be exercisable by written notice sent to you by the Company and shall be effective as of the date of such notice. 2 3. COMPENSATION. (a) SALARY AND BONUS. The Company shall pay you as compensation for your services and agreements hereunder during the term hereof (i) salary at the rate of $250,000 per year, payable in accordance with the Company's salary payment policy for executive employees generally, less any amounts required to be withheld under applicable law, and (ii) a bonus in such amount, if any, as may be determined annually by the Board of Directors or the Compensation Committee in its sole discretion. (b) TERMINATION. Upon termination of your employment hereunder, no further compensation or benefits of any kind shall be payable to you hereunder, except as provided in Sections 4(c), 5(c) and 5(d) below; provided, however, that you shall continue to be bound by the terms and conditions of this Agreement (other than Section 1 hereof). 4. STOCK AND STOCK RIGHTS. (a) Upon the date of your acceptance of this Agreement, the Company granted to you a stock option to purchase an aggregate of 900,000 shares of the common stock, $.01 par value ("Common Stock"), of the Company, with an exercise price per share equal to the fair market value of the Common Stock on the date of grant and subject to the terms and conditions set forth in the Non-Qualified Stock Option Agreement (the "Option Agreement") attached hereto as EXHIBIT A. (b) The Board of Directors, in its sole discretion, may from time to time grant you additional shares of stock of the Company or options to purchase such shares pursuant to the Company's stock option plans, restricted stock purchase plans or other stock plans. (c) Immediately upon the occurrence of any of the Listed Contingencies (as defined below), you (or your estate, as appropriate) shall have the unconditional, unencumbered and free right, title and interest in all shares of stock of the Company which were granted, sold or optioned (subject, if you or your estate elect to exercise unexercised rights, to your obligation to pay the option exercise price or other purchase price to the extent theretofore not paid) to you by the Company at any time prior to the date of such Listed Contingency as if all restrictions imposed by the Company had lapsed and all events necessary to vest in you (or your estate) such rights, including the lapsing of time, had occurred, and the Company shall take all such actions as may be necessary to release any then existing restrictions imposed by the Company and waive any rights to repurchase such shares. For the purposes of this Agreement, "Listed Contingencies" shall be limited to the following events: (1) The occurrence of a Change of Control (as defined below) while you are employed hereunder, and without regard to whether or not your employment by the Company is terminated, whether a Constructive Termination (as defined below) occurs at such time or thereafter or the manner of any subsequent 2 3 termination of your employment; or (2) An event of Constructive Termination or termination by the Company of your employment without Good Cause (as defined below) following a Change of Control; or (3) Termination of your employment as a result of your death; or (4) Termination of your employment as a result of your permanent and total disability (subject to the provisions of Section 4(g) below). (d) As used herein, "Change of Control" shall be deemed to have occurred (i) if any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than the Company or any employee stock plan of the Company is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the outstanding Common Stock of the Company; or (ii) ten (10) days following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by any "person" of fifteen percent (15%) or more of the outstanding Common Stock of the Company, provided, however, that at the conclusion of such ten (10) day period such person has not discontinued or rescinded his intention to make such a tender or exchange offer; or (iii) if during any consecutive twelve (12) month period beginning on or after the date on which this Agreement is executed individuals who at the beginning of such period were directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company; or (iv) if a merger of, or consolidation involving, the Company in which the Company's stock is converted into securities of another corporation or into cash shall be consummated, or a plan of complete liquidation of the Company (whether or not in connection with a sale of all or substantially all of the Company's assets) shall be adopted and consummated, or substantially all of the Company's operating assets are sold (whether or not a plan of liquidation shall be adopted or a liquidation occurs), excluding in each case a transaction solely for the purpose of reincorporating the Company in a different jurisdiction or recapitalizing the Company's stock. (e) As used herein, "Constructive Termination" shall be deemed to have occurred if and when (i) your base salary is decreased below the level in effect on the date of the last amendment of this Agreement, or the aggregate salary and incentive compensation or benefits available to be earned by you is directly or indirectly reduced or eliminated, or the bonus percentage, if any, applicable to your participation in any compensation or bonus plan or arrangement is reduced, without your consent, provided, however, that nothing herein shall be construed to guarantee your bonus awards if performance is below applicable targets, or (ii) the importance of your job responsibilities is reduced without your consent, or (iii) a proposal is made to relocate you to a location other than Nashua, New Hampshire or the greater Boston, Massachusetts metropolitan area without your consent. 3 4 (f) As used herein, "Good Cause" shall mean and be limited to a material breach of any of your obligations under Section 1, 6 or 7 hereof, or any action by you during the term of this Agreement involving willful malfeasance or gross (but not simple) negligence on your part in a material respect. Notwithstanding the foregoing, following a Change of Control, "Good Cause" shall not be deemed to have occurred unless (1) the conduct which is the basis for such material breach is either willful or intentionally unlawful and (2) you shall not have ceased such conduct or cured the effect thereof, if curable, so that such breach shall no longer be material within thirty (30) days after you shall have received written notice from the Company of the Company's intention to terminate your employment for Good Cause, which notice shall specify in detail the basis therefor. (g) The determination that, by virtue of total and permanent disability, you are unable to perform your duties hereunder shall by made by a physician chosen by the Company and reasonably satisfactory to you (or your legal representative). The cost of such examination shall be borne by the Company. Without limiting the generality of the foregoing, unless otherwise agreed, you shall be conclusively presumed to be permanently and totally disabled hereunder if for reasons involving mental or physical illness or physical injury you fail to perform such duties for a period of one hundred eighty (180) days or more in any twelve (12) month period. For the purposes of this Section 4(g), the date of termination shall be the earlier of the date of such physician's examination pursuant to which such determination is made or the first business day after which such 180-day period has expired. 5. BENEFITS AND REIMBURSEMENT OF EXPENSES. (a) VACATION. You shall be entitled to four weeks of vacation leave for each 12 months of service performed by you at a time or times (either consecutively or not consecutively) mutually agreeable to the Company and you. The Company will not pay you any additional compensation for any vacation time which is not used. (b) EMPLOYEE BENEFIT PLANS. You shall also be entitled to participate in such employee benefit plans and fringe benefits which the Company provides or may establish for the benefit of its executive employees generally (including, without limitation, group life, medical, dental and other insurance plans), but only if and to the extent provided in such employee benefit plans. (c) REIMBURSEMENT OF EXPENSES. You shall be entitled to reimbursement for all ordinary and reasonable out-of-pocket business expenses (including first class air travel and hotel accommodations) which are reasonably incurred by you in furtherance of the Company's business in accordance with reasonable policies adopted from time to time by the Company. (d) EXCISE TAX. In the event you become subject to tax under Section 4999 of the Internal Revenue Code (the "IRC"), or any similar tax ("Excise Tax"), as a result of any payment (within the meaning of Section 280G of the IRC or other applicable provision) by the Company or 4 5 any affiliate of the Company, the Company agrees that it will then "gross up" your compensation by making an additional payment to you in an amount which, after reduction for any income or excise taxes payable as a result of receiving such additional payment, is equal to the Excise Tax. 6. CONFIDENTIALITY, INVENTIONS, AND NON-COMPETITION ACKNOWLEDGEMENTS AND AGREEMENTS. (a) Your agreements set forth in this Section 6 shall survive the expiration or termination of this Agreement and the termination of your employment with the Company for any reason. (b) You acknowledge that irreparable injury would be caused to the Company by your breach of any of the provisions of this Section 6, and agree that in the event of any such breach, the Company and any of its affiliates, in addition to such other rights and remedies as may exist in its favor, may apply to any court of law or equity having jurisdiction to enforce the specific performance of the provisions of this Section 6 and may apply for injunctive relief against any act which would violate any such provisions. (c) You recognize that you now have knowledge of and/or may hereafter gain knowledge of, confidential information, trade secrets, confidential processes, confidential patentable or unpatentable inventions or confidential "know how", including, without limitation, techniques, formulae, designs, developments, projects, technical information and manufacturing process and distribution methods, relating to, or concerned with the business of the Company and its affiliates prior to the termination of this Agreement and their respective suppliers, customers, stockholders, licensors, licensees, and other persons or entities with which the Company or its affiliates has, has had, or may in the future have any commercial, scientific or technical relationship. During the term of this Agreement and at all times following the termination of your employment for any reason, you will not, directly or indirectly, divulge, furnish or make accessible to anyone (other than as required in the regular course of your employment by the Company or with the consent of the Board of Directors) such information. The prohibitions contained in this Section 6(c) shall not apply to information which is (a) within the domain of the general public; (b) generally known within the industry or industries in which the Company or its affiliates is involved; or (c) independently developed by you without utilization of confidential information gained while in the employ of the Company; provided that you shall not have disclosed such information in violation of this Agreement. All documents, records, apparatus, equipment and other physical property furnished to you by the Company or any affiliates of the Company or produced by you or others in connection with your services to the Company or any such affiliate shall be and remain the sole property of the Company. You will return and deliver such property 5 6 to the Company as and when requested by the Company. Copies of documents and records may be kept, but shall be kept completely confidential to the same extent as other confidential information of the Company. You shall return and deliver all such property upon termination of your employment for any reason, and you will not take with you any such property or any reproduction of such property upon such termination. (d) Any work or research or the results thereof, made or developed by you, alone or in conjunction with others during the term of your employment, including but without limitation, any designs, patents, inventions, processes, know-how or formulae created, invented or conceived during the period of your employment by the Company, whether during or out of the usual hours of work, which arise out of or are related to the business, research, or development work or field of operation of the Company, or any of its affiliates, shall to the extent of your interest therein be the sole and exclusive property of the Company, shall be disclosed in writing to the Company and to no other person, unless so directed in writing by the Board of Directors, and you hereby assign to the Company all and any right which you have or may acquire in the same. To this end, both during the period of your employment and at all times thereafter, you agree to execute all necessary papers, instruments and documents properly required to effect such assignment to the Company or its nominee, to make application through the Company's patent attorney or general counsel at the expense of the Company, for such United States and foreign patents as may be specified from time to time by the Company on inventions, processes, or formulae which are or become the property of the Company hereunder, and to execute assignments upon the Company's request, for your entire interest in all such applications to the Company or to its nominee without compensation (other than your usual compensation as an employee of the Company) and you agree to give the Company and its patent attorney or general counsel all reasonable assistance in preparing such applications, descriptions, and illustrations of each such invention, process, or formula and in connection with proceedings relating thereto or to such other applications or patents resulting therefrom; and further agree to execute all lawful papers considered necessary by the Company and do all that the Company reasonably requests in order to protect the Company's rights in said inventions, processes, and formulae or to obtain patents thereon, including, without limitation, continuations, reissues, renewals, and extensions. It is further agreed that your obligations specified hereunder shall not expire with the termination of this Agreement or your employment, but the Company agrees to pay you a reasonable amount for any time that you spend in such work at the Company's request after the termination of this Agreement or your employment hereunder and agrees to reimburse you for expenses reasonably or necessarily incurred in connection with such work. 6 7 (e) In consideration of your continued employment by the Company, and the other benefits accruing to you hereunder, and subject to the fulfillment by the Company of its obligations to you hereunder, you agree that during the term of this Agreement and for a period of thirty-six (36) months following the date of termination of your employment pursuant to Section 2 hereof (such period of employment and thirty-six (36) month period being referred to in this Agreement as the "Non-Competition Period"), you will not engage or participate, directly or indirectly, within the United States of America or Canada either as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual or representative capacity whatever, in the conduct or management of, or own any stock or other proprietary interest in, or debt of, any business which shall be competitive with any business which is or was conducted by the Company or any affiliate of the Company, while you were an employee of the Company, unless you shall have obtained the prior written consent of the Board of Directors, and which consent shall make express reference to this Agreement. Notwithstanding any other provision in this Section 6, you shall be free without such consent to make investments, directly or indirectly, in the securities of any publicly-owned entity if your ownership thereof is limited to not more than three percent (3%) of the issued and outstanding securities of any class of securities of such entity. You acknowledge that your skills and your experience are such that you can anticipate finding employment at an executive level in a wide variety of industries and represent and agree that the restrictions imposed by this Section 6 on employment are necessary for the protection of the legitimate interests and competitive position of the Company and do not impose undue hardships on you. (f) During the Non-Competition Period, you shall not, directly or indirectly, solicit any officer, director, executive, employee or consultant of the Company or any affiliate of the Company to leave such employment or terminate such position. 7. NO CONFLICTING AGREEMENTS. You hereby represent and warrant that you have no commitments or obligations inconsistent with this Agreement and you hereby agree to indemnify and hold the Company harmless against loss, damage, liability or expense arising from any claim based upon circumstances alleged to be inconsistent with such representation and warranty. 8. GENERAL. (a) NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. If to Malcolm L. Sherman: Malcolm L. Sherman 7 8 10 Albion Road Wellesley, MA 02481 If to the Company: Ekco Group, Inc. 98 Spit Brook Road Nashua, NH 03062 Attn: Vice President and General Counsel All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telex, telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iv) if sent by registered or certified mail, on the fifth (5th) business day following the day such mailing is made. (b) ENTIRE AGREEMENT. This Agreement and the Option Agreement embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. (c) MODIFICATIONS AND AMENDMENTS. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto. (d) WAIVERS AND CONSENTS. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. (e) ASSIGNMENT. The Company may assign its rights and obligations hereunder to any person or entity who succeeds to all or substantially all of the Company's business or that aspect of the Company's business in which you are principally involved. Your rights and obligations under this Agreement may not be assigned by you without the prior written consent of the Company. (f) BENEFIT. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed 8 9 to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. (g) GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New Hampshire without giving effect to the conflict of law principles thereof. (h) ARBITRATION. Except with respect to the provisions of Section 6 hereof, any controversy, dispute or claim arising out of or in connection with this Agreement, or the breach, termination or validity hereof, shall be settled by final and binding arbitration to be conducted by an arbitration tribunal in Boston, MA, pursuant to the rules of the American Arbitration Association. The arbitration tribunal shall consist of three arbitrators. The party initiating arbitration shall nominate one arbitrator in the request for arbitration and the other party shall nominate a second in the answer thereto within thirty (30) days of receipt of the request. The two arbitrators so named will then jointly appoint the third arbitrator. If the answering party fails to nominate its arbitrator within the thirty (30) day period, or if the arbitrators named by the parties fail to agree on the third arbitrator with sixty (60) days, the office of the American Arbitration Association in Boston, MA shall make the necessary appointments of such arbitrator(s). The decision or award of the arbitration tribunal (by a majority determination, or if there is no majority, then by the determination of the third arbitrator, if any) shall be final, and judgment upon such decision or award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such decision or award and an order of enforcement. In the event of any procedural matter not covered by the aforesaid rules, the procedural law of the State of New Hampshire shall govern. (i) JURISDICTION AND SERVICE OF PROCESS. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of New Hampshire or of the United States of America for the District of New Hampshire. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its address set forth in Section 8(a) hereof. (j) SEVERABILITY. The parties intend this Agreement to be enforced as written. However, (i) if any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the duration of such provision or the geographic area covered thereby, the Company and you agree that the court making such determination shall have the power to reduce the duration and/or geographic area of such provision, 9 10 and/or to delete specific words and phrases ("blue-pencilling"), and in its reduced or blue-pencilled form such provision shall then be enforceable and shall be enforced. (k) HEADINGS AND CAPTIONS. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect the meaning or construction of any of the terms or provisions hereof. (l) NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand. (m) EXPENSES. Should any party breach this Agreement, in addition to all other remedies available at law or in equity, such party shall pay all of any other party's costs and expenses resulting therefrom and/or incurred in enforcing this Agreement, including legal fees and expenses. (n) COUNTERPARTS. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [REMAINDER OF PAGE DELIBERATELY LEFT BLANK] 10 11 If the foregoing accurately sets forth our agreement, please so indicate by signing and returning to us the enclosed copy of this letter. Very truly yours, EKCO GROUP, INC. By: /S/ DONATO A. DENOVELLIS ---------------------------- Name: DONATO A. DENOVELLIS -------------------------- Title: EVP/CFO ------------------------- Accepted and Approved /S/ MALCOLM L. SHERMAN - ------------------------------- Malcolm L. Sherman Dated: 12/04/96 and 03/04/99 ------------------------ 11 EX-10.12 8 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 7/1/92 1 EXHIBIT 10.12 ------------- EKCO GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EFFECTIVE JULY 1, 1992 2 1 DEFINITIONS...................................................... 1 1.1 Accrued Benefit......................................... 1 1.2 Actuarial Equivalent.................................... 1 1.3 Actuary................................................. 2 1.4 Administrator........................................... 2 1.5 Affiliated Employer..................................... 2 1.6 Average Compensation.................................... 2 1.7 Average Compensation Differential....................... 2 1.8 Change In Control....................................... 2 1.9 Code.................................................... 3 1.10 Compensation............................................ 3 1.11 Credited Service ....................................... 3 1.12 Designated Compensation................................. 4 1.13 Disability.............................................. 4 1.14 Early Retirement Date................................... 4 1.15 Effective Date.......................................... 4 1.17 Employer................................................ 4 1.18 Executive............................................... 5 1.19 Normal Retirement Date.................................. 5 1.20 Participant............................................. 5 1.21 Plan.................................................... 5 1.22 Plan Year............................................... 5 2 ELIGIBILITY FOR PLAN PARTICIPATION............................... 5 3 RETIREMENT AND DEATH BENEFITS.................................... 5 3.1 Normal retirement benefit............................... 5 4 Early retirement benefit......................................... 6 4.1 Late retirement benefit................................. 6 4.2 Disability retirement................................... 6 4.3 Vested retirement benefits.............................. 6 4.4 Optional form of benefit payments and surviving spouse annuity.......................................... 7 4.5 Retirement benefits upon a Change In Control............ 7 4.6 Preretirement death benefits............................ 7 5 FUNDING.......................................................... 8 6 AMENDMENT AND TERMINATION........................................ 8 6.1 Amendment............................................... 8 6.2 Termination............................................. 8 7 MISCELLANEOUS.................................................... 9 7.1 Plan does not affect employment......................... 9 7.2 No offset of other claims against benefits.............. 9 7.3 Tax withholding......................................... 9 7.4 Benefits not assignable................................. 9 7.5 Distribution to legally incapacitated................... 9 7.6 Governing law........................................... 10 7.7 Construction............................................ 10 8 CLAIMS PROCEDURE................................................. 10 3 EKCO GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 DEFINITIONS 1.1 Accrued Benefit, at any point in time, means the sum of: (a) the Formula A retirement benefit in Section 0 based on Credited Service at the time, plus (b) the Formula B retirement benefit in Section 3.1, prorated by a fraction, the numerator of which is the Participant's Credited Service at the time and the denominator of which is the lesser of twenty (20) or the total Credited Service the Participant would have had if employed until Normal Retirement Date. An Accrued Benefit is calculated as if it were a monthly annuity payable for the Participant's lifetime, with the first payment commencing on the first day of the month following Normal Retirement Date and ceasing in the month of the participant's death. An Accrued Benefit which becomes first payable under the Plan's terms at any other date (such as Early Retirement Date) or in any other form (such as a lump sum) will be the Actuarial Equivalent of the Accrued Benefit. In the event of preretirement death, retirement due to Disability, or termination in circumstances providing for salary continuation under any employment contract between the Participant and the Employer, or termination of employment for any reason within three (3) years after a Change in Control, an Accrued Benefit will be calculated with reference to the Plan's special definitions of Average Compensation and Credited Service in Sections 0 and 0. 1.2 Actuarial Equivalent of any benefit earned under the Plan shall be determined by the Actuary. Whenever benefits are calculated to commence on a date other than the first day of the month following Normal Retirement Date or in a form other than a monthly annuity for life, the Actuary shall use the following factors to determine the Actuarial Equivalent: (a) Mortality -- life expectancies will be calculated under the 1983 Individual Annuity Mortality Table (Male Lives), with three (3) year set back for males so that male and female lives be computed on a uniform basis). 1 4 (b) Interest -- funds are assumed to grow at the rate of 8% per annum. 1.3 Actuary shall mean an Actuary appointed by the Administrator under whose supervision valuation reports and benefit calculations are performed for the plan. The Actuary must be enrolled under federal practice. 1.4 Administrator shall mean the committee charged with administering the Plan and will be the Compensation Committee of Ekco. In the event of a Change in Control, those persons who were serving as members of the Compensation Committee prior to the Change In Control will continue to serve as the administrative committee for this plan, if willing, and successors will be appointed by that person who was serving as Chief Executive Officer of Ekco immediately prior to the Change in Control and, if he is unable or unwilling to make such successor appointments, by that person who was serving as General Counsel of Ekco immediately prior to the Change in Control. 1.5 Affiliated Employer shall mean any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) with Ekco or which is otherwise designated as an Affiliated Employer by the Administrator. 1.6 Average Compensation of a Participant means the average of his Compensation over any three (3) consecutive years, or over the period of his service, if less, which produce the highest average. In the event of a Participant's death or Disability prior to retirement, termination in circumstances providing for salary continuation under any employment contract between the Participant and the Employer, or in the event the Participant terminates employment for any reason within three (3) years following a Change In Control, the calculation of the three (3) highest consecutive years of Average Compensation will include any future period for which the Executive receives base salary related payments under an employment contract with the Employer, if the inclusion of that period will produce a higher calculation. 1.7 Average Compensation Differential for a Participant means the amount determined by assuming that the Participant's 1991 Compensation increased at the rate of six (6%) percent per year and subtracting that hypothetical amount from Average Compensation at the time of any calculation of benefits hereunder. The Average Compensation Differential shall never be less than zero. 1.8 Change In Control shall mean the occurrence of any of 2 5 the following events: (a) when any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), is or becomes the beneficial owner, directly or indirectly, of securities of Ekco representing thirty percent (30%) or more of the combined voting power of Ekco's then outstanding securities, or (b) when within any consecutive twelve (12) month period, individuals who at the beginning of such period were directors of Ekco cease, for any reason, to constitute at least a majority of the Board of Directors of Ekco; or (c) when a merger of, or consolidation involving, Ekco in which Ekco's stock is converted into securities of another corporation or into cash shall be consummated, or a plan of complete liquidation of Ekco in which Ekco (whether or not in connection with a sale of all or substantially all of the Ekco's assets) shall be adopted and consummated, excluding in each case a transaction solely for the purpose of reincorporating Ekco in a different jurisdiction or recapitalizing Ekco's stock; or (d) in the case of any Participant whose employment contract with the Employer provides for a definition of Change In Control, the occurrence of any one or more events which would be considered a Change in Control under the employment contract. 1.9 Code shall mean the Internal Revenue Code of 1986, as amended from time to time. In the event of amendments to the Code, references to specific sections in this Plan shall be deemed to refer to successor sections or provisions, as appropriate. 1.10 Compensation shall mean the highest base salary, determined on an annualized basis, as in effect for a participant during any calendar year. Bonuses, commissions, and other incentive Compensation are specifically excluded. Compensation for each Participant at the Effective Date is scheduled in the Appendix. Compensation shall be grossed up by the amount of Compensation reduction elected by the participant under any Code Section 401(k) or Code Section 125 benefit Plans or under any program or individual arrangement providing for salary deferral. 3 6 In no event shall Compensation include any payments to or benefits received under this or any other public or private employee benefit Plan, or amounts paid or reimbursed for moving expenses, or amounts realized from the exercise of any stock option, or when restricted stock or property held by a participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture, or any other amounts which are fringe benefits, whether or not taxable, such as group term life insurance. 1.11 Credited Service for an Executive shall be measured in terms of years and completed calendar months with a partial month counted as a full month if it equals or exceeds fifteen (15) days. Credited Service may not exceed twenty (20) years under the Plan. All paid service is credited, including service while on paid leave of absence, including without limitation paid leave for active service or service required of an Employee who is a member of the reserves of the Armed Forces of the United States. Service on unpaid leave of absence will not be credited without the consent of the Administrator. An Employee shall also be credited with service while employed by Centronics Corporation. An Employee shall be credited with service performed for Woodstream Corporation only on and after February 1, 1989, and with service performed for Ekco Housewares, Inc. only on and after November 1, 1987, and with Frem Corporation only on or after February 1, 1991. Unless provided otherwise by the Administrator, if other companies are named as Affiliated Employers, the initial Credited Service date for Executives employed by them will not be earlier than the first day of the month following the date on which affiliated ownership with Ekco commenced. In the event of a Participant's death or Disability prior to retirement, termination in circumstances providing for salary continuation under any employment contract between the Participant and the Employer, or in the event the Participant terminates employment for any reason within three (3) years following a Change In Control, his Credited Service will be increased for any future period for which the Executive receives base salary related payments under an employment contract with the Employer if the inclusion of those payments will produce a higher calculation. 1.12 Designated Compensation means an amount designated for each Participant by the Administrator and scheduled in the Appendix. Designated Compensation is not to exceed the Participant's Compensation at the later of the Effective Date or the date of initial membership. 4 7 1.13 Disability means the long term or permanent inability to perform services at the expected level of performance due to a physical or mental impairment. The Committee will determine, in its sole discretion, if a Participant has incurred a Disability. 1.14 Early Retirement Date shall mean the date of a Participant's fifty-fifth (55th) birthday. 1.15 Effective Date of this Plan is July 1, 1992. 1.16 Ekco means Ekco Group, Inc., a Delaware corporation. 1.17 Employer shall mean Ekco. Other Affiliated Employers may join this Plan with the consent of Ekco, although only Ekco will have the powers to amend or terminate the entire Plan and to appoint the Administrator. 1.18 Executive shall mean any person employed in a decision making or managerial position. Only Executives designated by the Board under Article 0 may participate. 1.19 Normal Retirement Date shall mean the date of a participant's sixty-fifth (65th) birthday. 1.20 Participant shall mean any Executive who has been named as a Participant under Article 0. A Participant will be considered an active Participant during such period as he is accruing benefits under the Plan and will be an inactive Participant during the period from cessation of active participation until all benefits accrued on his behalf have been paid to him or, when relevant, to his surviving spouse. 1.21 Plan shall mean this Plan document, as it may be amended from time to time. 1.22 Plan Year shall mean the calendar year. 2 ELIGIBILITY FOR PLAN PARTICIPATION Executives shall become Participants in the Plan only if, as and when so designated by the Board of Directors of Ekco, in the Board's sole discretion. 3 RETIREMENT AND DEATH BENEFITS 3.1 Normal retirement benefit. Each Participant who retires at his or her Normal Retirement Date shall be entitled to a lump sum payment within thirty (30) days 5 8 of retirement. The lump sum payment will be the Actuarial Equivalent of the following pension benefit: a lifetime monthly pension, commencing on the first day of the month following Normal Retirement Date, equal to the sum of the Formula A and Formula B amounts below. (a) FORMULA A MONTHLY RETIREMENT BENEFIT. One twelfth (1/12) of the Participant's Designated Compensation multiplied by his Credited Service multiplied by the Formula A percentage in the Appendix. (b) FORMULA B RETIREMENT BENEFIT. One twelfth (1/12) of the Participant's Average Compensation Differential (if any) multiplied by the Formula B percentage in the Appendix. 4 EARLY RETIREMENT BENEFIT. A Participant who retires on or after Early Retirement Date is entitled to a lump sum payment within thirty (30) days of retirement. The lump sum will be the Actuarial Equivalent of such Participant's Accrued Benefit at the time. 4.1 Late retirement benefit. A Participant who remains in the employ of the Employer after such Participant's Normal Retirement Date is entitled to a lump sum payment within thirty (30) days of his or her actual retirement. The lump sum payment will be the Actuarial Equivalent of such Participant's Accrued Benefit at the time of actual retirement, taking into account increases in Average Compensation, if any, and any additional Credited Service (subject to the Plan's general limitation that Credited Service under the Plan not exceed twenty (20) years). 4.2 Disability retirement. A Participant who retires because of disability is entitled to a lump sum payment within thirty (30) days of his or her actual retirement. The lump sum payment will be the Actuarial Equivalent of such Participant's Accrued Benefit at the time, taking into account the Plan's special definitions of Average Compensation and Credited Service applicable to Disability payments. 4.3 Vested retirement benefits. A Participant who terminates employment and who has not qualified for normal, early, late or Disability retirement benefits described above may still be eligible for a retirement benefit. 6 9 The retirement benefit is a lump sum payment of the Actuarial Equivalent of the non-forfeited ("vested") portion of the Participant's Accrued Benefit, based on Average Compensation and Credited Service at the time of retirement. The lump sum Actuarial Equivalent will be paid within thirty (30) days of the later of (a) the Participant's fifty fifth (55th) birthday or (b) the date of his retirement. The non forfeited portion of a Participant's Accrued Benefit will be determined as follows: Credited Service Vested % of Accrued Benefit Less than 5 years 0% 5 years 50% 6 years 60% 7 years 70% 8 years 80% 9 years 90% 10 years or more 100% 4.4 Optional form of benefit payments and surviving spouse annuity. In lieu of the lump sum payments provided for retirees under the above Sections 0 through 0, a Participant eligible for such benefits may elect to receive the monthly lifetime pension on which Accrued Benefits are based. In lieu of the lifetime pension, a participant may also elect to receive a pension for a term certain or a pension with survivor benefits for a spouse or other named beneficiary. Any such alternate form of pension will be the Actuarial Equivalent of the Participant's Accrued Benefit. Such benefit election shall be in writing and shall be filed in accordance with the such procedures as may be established by the Administrator prior to the date on which monthly payments are to commence. 4.5 Retirement benefits upon a Change In Control. Upon the occurrence of a Change in Control, all participants will be 100% vested in their Accrued Benefits, regardless of the vesting schedule in Section 0. If a Participant terminates employment for any reason within three years after a Change In Control, a lump sum payment will be made within thirty (30) days of the termination date in lieu of all other payments hereunder. 7 10 The lump sum payment will be the Actuarial Equivalent of the Participant's Accrued Benefit, taking into account the Plan's special definitions of Average Compensation and Credited Service applicable to Change in Control payments and subject to the Plan's general limitation that Credited Service under the Plan not exceed twenty (20) years. 4.6 Preretirement death benefits. If a Participant dies while employed (or during such period as he is receiving base salary related payments under an employment contract with the Employer) a death benefit will be paid to his named beneficiary in lieu of all other benefits hereunder. The death benefit will be a lump sum payment which is the Actuarial Equivalent of the amount which would have been paid to the Participant if he had retired on account of Disability on the day prior to his death. The Participant may designate his or her beneficiary in writing on such form as the Administrator may provide for this purpose. If no beneficiary form is in effect, the beneficiary will be the surviving spouse of the Participant at the date of death, if any. If there is no spouse, the beneficiary will be the estate of the Participant. 5 FUNDING. The Plan is an unfunded retirement plan and is not secured with assets in a separate trust. 6 AMENDMENT AND TERMINATION. 6.1 Amendment. Ekco shall have the right to amend, alter or modify the Plan at any time, or from time to time, in whole or in part. Any such amendment shall become effective under its terms upon adoption by the Board of Ekco. The Administrator or any successor committee appointed by Ekco may also make amendments to the Plan without approval of the Board. No amendment shall be made to the Plan which shall: (a) Deprive any Participant of any portion of his Accrued Benefit prior to the date of such action; or (b) Alter the schedule for vesting in Accrued Benefits 8 11 with respect to any Participant with three (3) or more years of Credited Service without his or her written consent; or (c) Decrease or remove the protections provided in Section 0 with respect to a Change in Control. 6.2 Termination. Ekco reserves the right to terminate the Plan in whole or in part with respect to all or any specific group of Participants. A termination will serve only to suspend the accrual of future benefits and no Accrued Benefits may be forfeited if the Plan terminates, nor may there be any loss or reduction of the protections provided in Section 0 with respect to a Change in Control. In the event of full or partial termination, employees affected thereby shall be fully vested in their Accrued Benefits, notwithstanding the vesting schedule in Section 0. Payment of benefits will be in the form and at the time as provided under the Plan prior to its termination unless the Administrator, in its sole discretion, instructs earlier payment. 7 MISCELLANEOUS. 7.1 Plan does not affect employment. The adoption of this Plan does not alter any rights with respect to employment, created by contract or otherwise, between the Employer and any Participant. 7.2 No offset of other claims against benefits. Benefits are to be paid hereunder irrespective of other claims which the Employer has against the Participant, it being intended that payments be provided the same protection as if made from a retirement plan qualified under Section 401 of the Code. 7.3 Tax withholding. The Employer will withhold federal income and employment taxes and appropriate state taxes from any payment to be made hereunder. 7.4 Benefits not assignable. No benefits under the Plan shall in any manner or to any extent be assignable or transferable by any Participant or beneficiary 9 12 under the Plan or subject to attachment, garnishment or other legal process. No attempted assignment or transfer of any benefit under the Plan shall be recognized. 7.5 Distribution to legally incapacitated. In the event any benefit is payable to an incompetent or to a person otherwise under legal disability, or who is by sole reason of advanced age, illness, or other physical or mental incapacity, incapable of handling the disposition of his property, the Administrator, in its sole discretion, may direct payment of the whole or any part of such benefits, directly to the care, comfort, maintenance, support, education or use of such person or to pay or distribute the whole or any part of such benefit to the spouse of such person, the parent of such person, the guardian, committee or other legal representative, wherever appointed, of such person, the person with whom such personal shall reside, any other person having the care and control of such person, such person personally, the receipt of the person to whom any such payment or distribution is so made being a complete discharge of liability for Plan obligations. 7.6 Governing law. The provisions of this Plan shall be construed under the laws of the State of Delaware, except to the extent such laws are preempted by federal law. 7.7 Construction. Wherever appropriate, the use of the masculine gender shall be extended to include the feminine or neuter or vice versa; and the singular form of words shall be extended to include the plural; and the plural shall be restricted to mean the singular. 8 CLAIMS PROCEDURE. Pursuant to procedures established by the Administrator, adequate notice in writing shall be provided to any Participant or Beneficiary ("Claimant") whose written claim for benefits under the Plan has been denied within ten (10) business days of receipt of such written claim. The Administrator's notice shall set forth the specific reason for such denial, shall be written in a manner calculated to be understood by the Claimant, and advise of the right to administrative review. If the Claimant or his or her authorized representative files a written request for review within thirty (30) days of receipt of the written notification of claim denial, the Administrator shall afford a reasonable opportunity for a full and fair review by the Administrator of 10 13 the decision denying the claim. The review shall focus on the additional facts, legal interpretations or material, if any, presented by the claimant. A hearing at its place of business may be scheduled by the Administrator, but a hearing is not required under the review procedure. A final decision by the Administrator is required within ten (10) business days of the Claimant's filing of his or her written request for review, unless the Claimant consents to additional time. A Participant who is dissatisfied with the decision may pursue such judicial remedies as he or she determines appropriate. If any court awards a final judgment in favor of the Participant, the Employer will pay all of the Claimant's attorney's fees. In addition, to the extent the Participant is successful in obtaining benefits which were denied after a Change In Control, liquidated damages will be paid to the Claimant in an amount equal to three time the awarded additional benefits. IN WITNESS WHEREOF, Ekco adopts this Plan as of the first day of July, 1992. EKCO GROUP, INC. By /S/ ROBERT STEIN ---------------------------------- President/ Chief Executive Officer Approved: /S/ STUART B. ROSS - -------------------------------- Chairman/ Compensation Committee 11 EX-10.13 9 FORM OF SPLIT DOLLAR AGREEMENT 1 EXHIBIT 10.13 ------------- FORM OF SPLIT-DOLLAR AGREEMENT ------------------------------ THIS AGREEMENT made and entered into as of the [Date], by and among Ekco Group, Inc., a Delaware corporation with principal offices and place of business in the State of New Hampshire (hereinafter referred to as the "Employer"), and [Name of Employee], an individual residing in the State of Illinois (hereinafter referred to as the "Employee"). WHEREAS, the Employee is employed by the Employer; and WHEREAS, the Employee wishes to provide life insurance protection for his family in the event of his death, and WHEREAS, a policy of life insurance insuring his life, which policy is described in Exhibit A, has been issued by the Guardian Life Insurance Company (hereinafter referred to as the "Insurer"), and WHEREAS, this agreement is meant to apply to that policy and to any other policies which may be purchased and scheduled on Exhibit A with the Employer's consent (the initial policy and any subsequent policies hereinafter referred to as the "Policies"), and WHEREAS, the Employer is willing to pay the initial and subsequent premiums due on the Policies as an additional employment benefit for the Employee, on the terms and conditions hereinafter set forth; and WHEREAS, the Employee is the owner of the Policies and, as such, possesses all incidents of ownership in and to the Policies; and WHEREAS, the Employer wishes to have the Policies collaterally assigned to it by the Employee, in order to secure the repayment of the amounts which it will pay toward the premiums on the Policies and certain other amounts hereinafter described; and WHEREAS, the parties intend that by such collateral assignment the Employer shall receive only the right to such repayments, with the Employee retaining all other ownership rights in the Policies; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: I. PURCHASE OF POLICIES. The Employee has purchased the Policies from the Insurer in the total face amount listed on Exhibit A. The parties hereto have taken all necessary action to cause the Insurer to issue the Policies, and shall take any further action which may be necessary to cause the Policies to conform to the provisions of this Agreement. The parties hereto agree that the Policies shall be subject to the terms and conditions of this Agreement and of the collateral assignment filed with the Insurer relating to the Policies. All capitalized words and phrases not otherwise defined herein shall have the same meaning such words and phrases have in the Policies. II. OWNERSHIP OF POLICIES. A. The Employee shall be the sole and absolute owner of the Policies, and may exercise all ownership rights granted to the owner by the terms of the Policies, except as may be provided herein. B. It is the intention of the parties that the Employee shall retain all rights which the Policies grant to 1 2 the owner thereof; the sole right of the Employer hereunder shall be to be repaid the amounts which it has paid toward the premiums on the Policies. Specifically, but without limitation, the Employer shall neither have nor exercise any right as collateral assignee of the Policies which could in any way defeat or impair the Employee's right to receive the cash surrender value or the right of the Employee's beneficiary to receive death proceeds of the Policies in excess of the amount due the Employer hereunder. All provisions of this Agreement and of such collateral assignment shall be construed so as to carry out such intention. C. PAYMENT OF PREMIUMS. On or before the due date of each Policy's premium, or within the grace period provided therein, the Employer shall pay the full amount of the planned periodic premium to the Insurer, and shall, upon request, promptly furnish the Employee evidence of timely payment of such premium. Except with the written consent of the Employee, the Employer shall not pay less than such planned periodic premium, but may, in its discretion, at any time and from time to time, subject to the acceptance of such amount by the Insurer, pay more than such planned periodic premium or make other premium payments on the Policies. Except as otherwise agreed in writing by the Employee and the Employer, the Employer's obligation to pay premiums due under the Policies shall cease upon termination of employment or, if Employee is entitled to salary continuation payments under any contract of employment or otherwise, upon completion of payments under such contract or continuation arrangement, with the Employer to pay a pro rata portion of premium for any portion of the policy year in which the Employee was employed or entitled to salary continuation. For any period in which premiums are paid by the Insurer pursuant to a disability waiver feature of the Policies, the Employer shall be excused from payment and accordingly shall have no right to recover such amounts under the collateral assignment described herein. D. COLLATERAL ASSIGNMENT. To secure the repayment to the Employer of the amount of the premiums on the Policies paid by it hereunder, the Employee has, contemporaneously herewith, assigned the Policies to the Employer as collateral, under the form used by the Insurer for such assignments, which collateral assignment specifically provides that the sole right of the Employer thereunder is to be repaid the amount of the premiums on the Policies paid by it. Any such repayment of premiums on the Policies paid by the Employer shall be made from and shall be limited to the cash surrender value of the Policies (including cash surrender value of any paid-up additions) if this Agreement is terminated or if the Employee surrenders or cancels the Policies. If the Employee should die while the Policies and Agreement remain in force, such repayment to the Employer shall be made from the death proceeds of the Policies. In no event shall the Employer have any right to borrow against or make withdrawals from the Policies, to surrender or cancel the Policies, nor to take any other action which would impair or defeat the rights of the Employee in and to the Policies. The collateral assignment of the Policies to the Employer hereunder shall not be terminated, altered or amended by the Employee while this Agreement is in effect. The parties hereto agree to take all action necessary to cause such collateral assignment to conform to the provisions of this Agreement. E. APPLICATION OF DIVIDENDS. While this agreement is in force, dividends under any policy shall be used to purchase paid-up additions and shall not be applied to the payment of premiums or for any other dividend option unless the parties so agree by amending this agreement and the Employee subsequently amends the policy. F. TAX STATEMENT. The Employer shall annually furnish the Employee a statement of the amount of income reportable by the Employee for federal and state income tax purposes, if any, as a result of the insurance protection provided the Employee. III. LIMITATIONS ON EMPLOYEE'S RIGHTS IN POLICIES A. Except as otherwise provided herein, the Employee shall take no action with respect to the Policies which would in any way compromise or jeopardize the Employer's right to be repaid the amounts it has paid toward premiums on the Policies while this Agreement is in effect. B. The Employee may pledge or assign the Policies, subject to the terms and conditions of this Agreement, in order to secure a loan from the Insurer or from a third party, in an amount which shall not exceed the 2 3 cash surrender value of the Policies (and the cash surrender value of any paid-up additions) as of the date to which premiums have been paid, less the amount paid toward the premiums on the Policies by the Employer hereunder. Interest charges on such loan shall be the responsibility of and be paid by the Employee or, with the consent of Employer, may be paid from cash value determined to be in excess of the amounts owed to the Employer hereunder. C. The Employee may give the Policies, or any undivided portion thereof, to a donee or donees, subject always to the Employer's right to be repaid the amounts due it hereunder and the collateral assignment of the Policies as security therefor. D. The Employee shall have the sole right to surrender or cancel the Policies, and to receive the full cash surrender value of the Policies directly from the Insurer. To facilitate payment of amounts owed to the Employer, Employee agrees that he will cooperate with Employer and the Insurer so that the Employer may be paid directly all amounts that it is owed by the Insurer, but any such payment (whether pursuant to a policy loan to the Employee or a partial or full surrender) shall be considered a payment from the Employee for purposes of this Agreement. Upon receipt of such payment, the Employer will release the assignment and the Employee shall own the policy free of all provisions and restrictions of the assignment and this Agreement shall thereupon terminate. IV. COLLECTION OF DEATH PROCEEDS. A. Upon the death of the Employee, the Employer and the beneficiary shall cooperate to take whatever action is necessary to collect the death benefit provided under the Policies; when such benefit has been collected and paid as provided herein, this Agreement shall thereupon terminate. B. Upon the death of the Employee, the Employer shall have the unqualified right to receive a portion of such death benefit equal to the total amount of the premiums paid by it hereunder, without interest. The balance of the death benefit provided under the Policies, if any, shall be paid directly to the Employee's beneficiary, in the manner and in the amount or amounts provided in the beneficiary designation for the Policies. In no event shall the amount payable to the Employer hereunder exceed the Policies' proceeds payable at the death of the Employee. No amount shall be paid from such death benefit to the beneficiary until the full amount due the Employer pursuant to the collateral assignment has been paid. The parties hereto agree that the beneficiary designation provision of the Policies shall conform to the provisions hereof. V. TERMINATION OF THE AGREEMENT DURING THE EMPLOYEE'S LIFETIME. The Employee may terminate this Agreement, while no premium under the Policies is overdue, by written notice to the other parties hereto. Such termination shall be effective as of the date of such notice. VI. DISPOSITION OF THE POLICIES ON TERMINATION OF THE AGREEMENT DURING THE EMPLOYEE'S LIFETIME. A. For sixty (60) days after the date of the termination of this Agreement during the Employee's lifetime, the Employee shall have the option of obtaining the release of the collateral assignment of the Policies to the Employer. To obtain such release, the Employee shall repay to the Employer the total amount of the premium payments made by the Employer hereunder, without interest. Upon receipt of such amount, the Employer shall release the collateral assignment of the Policies, by the execution and delivery of an appropriate instrument of release. B. If the Employee fails to exercise such option within such sixty (60) day period, then, at the request of the Employer, the Employee shall execute any document or documents required by the Insurer to transfer the interest of the Employer in the Policies to the Employer, and such transfer may be accomplished at Employee's option by means of a loan to him or a partial surrender of the policy. If the Employee does not cooperate, the Employer may direct the Insurer to honor the collateral assignment and to make a partial surrender of the policy so 3 4 that the Employer may be paid the amount it is owed directly. After the Employer is paid the amount of the premium payments made by it, neither the Employer nor the Employer's successors, assigns or beneficiaries shall have any further interest in and to the Policies, either under the terms thereof or under this Agreement. VII. INSURER NOT A PARTY. The Insurer shall be fully discharged from their obligations under the Policies by payment of the Policies death benefits to the beneficiary or beneficiaries named in the Policies, subject to the terms and conditions of the Policies. In no event shall the Insurer be considered a party to this Agreement, or any modification or amendment hereof. No provision of this Agreement, nor of any modification or amendment hereof, shall in any way be construed as enlarging, changing, varying, or in any other way affecting the obligations of the Insurer as expressly provided in the Policies, except insofar as the provisions hereof are made a part of the Policies by the collateral assignment executed by the Employee and filed with the Insurer in connection herewith. VIII. NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION. A. The Compensation Committee is hereby designated as the named fiduciary under this Agreement. The named fiduciary shall have authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Agreement. B. CLAIM. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Agreement (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Committee, setting forth his or her claim. The request must be sent in care of the General Counsel of the Committee at its then principal place of business. C. CLAIM DECISION. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional ninety (90) days for reasonable cause. If the claim is denied in whole or in part, the Committee shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) the specific reason or reasons for such denial: (b) the specific reference to pertinent provisions of this Agreement on which such denial is based; (c) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (d) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (e) the time limits for requesting a review under subsection 8.d hereof. D. REQUEST FOR REVIEW. Within sixty (60) after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Committee review its determination of the Committee. Such request must be addressed to the General Counsel of the Employer at the Employer's principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Committee. If the Claimant does not request a review of the Committee's determination within such sixty (60) day period, he or she shall be barred and estopped from challenging the Committee's determination. After considering all materials presented by the Claimant, the Committee will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Committee will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. IX. AMENDMENT. This Agreement may not be amended, altered or modified, except by a written instrument signed by the parties hereto, or their respective successors or assigns, and may not be otherwise terminated except as provided herein. 4 5 X. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Employer and its successors and assigns, and the Employer, the Employee, and their respective successors, assigns, heirs, executors, administrators and beneficiaries. XI. NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address as shown on the records of the Employer. The date of such mailing shall be deemed the date of notice, consent or demand. XII. GOVERNING LAW. This Agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in duplicate, as of the day and year first above written. EKCO GROUP, INC. By --------------------- ATTEST: - --------------------- Secretary ------------------------ [Employee] 5 6 SCHEDULE OF SPLIT DOLLAR AGREEMENTS WITH EKCO GROUP, INC. Each of the following persons currently has a Split Dollar Agreement with Ekco Group, Inc. which is identical in form to the foregoing agreement except for the date and for the face amount of the policy of life insurance described in Exhibit A: NAME AND POSITION FACE AMOUNT WITH THE COMPANY DATE OF AGREEMENT OF POLICY - ----------------- ----------------- ----------- Donato A. DeNovellis 10-01-93 $471,381 Executive Vice President, Finance and Administration, & Chief Financial Officer Brian R. McQuesten 10-01-92 279,742 Vice President & Controller Jeffrey A. Weinstein 10-01-92 527,352 Executive Vice President 6 EX-13 10 PORTIONS OF 1998 ANNUAL REPORT 1 EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of the Company shown below for the five-year period ended January 3, 1999 are derived from the consolidated financial statements of the Company audited by independent certified public accountants. The information set forth below is qualified in its entirety by the more detailed financial statements and the notes thereto included elsewhere herein. The following table should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Company's audited Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
FISCAL YEARS ------------------------------------------------------------------- 1998(1) 1997 1996 1995 1994 -------- -------- --------- -------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED BALANCE SHEET DATA Current assets $157,126 $150,142 $ 139,377 $139,425 $145,290 Total assets 318,240 300,805 292,076 301,058 312,518 Current liabilities 59,089 49,674 49,734 54,618 45,973 Long-term obligations, less current portion 136,136 124,270 124,182 96,700 124,460 Series B ESOP Convertible Preferred Stock, net 3,868 4,399 4,098 3,458 3,096 Stockholders' equity 108,324 109,994 102,515 135,925 129,116 Common shares outstanding 19,065 19,066 18,580 18,414 18,069 CONSOLIDATED STATEMENT OF OPERATIONS DATA Net revenues from continuing operations $328,948 $270,536 $ 249,870 $247,004 $233,527 Cost of sales 222,555 181,307 164,505 160,933 148,935 Selling, general and administrative expenses 72,748 60,915 59,737 49,152 48,286 Special charges (2) 16,245 783 9,877 -- -- Amortization of excess of cost over fair value 4,221 3,631 3,636 3,636 3,637 Net interest expense 14,084 11,636 12,416 13,493 12,491 Income (loss) from continuing operations before income taxes and extraordinary charge (905) 12,264 (301) 19,790 20,178 Income taxes 6,527 6,247 2,370 9,828 9,102 Income (loss) from continuing operations before extraordinary charge (3) (7,432) 6,017 (2,671) 9,962 11,076 Earnings (loss) from continuing operations per common share before extraordinary charge (3)(4) Basic (.38) .32 (.14) .54 .62 Diluted (.38) .29 (.14) .49 .54 OTHER FINANCIAL DATA EBITDA before special charges (5) $ 45,731 $ 40,875 $ 39,609 $ 50,896 $ 48,511 Cash dividends per common share and Series B ESOP Convertible Preferred share -- -- .02 .08 --
1 2 (1) Includes operations of Aspen Pet Products, Inc. acquired during January 1998. (2) See Note 17 of Notes to Consolidated Financial Statements for information on special charges. (3) During Fiscal 1996, the Company recorded an extraordinary charge of $3.2 million (net of income tax benefit of $2.1 million) for the early extinguishment of long-term obligations. (4) In December 1997 retroactive to January 1, 1997, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"). All previously reported earnings per share information has been restated to reflect the impact of adopting FAS 128. (5) EBITDA before special charges represents earnings from continuing operations before special charges, interest, taxes, depreciation, amortization of excess of cost over fair value and other amortization. The Company has included information concerning EBITDA because it believes that EBITDA is used by certain investors as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA should not be considered as an alternative to, or more meaningful than, operating income (loss) or net income (loss) in accordance with generally accepted accounting principles as an indicator of the Company's operating performance or cash flow as a measure of liquidity. 2 3 COMMON STOCK PRICE RANGE AND DIVIDENDS The Company's common stock, $.01 par value per share, is traded on the New York Stock Exchange under the ticker symbol "EKO". The following table sets forth the high and low sale prices per share as reported on the New York Stock Exchange Composite Tape during the calendar periods indicated: LOW HIGH 1998 First Quarter 6 7/8 8 15/16 Second Quarter 7 8 7/8 Third Quarter 3 3/8 8 9/16 Fourth Quarter 2 13/16 5 3/16 1997 First Quarter 3 7/8 6 1/8 Second Quarter 4 5/8 5 7/8 Third Quarter 5 9/16 8 1/8 Fourth Quarter 6 1/16 8 1/4 On February 25, 1999, the Company had 1,987 stockholders of record. The Company has suspended the payment of a quarterly dividend and does not anticipate paying cash dividends for the foreseeable future. In order for the Company to pay a dividend, its arrangement with holders of its 9.25% Senior Notes due 2006 ("Senior Notes") would need to be amended and the payment of the dividend would have to be permitted under certain covenants in its bank credit facility. 3 4 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following discussion of the consolidated results of operations for the fiscal years ended January 3, 1999 ("Fiscal 1998"), December 28, 1997 ("Fiscal 1997"), and December 29, 1996 ("Fiscal 1996"), and the discussion of financial condition at January 3, 1999, should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. The Company is a manufacturer and marketer of branded consumer products, whose principal business segments are Housewares Products, Pest Control and Small Animal Care and Control Products and Pet Products. The Company's products are broadly marketed primarily through major mass merchant, supermarket, home, hardware, specialty and department stores. The Company's products include household items such as bakeware, kitchenware, pantryware, brooms, brushes and mops, as well as nonpoisonous and low-toxic household pest control products, such as rodent and insect traps, and small animal care and control products, such as pet cages and live animal cage traps. In addition, the Company also markets pet supplies and accessories, such as ropes, chews, collars and leashes. See Note 14 of Notes to Consolidated Financial Statements for discussion of industry segments and geographic information. The following table summarizes the Company's net revenues from continuing operations by product category over the last three fiscal years:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES) Bakeware ...................................... $ 94,916 28.8% $ 89,957 33.3% $ 86,709 34.7% Kitchenware.................................... 105,988 32.2% 88,972 32.9% 74,296 29.7% Cleaning products.............................. 53,873 16.4% 56,043 20.7% 54,248 21.7% Pest control and small animal care and control products.................... 41,327 12.6% 35,564 13.1% 34,617 13.9% Pet products................................... 32,844 10.0% - - - - -------- ----- -------- ----- -------- ----- Total net revenues.................... $328,948 100.0% $270,536 100.0% $249,870 100.0% ======== ===== ======== ===== ======== =====
FISCAL 1998 VS. FISCAL 1997 NET REVENUES Net revenues for Fiscal 1998, which include $32.8 million of net revenues from Aspen Pet Products, Inc. ("Aspen") which was acquired during January 1998, increased approximately $58.4 million (21.6%) from the prior year. Excluding the effect of the acquisition of Aspen, net revenues for Fiscal 1998 increased $25.6 million (9.5%) from the prior year. The increase in net revenues was primarily the result of increases in sales of the Company's kitchenware products, due to an expansion of this product line to include new product categories such as cookware, cutlery and barware. Additionally, kitchenware revenues benefited from sales of cutlery and flatware under the Regent Sheffield(R) and Wiltshire(R) brand names. The North American rights to those brand names were licensed by the Company in May 1998. Sales of the Company's bakeware benefited from a greater penetration in upscale markets from Farberware(R) products, while sales of the Company's pest control and small animal care and control products benefited from a strong rodent season resulting from warm weather brought on by El Nino and from increased distribution of new products. These increases were partially offset by a decline in sales of the Company's cleaning products, which were adversely affected by the loss of some major customers and large pallet and 4 5 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NET REVENUES (CONTINUED) flood relief promotions in Fiscal 1997 that was not repeated in Fiscal 1998. GROSS PROFIT The gross profit margin declined from 33.0% in Fiscal 1997 to 32.3% in Fiscal 1998. The decline in gross profit margin from the prior year was primarily due to inefficiencies in the manufacturing of cleaning products, the effect of intense competition in the Company's kitchenware products, and increases in manufacturing and distribution costs for the Housewares Products segment (which includes bakeware, kitchenware and cleaning products) incurred in anticipation of a higher than realized volume of sales. The decline in gross profit margin was partially offset by the inclusion of Aspen, which had a gross profit margin higher than the Company's consolidated gross profit margin. During the second half of Fiscal 1997, the Company's Housewares Products segment consolidated its cleaning product manufacturing activities into one facility. The targeted productivity was not achieved during the first nine months of 1998 and the Company decided to sell a portion of its cleaning products business. See discussion of special charges below for additional information regarding the sale. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for Fiscal 1998, which includes $5.6 million for Aspen, increased approximately $11.8 million (19.4%) from the prior year. Excluding Aspen, the increase was $6.2 million (10.3%). In addition to the inclusion of Aspen, the increase was primarily due to costs associated with sales of the new line of cutlery and flatware under the Regent Sheffield(R) and Wiltshire(R) brand names, the expansion of the Company's international operations and costs associated with an increase in revenues. AMORTIZATION OF EXCESS OF COST OVER FAIR VALUE The increase in amortization of excess of cost over fair value ("goodwill") from $3.6 million in Fiscal 1997 to $4.2 million in Fiscal 1998 was due to the acquisition of Aspen. SPECIAL CHARGES During the fourth quarter of Fiscal 1998, the Company decided to sell the business and assets of the Wright-Bernet and Cleaning Specialty divisions (collectively, "WB") of the Housewares Products segment's cleaning business. The Company completed the sale in January 1999 effective December 31, 1998. The expected proceeds consist of a $747,000 note due in July 1999, a $500,000 January 1999 cash payment and additional cash payments to be received during fiscal 1999 totaling $4.5 million. The $5.8 million of expected proceeds have been recorded as other current assets at January 3, 1999. The sale agreement also provided for royalty payments over a five year period with minimum annual payments of $200,000. The Company recorded a special charge of $16.2 million in the fourth quarter of Fiscal 1998 in connection with this transaction, principally the write-off of goodwill associated with the business sold. See Note 17 of Notes to Consolidated Financial Statements. During Fiscal 1998, net revenues and loss before interest expense of WB were $23.1 million and $2.6 million, respectively. The loss includes goodwill amortization of $400,000. 5 6 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SPECIAL CHARGES (CONTINUED) The special charge for Fiscal 1997 relates to the recognition of appreciation in value of stock appreciation rights granted to the Company's former chief executive officer pursuant to a December 1996 severance arrangement. NET INTEREST EXPENSE Net interest expense increased from $11.6 million for Fiscal 1997, to $14.1 million for Fiscal 1998. The increase was primarily due to higher borrowings in Fiscal 1998 due to the acquisition of Aspen in January 1998 and the acquisition of exclusive rights to sell cutlery and flatware in North America under the Regent Sheffield(R) and Wiltshire(R) brand names in May 1998. INCOME TAXES The effective income tax rate increased from 51% in Fiscal 1997 to 721% in Fiscal 1998. The unusual effective rate for Fiscal 1998 occurred primarily because the amortization of goodwill and the goodwill write-off included in special charges, which are not deductible for income tax purposes, represented a significant percentage of the loss from continuing operations before income taxes. See Note 7 of Notes to Consolidated Financial Statements for the reconciliation of the provision for income taxes from continuing operations to the statutory income tax rate applied to income from continuing operations before income taxes. DISCONTINUED OPERATIONS During Fiscal 1998, the Company recorded a $3.5 million income tax benefit associated with the Fiscal 1997 disposal of its molded plastic products business. FISCAL 1997 VS. FISCAL 1996 NET REVENUES Net revenues for Fiscal 1997 increased approximately $20.7 million (8.3%) from the prior year. The increase was primarily due to higher sales of kitchenware and growth of the Company's line of VIA(TM) products. The increase in kitchenware net revenues was principally due to the rollout of new plan-o-grams at several key customers and a high level of acceptance of new products introduced during Fiscal 1996 and Fiscal 1997. The growth in sales of VIA(TM) products includes $2.3 million of bakeware sold under the Farberware(R) brand name. In Fiscal 1996, net revenues from pest control and small animal care and control products included approximately $3.6 million of net revenues from the Company's wireforming business, which was divested in the fourth quarter of Fiscal 1996. Without including the wireforming business' revenues for Fiscal 1996, Fiscal 1997 net revenues from the Company's pest control and small animal care and control products increased approximately $4.5 million (14.7%) from the prior year. This increase was principally the result of increased sales of the Company's Victor(R) pest control products, which were largely driven by sales of newer products, including Roach Magnet(R), quick set mousetraps and glue trays, and increases in sales to key customers. GROSS PROFIT The Company's gross profit margin declined from 34.2% in Fiscal 1996 to 33.0% in Fiscal 1997. The decline in gross profit margin from the prior year level was primarily due to costs associated with the consolidation of the Company's cleaning products manufacturing facilities (approximately $2.4 million), costs associated with increased levels of inventory and the effect of intense competition across all of the Company's product lines. 6 7 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for Fiscal 1997 increased approximately $1.2 million (2.0%) from the prior year. The increase in selling, general and administrative expenses was due primarily to increased investment in new packaging, costs associated with new display fixtures, increased costs of maintaining current customers and acquiring new distribution in a competitive marketplace, and increased expenditures associated with the growth of the Company's subsidiary in the United Kingdom. In addition, selling expenses increased as a result of higher year-over-year sales volume. SPECIAL CHARGES The special charge for Fiscal 1997 relates to the exercise of stock appreciation rights granted to the Company's former chief executive officer pursuant to a December 1996 severance arrangement. The special charges of $9.9 million in Fiscal 1996 relate to the following: the adjustment to the carrying value of certain real property located in Chicago, Illinois ($2.0 million) recorded in the third quarter; the severance arrangement for the Company's former chief executive officer ($3.0 million) recorded in the fourth quarter; and the consolidation of the Company's cleaning products manufacturing facilities ($4.9 million) recorded in the fourth quarter. This consolidation was completed in Fiscal 1997 and combined the cleaning products manufacturing operations located in Easthampton, Massachusetts with the cleaning products manufacturing facility in Hamilton, Ohio. Additional expenses of approximately $2.4 million associated with the transition of manufacturing activities to the Hamilton, Ohio facility were included in cost of sales for Fiscal 1997. The previously estimated annualized pre-tax savings from this consolidation of approximately $2.3 million were not realized in Fiscal 1998, prompting management to sell a portion of the business as previously noted. NET INTEREST EXPENSE Net interest expense for Fiscal 1997 declined to $11.6 million from the Fiscal 1996 level of $12.4 million. The decline in net interest expense was primarily due to higher average invested cash. INCOME TAXES The effective income tax rate decreased to 50.9% in Fiscal 1997 from 787% in Fiscal 1996. The Fiscal 1997 effective rate is essentially the same as the Fiscal 1995 rate (50%). The unusual effective rate for Fiscal 1996 occurred primarily because amortization of goodwill and certain special charges, which are not deductible for income tax purposes, represented a significant percentage of income from continuing operations before income taxes. See Note 7 of Notes to Consolidated Financial Statements for the reconciliation of the provision for income taxes from continuing operations to the statutory income tax rate applied to income from continuing operations before income taxes. DISCONTINUED OPERATIONS Discontinued operations for Fiscal 1996 consisted of the following (amounts in thousands): 7 8 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
DISCONTINUED OPERATIONS (CONTINUED) Loss from operations $26,648 Income tax benefits 1,928 ------- Net loss from operations $24,720 ======= Loss on disposal, net of income tax benefit ($1,925) $ 3,575 =======
The Company recorded a $5.5 million pre-tax charge in the fourth quarter of Fiscal 1996 for the estimated costs associated with its decision to dispose of its molded plastics business operations. The fourth quarter charge included a pre-tax provision of $1.2 million for anticipated operating losses in Fiscal 1997 until the estimated date of disposition, a $3.3 million estimated loss on the disposition of the molded plastics business operations and a provision for other disposal costs of $1.0 million. In the third quarter of Fiscal 1996, the Company recorded a pre-tax charge of approximately $22.7 million to reduce the carrying value of the molded plastics business assets (principally goodwill). As this goodwill is not deductible for income tax purposes, there was no related tax benefit. EXTRAORDINARY CHARGE On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006 ("Senior Notes") at a price of 99.291% of face value in a private offering to institutional investors. The Company used the net proceeds of the Senior Note offering to (i) repurchase its outstanding 12.7% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) repay substantially all amounts outstanding under its credit facility. The early extinguishment of the 12.7% Notes and 7.0% Convertible Subordinated Note resulted in an extraordinary pre-tax charge of $5.3 million and an after-tax charge of $3.2 million. LIQUIDITY AND CAPITAL RESOURCES In January 1998, the Company completed the acquisition (the "Acquisition") of all of the outstanding equity securities of APP Holding Corporation ("APP"), the parent corporation and sole stockholder of Aspen, a marketer of dog and cat supplies and accessories, as well as other pet products. Pursuant to the Stock Purchase and Sale Agreement, the Company paid approximately $25 million in cash (including $450,000 of expenses incurred) and refinanced APP's outstanding bank debt of approximately $9.1 million. In addition, if Aspen achieves certain predetermined financial results during fiscal 1998, 1999, 2000, 2001 and 2002, the Company will make additional annual payments to certain former APP stockholders equal, in the aggregate, to 25% of the amount by which Aspen's Gross Profit (as defined) for each such year exceeds the Base Profit Amount (as defined). For Fiscal 1998, the additional consideration payment was approximately $1.0 million and was included in goodwill at January 3, 1999. This amount, which was accrued at January 3, 1999, will be paid in 1999. The Acquisition has been accounted for under the purchase method of accounting and goodwill of approximately $24.7 million is being amortized over 40 years. During May 1998, the Company acquired the exclusive North American rights to sell cutlery and flatware products under the Regent Sheffield(R) and Wiltshire(R) brands. The 8 9 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Company paid approximately $2.5 million in cash for the rights and inventory with a value of approximately $2.3 million, and is obligated to make future royalty payments pursuant to a license agreement and to pay for subsequently acquired inventory. During Fiscal 1998, the Company generated approximately $15.5 million of cash from operations. The comparable results for the prior year was a cash usage of approximately $10.8 million. Such funds, along with a portion of cash on hand at December 28, 1997, the realization of a $3.5 million tax benefit related to the 1997 sale of Company's former molded plastic products business, proceeds from exercise of stock options, proceeds from a $10 million term loan and borrowings of approximately $3.3 million under the Company's revolving credit facility were used to fund (i) the acquisition of Aspen, (ii) the acquisition of the exclusive North American rights to market products under the Regent Sheffield(R) and Wiltshire(R) brands, and (iii) capital expenditures of approximately $11.4 million. The Company's bank financing includes a $55 million revolving credit line ("Credit Facility") and a term loan in the original amount of $10 million. The principal of the term loan is required to be repaid at the rate of approximately $357,000 on the last day of each quarter, which commenced on March 31, 1998. The maximum outstanding balance of the Credit Facility may not exceed 80% of eligible accounts receivable and 50% of eligible inventory, provided that the amount attributable to eligible inventory may not exceed $35 million, as determined at the end of each calendar month. The Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment. Borrowings under the Credit Facility and term loan bear interest at the bank's prime rate or at LIBOR plus 1.25% or 1.5%, depending on the Company's borrowing strategy and the ratio of total debt to cash flow, (as defined). Borrowings under the Credit Facility mature in November 2002 and are collateralized by substantially all of the assets of the Company. The Credit Facility contains certain financial and operating covenants, of which the most restrictive require the Company to maintain a minimum level of cash flow and minimum net worth. The Senior Notes, as well as the Credit Facility, contain certain financial covenants that may restrict the sale of assets, payment of dividends, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. The Company has suspended the payment of quarterly dividends and does not anticipate paying cash dividends for the foreseeable future. In order for the Company to pay a dividend, its arrangements with holders of its Senior Notes would need to be amended and the payment of the dividend would have to be permitted under certain covenants of the Credit Facility. At January 3, 1999, $38.3 million was available for general corporate purposes under the Company's Credit Facility, net of approximately $11.8 million in outstanding letters of credit. Additionally, $8.6 million was outstanding under the term loan. The Company believes it has sufficient borrowing capacity to finance its ongoing operations for the foreseeable future. The Company, however, may require additional funds to finance acquisitions. Inventories remained essentially the same as the prior year despite the acquisition of Aspen and the addition of Regent Sheffield(R) and Wiltshire(R) products. The increase in accounts receivable from December 28, 1997 was primarily due to an increase in revenues during the Company's fourth quarter of Fiscal 1998 and the addition of Aspen. 9 10 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) At January 3, 1999, the Company's recorded liability for environmental remediation and ongoing operation, maintenance and ground water monitoring costs associated with facilities owned or occupied by the Company's cleaning products business was approximately $2.5 million. The Company believes this provision is adequate, but will continue to monitor and adjust the provision, as appropriate, should additional sites be identified or further remediation measures be required or undertaken or should interpretation of current laws or regulations be modified. YEAR 2000 DATE CONVERSION The Year 2000 issue relates to the inability of certain computer software programs to properly recognize and process date-sensitive information relative to the year 2000 and beyond. Without corrective measures, this issue could cause computer applications to fail or to create erroneous results. Incomplete or untimely resolution of the Year 2000 issue by the Company or by its key vendors, customers, suppliers or by other third parties could have a material adverse effect on the Company's business, operations or financial condition in the future. Beginning in September 1997 as part of a larger company-wide enhancement program (more fully described below), the Company reviewed its infrastructure, including its computer equipment, software and systems ("IT Systems") which could be affected by the Year 2000 issue. To date, the Company has completed the solutions implementation and testing phase for 60% of all critical IT Systems and anticipates that the solutions implementation and testing for the remaining 40% will be completed by the end of the third quarter of fiscal 1999. Solutions implementation and testing for all non-critical IT Systems are likewise scheduled for completion by the end of the third quarter of fiscal 1999. The Company's Year 2000 compliance initiatives ("Year 2000 Project") also include a review of the embedded chip technology contained in its non-IT Systems, such as buildings, plant, equipment and other infrastructure. This review is presently in process, and the Company anticipates completion of the review during the second quarter of fiscal 1999. In addition, the Company has commenced a formal communication program with its key vendors, customers, suppliers and other third parties to determine the status of their Year 2000 compliance programs and to assess the likelihood and potential impact on the Company of non compliance by any such party. Based on the results of the Company's Year 2000 Project, the Company anticipates that it will develop contingency plans during the second quarter of fiscal 1999 to mitigate the major effects of any anticipated disruptions. The Company's Year 2000 Project is just one component of its larger company-wide program to enhance its IT Systems and non-IT Systems (the "Enhancement Program"). The Company engaged a software consulting firm to assist it with the Enhancement Program and is also utilizing internal and external resources to implement and test its IT Systems as part of the Year 2000 Project. Other components of the Company's Enhancement Program have not been delayed due to the Year 2000 Project and are in the process of being implemented. Based on currently available information, the Company estimates the cost of the entire Enhancement Program, including the Year 2000 Project, to be $2.0 million. To date, the Company has expended $900,000 of the estimated project costs and estimates that an additional $1.1 million will be expended in fiscal 1999. The Company's Enhancement Program costs are funded through cash from operations and borrowings under the Company's credit facility. 10 11 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION YEAR 2000 DATE CONVERSION (CONTINUED) Based on currently available information, the Company expects that all phases of its Year 2000 Project will be completed by the end of the third quarter of fiscal 1999. With the completed and planned Year 2000 Project modifications to its IT Systems and non-IT Systems, the Company currently believes that the Year 2000 issue should not pose significant operational problems to the Company. There can be no assurance, however, that the systems of other parties upon which the Company's business relies, including, but not limited to, the Company's key vendors, customers, suppliers and other third parties, will be converted on a timely basis. If the Company's Year 2000 Project does not achieve the desired results or is not completed in a timely manner or if the systems and applications of key third parties are materially impacted by the Year 2000 issue, the Company could lose certain of its abilities to efficiently engage in the normal business activities of purchasing, manufacturing or delivering its products, which could have a material adverse effect on the Company's business, financial condition or results of operations. Although some disruption in the Company's business may be likely as a result of Year 2000 failures by third parties, the Company is not able at this time to ascertain the extent of any such disruption. The Company has not yet completed the evaluation of its most reasonably likely worst case Year 2000 scenario, nor has the Company completed its contingency planning with respect to the Year 2000. The Company intends to complete both its evaluation and contingency planning during fiscal 1999. The dates on which the Company believes it will complete its Year 2000 Project modifications and initiatives and the anticipated project costs are based on management's best estimates. There can be no guarantee, however, that these estimates will be achieved and actual results could differ materially from those anticipated. In addition to the Company's reliance on third parties to remediate their own Year 2000 issues, specific factors that might cause such material differences include, but are not limited to, the continued availability and cost of trained personnel and the ability to locate and correct all relevant computer codes. INFLATION Inflation in general was not considered to be a significant factor in the Company's operations during the periods discussed above. BUSINESS OUTLOOK This Annual Report, including "Letter to Shareholders" and "Management's Discussion and Analysis of Results of Operations and Financial Condition," contains forward-looking statements within the meaning of the safe harbor provision of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: the impact of the Company's level of indebtedness; restrictive covenants contained in the Company's various debt documents; general economic conditions and conditions in the retail environment; the Company's dependence on a few large customers; price fluctuations in the raw materials used by the Company; competitive conditions in the Company's markets; the timely introduction of new products; the impact of competitive products and pricing; certain assumptions related to consumer purchasing patterns; the seasonal nature of the Company's business; the timely implementation by the Company of its Year 11 12 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS OUTLOOK (CONTINUED) 2000 Project, the future costs associated with its Year 2000 Project and the timely conversion by key vendors, customers, suppliers and other third parties on which the Company's business relies; and the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company). As a result, the Company's operating results may fluctuate, especially when measured on a quarterly basis. These forward-looking statements represent the Company's best estimate as of the date of this Annual Report. The Company assumes no obligation to update such estimates except as required by the rules and regulations of the Securities and Exchange Commission. 12 13 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JANUARY 3, DECEMBER 28, 1999 1997 ---------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets Cash and cash equivalents $ 1,179 $ 14,565 Accounts receivable, net of allowance for doubtful accounts of $643 and $957, respectively 59,773 45,529 Inventories 75,751 74,150 Prepaid expenses and other current assets 13,053 9,021 Deferred income taxes 7,370 6,877 -------- -------- Total current assets 157,126 150,142 Property and equipment, net 38,887 35,678 Other assets 7,960 7,563 Excess of cost over fair value of net assets acquired, net of accumulated amortization of $34,242 and $32,321, respectively 114,267 107,422 -------- -------- Total assets $318,240 $300,805 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of debt $ 1,750 $ -- Accounts payable 18,132 14,040 Accrued expenses 33,542 29,290 Income taxes 5,665 6,344 -------- -------- Total current liabilities 59,089 49,674 -------- -------- Long-term obligations, less current portion 136,136 124,270 -------- -------- Other long-term liabilities 10,333 11,974 -------- -------- Series B ESOP Convertible Preferred Stock, net; outstanding 1,073 shares and 1,315 shares, respectively, redeemable at $3.61 per share 3,868 4,399 -------- -------- Commitments and contingencies -- -- -------- -------- Minority interest 490 494 -------- -------- Stockholders' equity Common stock, $.01 par value; outstanding 19,065 shares and 19,066 shares, respectively 191 191 Capital in excess of par value 110,152 109,462 Retained earnings 733 4,665 Unearned compensation (485) (2,787) Accumulated other comprehensive income (loss) (2,267) (1,537) -------- -------- 108,324 109,994 -------- -------- Total liabilities and stockholders' equity $318,240 $300,805 ======== ========
See accompanying notes to consolidated financial statements. 13 14 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JANUARY 3, DECEMBER 28, DECEMBER 29, 1999 1997 1996 ---------- ------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues $328,948 $270,536 $249,870 --------- -------- -------- Costs and expenses Cost of sales 222,555 181,307 164,505 Selling, general and administrative 72,748 60,915 59,737 Special charge 16,245 783 9,877 Amortization of excess of cost over fair value 4,221 3,631 3,636 -------- -------- -------- 315,769 246,636 237,755 -------- -------- -------- Income before interest and income taxes 13,179 23,900 12,115 -------- -------- -------- Interest (income) expense Interest expense 14,371 12,446 12,565 Investment income (287) (810) (149) -------- -------- -------- 14,084 11,636 12,416 -------- -------- -------- Income (loss) from continuing operations before income taxes and extraordinary charge (905) 12,264 (301) Income taxes 6,527 6,247 2,370 -------- -------- -------- Income (loss) from continuing operations before extraordinary charge (7,432) 6,017 (2,671) Discontinued operations Income (loss) from discontinued operations, net of income tax benefit of $1,928 -- -- (24,720) Gain (loss) on disposal, net of tax benefits of $3,500 and $1,925, respectively 3,500 -- (3,575) -------- -------- -------- Income (loss) before extraordinary charge (3,932) 6,017 (30,966) Extraordinary charge for early retirement of debt, net of tax benefit of $2,139 -- -- (3,208) -------- -------- -------- Net income (loss) $ (3,932) $ 6,017 $(34,174) ======== ======== ========
14 15 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JANUARY 3, DECEMBER 28, DECEMBER 29, 1999 1997 1996 ---------- ------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Earnings (loss) per common share Basic: Income (loss) from continuing operations before extraordinary charge $ (.38) $ .32 $ (.14) Income (loss) from discontinued operations -- -- (1.34) Gain (loss) on disposal of business .18 -- (.19) -------- -------- -------- Income (loss) before extraordinary charge (.20) .32 (1.67) Extraordinary charge -- -- (.18) -------- -------- -------- Earnings (loss) per common share $ (.20) $ .32 $ (1.85) ======== ======== ======== Diluted: Income (loss) from continuing operations before extraordinary charge $ (.38) $ .29 $ (.14) Income (loss) from discontinued operations -- -- (1.34) Gain (loss) on disposal of business .18 -- (.19) -------- -------- -------- Income (loss) before extraordinary charge (.20) .29 (1.67) Extraordinary charge -- -- (.18) -------- -------- -------- Earnings (loss) per common share $ (.20) $ .29 $ (1.85) ======== ======== ======== Weighted average number of shares used in computation of per share data Basic 19,359 18,907 18,489 ======== ======== ======== Diluted 19,359 20,849 18,489 ======== ======== ========
See accompanying notes to consolidated financial statements. 15 16 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED COMMON CAPITAL IN RETAINED OTHER STOCK, PAR EXCESS OF EARNINGS UNEARNED COMPREHENSIVE SHARES VALUE $.01 PAR VALUE (DEFICIT) COMPENSATION INCOME (LOSS) TOTAL ------ ---------- ---------- -------- ------------ ------------- ----- (AMOUNTS IN THOUSANDS) Balance, December 31, 1995 18,414 $ 184 $106,916 $33,614 $(3,970) $(819) $135,925 Comprehensive loss: Net loss for the year -- -- -- (34,174) -- -- (34,174) Other comprehensive loss: Foreign currency translation -- -- -- -- -- -- (60) Pension liability -- -- -- -- -- -- (99) Other comprehensive loss -- -- -- -- -- (159) (159) Comprehensive loss -- -- -- -- -- -- (34,333) Shares issued under employee common stock purchase and option plans and dividend reinvestment plan 90 1 360 -- -- -- 361 Net shares issued under restricted common stock purchase plans 27 -- 171 -- (168) -- 3 Shares issued upon preferred stock conversion 49 1 175 -- -- -- 176 Dividends paid -- -- -- (792) -- -- (792) Amortization of unearned compensation -- -- -- -- 1,175 -- 1,175 ------ ----- -------- ------- ------- ----- -------- Balance, December 29, 1996 18,580 186 107,622 (1,352) (2,963) (978) 102,515 Comprehensive income: Net income for the year -- -- -- 6,017 -- -- 6,017 Other comprehensive loss: Foreign currency translation -- -- -- -- -- -- (233) Pension liability -- -- -- -- -- -- (326) Other comprehensive loss -- -- -- -- -- (559) (559) Comprehensive income -- -- -- -- -- -- 5,458 Shares issued under common stock purchase and option plans and dividend reinvestment plan 372 4 1,005 -- -- -- 1,009 Net shares issued under restricted common stock purchase plans 3 -- 19 -- (18) -- 1 Shares issued upon preferred stock conversion 111 1 400 -- -- -- 401
16 17 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED COMMON CAPITAL IN RETAINED OTHER STOCK, PAR EXCESS OF EARNINGS UNEARNED COMPREHENSIVE SHARES VALUE $.01 PAR VALUE (DEFICIT) COMPENSATION LOSS TOTAL ------ ---------- ---------- -------- ------------ ------------- ----- (AMOUNTS IN THOUSANDS) Compensatory options issued -- -- 50 -- (50) -- -- Income tax reductions relating to stock plans -- -- 366 -- -- -- 366 Amortization of unearned compensation -- -- -- -- 244 -- 244 ------ ----- -------- ------- ------- ------- -------- Balance, December 28, 1997 19,066 191 109,462 4,665 (2,787) (1,537) 109,994 Comprehensive loss: Net loss for the year -- -- -- (3,932) -- -- (3,932) Other comprehensive loss: Foreign currency translation -- -- -- -- -- -- (288) Pension liability -- -- -- -- -- -- (442) Other comprehensive loss -- -- -- -- -- (730) (730) Comprehensive loss -- -- -- -- -- -- (4,662) Shares issued under common stock purchase and option plans and dividend re investment plan 476 5 1,458 -- -- -- 1,463 Shares purchased under restricted common stock purchase plans (1) -- (3) -- 3 -- -- Income tax reductions relating to stock plans -- -- 768 -- -- -- 768 Shares issued upon preferred stock conversion 117 1 420 -- -- -- 421 Repurchase of common stock from ESOP (593) (6) (1,953) -- 1,959 -- -- Amortization of unearned compensation -- -- -- -- 340 -- 340 ------ ----- -------- ------- ------- ------- -------- Balance, January 3, 1999 19,065 $ 191 $110,152 $ 733 $ (485) $(2,267) $108,324 ====== ===== ======== ======= ======= ======= ========
See accompanying notes to consolidated financial statements 17 18 49 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 3, DECEMBER 28, DECEMBER 29, 1999 1997 1996 --------- ----------- ----------- (AMOUNTS IN THOUSANDS) Cash flows from operating activities Net income (loss) $(3,932) $ 6,017 $(34,174) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 7,783 7,197 7,374 Amortization of excess of cost over fair value 4,221 3,631 3,636 Amortization of deferred finance costs 666 578 517 Other amortization 4,303 5,364 6,607 Special charges 16,245 783 9,877 (Income) loss from discontinued operations, net (3,500) -- 28,295 Extraordinary charges, net -- -- 3,208 Deferred income taxes (1,050) 5,666 (5,837) Other (100) 651 82 Change in certain assets and liabilities, net of effects from acquisition and dispositions of businesses, affecting cash provided by (used in) operating activities Accounts receivable (9,794) (3,612) (3,704) Inventories (1,304) (26,853) (6,364) Prepaid marketing costs (3,981) (5,548) (4,413) Other assets 3,007 (725) 506 Accounts payable and accrued expenses 3,588 (7,622) 7,636 Income taxes payable (677) 3,686 2,114 ------- ------- -------- Net cash provided by (used in) operating activities Continuing operations 15,475 (10,787) 15,360 Discontinued operations 3,500 (570) 4,823 ------- ------- -------- Net cash provided by (used in) operating activities 18,975 (11,357) 20,183 ------- ------- -------- Cash flows from investing activities Proceeds from sale of property and equipment 104 148 3,306 Capital expenditures for continuing operations (11,362) (8,567) (8,320) Acquisition of businesses, net of cash acquired (26,630) -- -- Proceeds from sale of discontinued operations -- 17,600 Capital expenditures for discontinued operations -- -- (1,490) ------- ------- -------- Net cash provided by (used in) investing activities (37,888) 9,181 (6,504) ------- ------- -------- Cash flows from financing activities Proceeds from issuance of note payable and long- term obligations 30,074 -- 125,101 Proceeds from stock options including related tax benefits 1,946 1,115 59 Payments of dividends -- -- (792) Payments of note and long-term obligations (26,816) -- (122,781) Other 275 (73) 302 ------- ------- -------- Net cash provided by financing activities 5,479 1,042 1,889 Effect of exchange rate changes on cash 48 (7) (4) ------- ------- -------- Net increase (decrease) in cash and cash equivalents (13,386) (1,141) 15,564 Cash and cash equivalents at beginning of year 14,565 15,706 142 ------- ------- -------- Cash and cash equivalents at end of year $ 1,179 $14,565 $ 15,706 ======= ======= ======== Cash paid during the year for Interest $13,664 $11,724 $ 9,851 Income taxes (refunds) 3,861 (3,479) 184
See accompanying notes to consolidated financial statements. 18 19 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of EKCO Group, Inc. and its subsidiaries (together, the "Company"). The Company's principal operating subsidiaries are wholly-owned EKCO Housewares, Inc. ("Housewares"), wholly-owned EKCO Cleaning, Inc. and subsidiaries ("Cleaning"), wholly-owned Aspen Pet Products, Inc. ("Aspen"), and majority-owned Woodstream Corporation ("Woodstream"). All significant intercompany accounts and transactions have been eliminated. BASIS OF PRESENTATION The Company uses a 52-53 week fiscal year ending on the Sunday nearest December 31. Accordingly, the accompanying consolidated financial statements include the 53 weeks ended January 3, 1999 ("Fiscal 1998") and the 52 weeks ended December 28, 1997 ("Fiscal 1997"), and December 29, 1996 ("Fiscal 1996"). CASH, CASH EQUIVALENTS AND CASH FLOW INFORMATION The Company considers all short-term investments which have an original maturity of 90 days or less to be cash equivalents. The Company recorded the following non-cash transactions in Fiscal 1998 due to the repurchase of all the unallocated shares of the Series B ESOP Convertible Preferred Stock and common stock, held by the Company's Employees' Stock Ownership Plan in exchange for forgiveness of the outstanding loan from the Company (amounts in thousands).
Series B ESOP Convertible Preferred Stock $(321) Unearned compensation 321 Common stock (6) Capital in excess of par value (1,953) Unearned compensation 1,959
In addition, the following is a reconciliation of net cash paid for the acquisitions of Aspen and the North American rights to sell cutlery and flatware products under the Regent Sheffield(R) and Wiltshire(R) brands during Fiscal 1998. (Amounts in thousands)
Fair value of assets acquired $40,576 Liabilities assumed (12,130) Additional purchase price accrued but not yet paid (1,047) ------- Cash paid 27,399 Cash acquired (769) ------- Net cash paid for acquisitions $26,630 =======
MARKET EXPANSION PROGRAMS AND ADVERTISING COSTS The Company incurs certain costs in connection with maintaining and expanding its market position. These costs are deferred and amortized using the straight-line method over the shorter of the period of benefit or the program period. Program periods currently range from one to three years. It is the 19 20 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARKET EXPANSION PROGRAMS AND ADVERTISING COSTS (CONTINUED) Company's policy to periodically review and evaluate whether the expected benefits will be realized and whether continued deferral and amortization of these costs is justified. Approximately $4.1 million of these costs are included in prepaid expenses at January 3, 1999 and December 28, 1997. The Company expenses all advertising costs as incurred. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out ("FIFO") basis for all subsidiaries except for Cleaning, whose costs are determined on a last-in, first-out ("LIFO") basis. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. The Company provides for depreciation and amortization on a straight-line basis over the estimated useful lives of the assets; 25 to 45 years for buildings and 3 to 10 years for furniture, fixtures and equipment. Leased property and equipment under capital leases and improvements to leased premises are amortized on a straight-line basis over the shorter of the life of the asset or the remaining term of the lease. Improvements are capitalized, while repair and maintenance costs are charged to operations. When assets are retired or disposed of, the cost and related accumulated depreciation are removed from the accounts, and gains or losses, if any, are included in operations. INTANGIBLE ASSETS The excess of cost over fair value of net assets acquired ("goodwill") is being amortized over 30 to 40 year periods. It is the Company's policy to periodically review and evaluate the recoverability of goodwill by assessing long-term trends of profitability and undiscounted cash flows and to determine whether the amortization of goodwill over its remaining life can be recovered through expected future results of operations and cash flows. Favorable lease rights included in other assets are being amortized over the life of the lease. Deferred financing costs included in other assets relate to debt issuance costs which have been deferred and are being amortized over the terms of the respective financing arrangements. INCOME RECOGNITION Revenues from product sales are recognized at the time the product is shipped. Investment income is accrued as earned. TRANSLATION OF FOREIGN CURRENCY The assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates. Income and expenses are translated at exchange rates prevailing during the year. The resulting net translation adjustment for each year is included as a separate component of stockholders' equity. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement 20 21 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES (CONTINUED) carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect, if any, on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Provision for U.S. income taxes on the undistributed earnings of foreign subsidiaries is made only on those amounts in excess of the funds considered to be permanently reinvested. STOCK BASED COMPENSATION The Company applies Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its stock-based compensation. The Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which was effective in 1996. FAS 123 provides the option either to continue the Company's current method of accounting for stock-based compensation or to adopt the fair value method of accounting. The Company elected to continue accounting for stock-based compensation using APB 25. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME (LOSS) In Fiscal 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130"). This statement establishes rules for reporting comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' equity. FAS 130 requires that changes in pension liability adjustments and foreign currency adjustments be included in other comprehensive income. Prior years' financial statements have been reclassified to conform to these requirements. (2) ACQUISITION OF ASPEN PET PRODUCTS, INC. In January 1998, the Company completed the acquisition (the "Acquisition") of all of the outstanding equity securities of APP Holding Corporation ("APP"), the parent corporation and sole stockholder of Aspen, a marketer of dog and cat supplies and accessories, as well as other pet products. Pursuant to the Stock Purchase and Sale Agreement, the Company paid approximately $25.0 million in cash (including $450,000 of expenses incurred in connection with the acquisition) and refinanced APP's outstanding bank debt of approximately $9.1 million. In addition, if Aspen achieves certain predetermined financial results during fiscal 1998, 1999, 2000, 2001, and 2002, the Company will make additional annual payments to certain former APP stockholders equal, in the aggregate, to 25% of the amount by which Aspen's Gross Profit (as defined) for each such year exceeds the Base Profit Amount (as defined). For Fiscal 1998 the additional consideration payment was approximately $1.0 million, which was included in 21 22 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACQUISITION OF ASPEN PET PRODUCTS, INC. (CONTINUED) goodwill at January 3, 1999. This amount which was accrued at January 3, 1999 will be paid in 1999. The Acquisition has been accounted for under the purchase method of accounting and goodwill of approximately $24.7 million is being amortized over 40 years. In connection with the Acquisition, goodwill was determined as follows (amounts in thousands): Cash paid, net of cash acquired $24,159 Additional purchase price accrued but not yet paid 1,047 Liabilities assumed 12,130 Fair value of tangible assets acquired, net of cash acquired (12,643) ------- Goodwill $24,693 =======
The following unaudited pro forma combined results of operations for Fiscal 1997 have been prepared assuming that the Acquisition occurred at the beginning of such period. In preparing the pro forma data, adjustments have been made for: (i) the amortization of goodwill; (ii) interest expense related to borrowings under the Company's credit facility to finance a portion of the purchase price; (iii) reduction in investment income due to the utilization of the Company's cash and investments to finance a portion of the purchase price; (iv) the elimination of Aspen's costs associated with shareholder transactions; and (v) the effect on income taxes of the foregoing pro forma adjustments. The following unaudited pro forma financial information for Fiscal 1997 is not necessarily indicative of results of operations that would have occurred had the Acquisition been effected at the beginning of such fiscal period or of future results of the combined companies. (Amounts in thousands, except per share) Net revenues $300,303 Income from continuing operations before income taxes 13,501 Net income from continuing operations 6,767 Earnings from continuing operations per common share: Basic .36 Diluted .32
(3) INVENTORIES Inventories consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Raw materials $11,279 $12,984 Work in process 3,465 3,811 Finished goods 61,007 57,355 ------- ------ $75,751 $74,150 ======= =======
At January 3, 1999 and December 28, 1997, inventories carried under the LIFO method represented approximately 6.9% and 22.2%, respectively, of total year-end inventories. The effect of using LIFO for these inventories for Fiscal 1998 and Fiscal 1997 was immaterial to the financial position and results of operations of the Company. 22 23 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Property and equipment, at cost Land, buildings and improvements $17,489 $14,598 Equipment, furniture and fixtures 66,483 60,624 ------- ------- 83,972 75,222 Less accumulated depreciation and amortization 45,085 39,544 ------- ------- $38,887 $35,678 ======= =======
(5) LONG-TERM OBLIGATIONS AND OTHER LONG-TERM LIABILITIES Long-term obligations consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Term Loan $ 8,571 $ -- Credit Facility 2,750 -- 9.25% Senior Notes, due 2006 (net of unamortized discount of $641 and $730, respectively) 124,359 124,270 Other 2,206 -- -------- -------- 137,886 124,270 Less current portion 1,750 -- -------- -------- $136,136 $124,270 ======== ========
Other long-term liabilities consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Accrued pension cost $ 2,224 $ 2,553 Deferred income taxes 2,548 3,710 Other long-term liabilities 5,561 5,711 ------- ------- $10,333 $11,974 ======= =======
On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006 ("Senior Notes") at a price of 99.291% of face value in a private offering to institutional investors. Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year. The Company used the net proceeds of the Senior Note offering to (i) repurchase its outstanding 12.70% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) to repay substantially all amounts then outstanding under its revolving credit facility. The early extinguishment of the 12.70% Notes and 7.0% Convertible Subordinated Note resulted in an extraordinary charge in Fiscal 1996 of $3.2 million consisting of the following (amounts in thousands): 23 24 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) LONG-TERM OBLIGATIONS AND OTHER LONG-TERM LIABILITIES (CONTINUED) Premium on 12.70% Notes, due 1998 $6,511 Discount on prepayment of 7.0% Convertible Subordinated Note, due 2002 (3,218) Write-off of related unamortized financing costs 2,054 ------ Extraordinary charge before income tax benefit 5,347 Income tax benefit 2,139 ------ Net extraordinary charge $3,208 ======
The Company's bank financing includes a $55 million revolving credit line ("Credit Facility") and a term loan credit facility ("Term Loan") in the original amount of $10 million. The principal of the Term Loan is required to be repaid at the rate of approximately $357,000 on the last day of each quarter, which commenced March 31, 1998. The maximum outstanding balance of the Credit Facility may not exceed 80% of eligible accounts receivable and 50% of eligible inventory, provided that the amount attributable to eligible inventory may not exceed $35 million, as determined at the end of each calendar month. At January 3, 1999, $38.3 million was available for general corporate purposes under the Credit Facility, net of approximately $11.8 million in outstanding letters of credit. The Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the Credit Facility. Borrowings under the Credit Facility and Term Loan bear interest at the bank's prime rate, or at LIBOR plus 1.25% or 1.5%, depending on the Company's borrowing strategy and the ratio of total debt to cash flow, as defined. Borrowings under the Credit Facility mature in November 2002 and are collateralized by substantially all of the assets of the Company. The Credit Facility contains certain financial and operating covenants, of which the most restrictive requires the Company to maintain a minimum level of cash flow. The Senior Notes, as well as the Credit Facility, contain certain financial covenants that may restrict the sale of assets, payment of dividends, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. The Company has suspended the payment of quarterly dividends and does not anticipate paying cash dividends for the foreseeable future. In order for the Company to pay a dividend, its arrangements with holders of its Senior Notes would need to be amended and the payment of the dividend would have to be permitted under certain covenants of the Credit Facility. Certain information with respect to the Credit Facility and Term Loan follows:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES) Average interest rate of borrowings outstanding at end of year 7.75% N/A N/A Maximum amount of borrowings outstanding at any month-end $28,696 $1,242 $31,909 Average aggregate borrowings during the year $21,550 $ 176 $ 9,390 Weighted average interest rate during the year 7.24% 8.5% 7.68%
24 25 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) LONG-TERM OBLIGATIONS AND OTHER LONG-TERM LIABILITIES (CONTINUED) Maturities of long-term obligations (amounts in thousands) for the five fiscal years ending December 2003 are as follows: 1999 - $1,750; 2000 - $1,662; 2001 - $1,480; 2002 - $7,095; 2003 - $60 and thereafter $125,839. (6) ACCRUED EXPENSES Accrued expenses consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Payroll $ 1,790 $ 2,464 Compensated absences 1,702 1,651 Sales and promotional allowances 11,014 9,470 Additional purchase price liability for Aspen 1,046 - Interest and non-income taxes 4,096 4,168 Insurance 2,912 3,241 Professional fees 952 575 Provision for environmental matters 1,732 1,738 Other 8,298 5,983 ------- ------- $33,542 $29,290 ======= =======
(7) INCOME TAXES Total income tax expense (benefit) for Fiscal 1998, Fiscal 1997 and Fiscal 1996 was allocated as follows:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Continuing operations $6,527 $6,247 $ 2,370 Discontinued operations -- -- (1,928) Disposal of discontinued operations (3,500) -- (1,925) Extraordinary charge for early retirement of debt -- -- (2,139) Stockholders' equity, for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (768) (366) -- ------ ------ ------- $2,259 $5,881 $(3,622) ====== ====== =======
A reconciliation of the provision for income taxes from continuing operations to the statutory income tax rate applied to combined domestic and foreign income before income taxes for Fiscal 1998, Fiscal 1997 and Fiscal 1996 was as follows: 25 26 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) INCOME TAXES (CONTINUED)
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES) $ % $ % $ % - - - - - - Income (loss) from continuing operations before income taxes and extraordinary charge Domestic $ (664) $13,704 $ (19) Foreign (241) (1,440) (282) ----- ------- ----- $ (905) $12,264 $(301) ==== ====== ==== Federal income tax (credit) at normal rates $ (317) (35%) $4,292 35% $ (105) (35%) State income taxes, net of federal benefit 828 92% 915 7% 426 141% Difference between foreign and federal effective rates (62) (7%) (5) - 90 30% Amortization of excess of cost over fair value 1,478 163% 1,272 10% 1,272 423% Special charges 4,795 530% - - 685 227% Other (195) (22%) (227) (1%) 2 1% ----- --- ----- -- ----- --- $6,527 721% $6,247 51% $2,370 787% ===== === ===== == ===== ===
The components of the provision for income taxes (benefit) for continuing operations were as follows:
FEDERAL STATE FOREIGN TOTAL ------- ----- ------- ----- (AMOUNTS IN THOUSANDS) FISCAL 1998 - ----------- Current $ 6,292 $1,250 $ 39 $ 7,581 Deferred (1,095) 15 26 (1,054) ------ ----- ---- ------ $ 5,197 $1,265 $ 65 $ 6,527 ====== ===== ==== ====== FISCAL 1997 - ----------- Current $ 550 $ 165 $(130) $ 585 Deferred 4,565 1,243 (146) 5,662 ----- ----- ---- ------ $ 5,115 $1,408 $(276) $ 6,247 ====== ===== ==== ====== FISCAL 1996 - ----------- Current $ 4,189 $1,688 $ (8) $ 5,869 Deferred (2,608) (891) - (3,499) ----- ----- ---- ------ $ 1,581 $ 797 $ (8) $ 2,370 ====== ===== ==== ======
The significant components of deferred income tax expense (benefit) attributable to income from continuing operations for Fiscal 1998, Fiscal 1997 and Fiscal 1996 were as follows: 26 27 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) INCOME TAXES (CONTINUED)
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Depreciation $ (234) $(1,078) $ (644) Inventory (1,370) (1,594) 516 Benefit plans 1,657 406 (167) Accruals, provisions and other liabilities (1,243) 8,520 (4,461) Other 136 (592) 1,257 ------ ------ ------ $(1,054) $ 5,662 $(3,499) ====== ====== ======
The tax effects of temporary differences and carry forwards that give rise to significant portions of net deferred tax asset (liability) consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 (AMOUNTS IN THOUSANDS) Receivables $ 927 $ 962 Inventory 4,014 2,440 Benefit plans 1,509 3,166 Accruals, provisions and other liabilities 3,018 1,526 ------ ------ Gross deferred asset 9,468 8,094 ------ ------ Depreciation (3,646) (3,927) Other (1,000) (1,000) ------ ------ Gross deferred liability (4,646) (4,927) ------ ------ Net deferred asset $ 4,822 $ 3,167 ====== ======
The Company's federal income tax returns for all years subsequent to December 1987 are subject to review by the Internal Revenue Service. (8) RETIREMENT PLANS, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Effective January 3, 1999, the Company adopted Financial Accounting Standards Board Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132"). The provisions of FAS 132 revise employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of these plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. The Company provides defined benefit pension and postretirement benefit plans to employees. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans. 27 28 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) RETIREMENT PLANS, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year $ 9,029 $9,350 $ 2,325 $ 2,449 Service cost 221 205 27 30 Interest cost 526 561 128 158 Plan amendments - - - 53 Settlement (gain) or loss 55 78 - - Benefits paid (465) (756) (95) (127) Settlement payments (161) (953) - - Actuarial (gain) or loss 640 544 (358) (238) ------ ------ ------ ------ Benefit obligation at end of year $ 9,845 $ 9,029 $ 2,027 $ 2,325 ====== ====== ====== ====== Change in plan assets: Fair value of plan assets at beginning of year $ 6,693 $ 7,511 $ - $ - Actual return on plan assets 442 683 - - Acquisitions/divestitures - (543) - - Employer contributions 1,020 285 - - Benefits paid (465) (291) - - Settlement payments (161) (952) - - ------ ------ ------ ------ Fair value of plan assets at end of year $ 7,529 $ 6,693 $ - $ - ====== ====== ====== ====== Reconciliation of funded status: Funded status $(2,316) $(2,336) $(2,027) $(2,325) Unrecognized actuarial (gain) or loss 2,514 1,905 (645) (350) Unrecognized prior service cost 92 51 45 49 ------ ------ ------ ------ Net amount recognized at year-end $ 290 $ (380) $(2,627) $(2,626) ====== ====== ====== ======
The following table provides the amounts recognized in the consolidated balance sheets:
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Accrued benefit liability $(2,325) $(2,553) $(2,627) $(2,626) Accumulated other comprehensive income 2,615 2,173 - - ------ ------ ------ ------ Net amount recognized at year-end $ 290 $ (380) $(2,627) $(2,626) ====== ====== ====== ======
28 29 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) RETIREMENT PLANS, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED) The assumptions used in the measurement of the Company's benefit obligation are shown in the following table:
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Weighted-average assumptions as of year end Discount rate 6.5% 7.0% 6.5% 7.0% Expected return on plan assets 9.0% 9.0% 9.0% 9.0% Rate of compensation increase N/A N/A N/A N/A
For measurement purposes, a 6.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate is assumed to decrease gradually to 5.0% for 2001 and remain at that level thereafter. Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects (amounts in thousands):
ONE-PERCENTAGE ONE-PERCENTAGE POINT POINT INCREASE DECREASE -------------- -------------- Effect on total of service and interest cost components for 1998 $ 80 $ (176) Effect on year-end 1998 postretirement benefit obligation 1,251 (2,738)
The projected benefit obligation and accumulated benefit obligation for the pension plans with accumulated benefit obligations in excess of plan assets were $9,845,000 and $9,029,000 respectively, as of January 3, 1999 and December 28, 1997. The fair value of plan assets for these plans was $7,529,000 and $6,693,000, as of January 3, 1999 and December 28, 1997, respectively. 29 30 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) RETIREMENT PLANS, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED) The following table provides the components of net periodic benefit cost for the plans for fiscal years 1998, 1997 and 1996:
PENSION BENEFITS OTHER BENEFITS 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Service cost $ 221 $ 205 $ 232 $ 27 $ 30 $ 51 Interest cost 526 561 607 128 159 172 Expected return of plan assets (582) (562) (609) - - - Amortization of prior service cost 10 25 390 4 4 - Recognized actuarial (gain) or loss 94 115 63 (63) (26) - ---- ---- ---- --- --- --- Net periodic benefit cost $ 269 $ 344 $ 683 $ 96 $167 $223 ==== ==== ==== === === ===
RETIREMENT PLANS The Company and certain of its subsidiaries have various pension plans which cover certain of their employees and provide for periodic payments to eligible employees upon retirement. Benefits for non-union employees are generally based upon earnings and years of service prior to 1989 and certain non-union employees receive benefits from allocated accounts under a defined contribution plan. Benefits for certain union employees are based upon dollar amounts attributed to each year of credited service; certain other union employees receive benefits from allocated accounts under a defined contribution plan and from prior contributions to a multi employer plan. The Company's policy is to make contributions to these plans sufficient to meet the minimum funding requirements of applicable laws and regulations, plus such amounts, if any, as the Company's actuarial consultants determine to be appropriate. The Company also provides supplemental retirement benefits for certain management personnel based on earnings and years of service. POSTRETIREMENT BENEFITS The Company sponsors defined benefit postretirement health and life insurance plans that cover certain retired and active employees. The Company expects to continue these benefits indefinitely, but reserves the right to amend or discontinue all or any part of the plans at any time. In accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions" ("FAS 106"), the cost of these benefits are recognized in the financial statements during the employees' active working lives. The Company's funding policy for these plans is on a pay-as-you-go basis. Pay-as-you-go expenditures for postretirement benefits were $95,000, $127,000, and $147,000 for Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. POSTEMPLOYMENT BENEFITS In accordance with Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post-employment Benefits" ("FAS 112"), the Company accrues benefits provided to former or inactive employees after employment but before retirement. The ongoing impact of FAS 112 will not have a material effect on earnings. 30 31 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) EMPLOYEE STOCK OWNERSHIP PLAN On February 23, 1989, the Company's Board of Directors adopted the EKCO Group, Inc. Employees' Stock Ownership Plan (the "ESOP") for non-union United States employees of the Company and subsidiaries designated by the Company's Board of Directors as participants in the ESOP. The ESOP holds Company preferred and common stock. SERIES B ESOP CONVERTIBLE PREFERRED STOCK The Company sold 1.8 million shares of the Series B ESOP Convertible Preferred Stock at a price of $3.61 per share to the ESOP trust in 1989. At January 3, 1999, approximately 1.3 million shares of the Company's common stock were reserved for conversion of Series B ESOP Convertible Preferred Stock. During December 1998, the Company repurchased all of the unallocated shares of Series B ESOP Convertible Preferred Stock (127,109 shares) and common stock (593,360 shares) held by the ESOP in exchange for forgiveness of the outstanding loan from the Company. Prior to the occurrence of this transaction, an unearned ESOP compensation amount was reported as an offset to the Series B ESOP Convertible Preferred Stock amount in the consolidated balance sheets. The unearned compensation was amortized as shares in the Series B ESOP Convertible Preferred Stock were allocated to employees. Shares were allocated ratably over the life of the ESOP Loan (as defined below) or, if less, the actual period of time over which the indebtedness was repaid. The allocation of shares was based upon a formula equal to a percentage of the Company's payroll costs. The percentage was determined by the Company's Board of Directors annually and required principal prepayments. The Company's Board of Directors approved principal prepayments of $494,000 and $522,000 for Fiscal 1997 and Fiscal 1996 to be paid in Fiscal 1998 and Fiscal 1997, respectively. For Fiscal 1998, Fiscal 1997 and Fiscal 1996, $37,000, $740,000, and $816,000, respectively, has been charged to operations. The actual cash contributions, excluding the above mentioned prepayments, to the ESOP by the Company during Fiscal 1998, Fiscal 1997 and Fiscal 1996 were $302,000, $402,000, and $402,000, respectively. Upon retirement or termination from the Company, each employee has the option to either convert the vested Series B ESOP Convertible Preferred Stock into common stock of the Company or redeem the Series B ESOP Convertible Preferred Stock for cash at a price of $3.61 per share. The change in the principal amount of the Series B ESOP Convertible Preferred Stock from year to year is solely due to redemptions and conversions by vested employees retiring or leaving the Company. The Series B ESOP Convertible Preferred Stock pays a dividend equal to any dividend on the Company's common stock. Series B ESOP Convertible Preferred Stock, net, consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- (AMOUNTS IN THOUSANDS) Series B ESOP Convertible Preferred Stock, par value $.01 $3,868 $4,757 Unearned compensation - (358) ----- ----- $3,868 $4,399 ===== =====
ESOP COMMON STOCK In October 1990, the Company's Board of Directors authorized the Trustee of the ESOP to purchase up to 1.0 million shares of the Company's common stock. The Company financed the purchase through a 20-year 10% loan from the Company to the ESOP (the "ESOP Loan"). The ESOP purchased, in open market transactions, a total of 1.0 million shares of the 31 32 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESOP COMMON STOCK (CONTINUED) Company's common stock at a total cost of approximately $3.3 million. Unearned compensation equal to such cost (previously included as a component of stockholders' equity) was amortized as shares of the Company's common stock were allocated to employee accounts. Shares were allocated ratably over the life of the ESOP Loan or, if less, the actual period of time over which the indebtedness was repaid, subject to a minimum allocation of 50,000 shares each year. For each of Fiscal 1997 and Fiscal 1996, 50,000 shares were allocated to employees' accounts. For each of Fiscal 1997 and Fiscal 1996, $165,000 was charged to operations. During Fiscal 1998, 35,000 shares were allocated to employees' accounts and $112,000 was charged to operations. As noted above, the Company repurchased all of the unallocated shares in exchange for forgiveness of the ESOP Loan in December 1998. The unallocated shares of common stock held by the ESOP were returned to the Company to be held as treasury stock. The value of these shares was equal to approximately $2.0 million in unearned compensation previously reflected as a component of stockholders equity. For Fiscal 1998, the Company's Board of Directors approved an additional cash contribution of $610,000 to the ESOP. This contribution, along with the Series B ESOP Convertible Preferred Stock and common stock held by the ESOP will be merged into a single 401(k) plan during fiscal 1999. The additional cash contribution was charged to results of operations for Fiscal 1998. (10) MINORITY INTEREST Minority interest consists of 5% cumulative preferred stock of Woodstream $50 par value (redeemable at Woodstream's option at $52 per share). Dividends on the 5% cumulative preferred stock are included in interest expense. (11) STOCKHOLDERS' EQUITY PREFERRED STOCK, $.01 PAR VALUE On February 12, 1987, the Company's stockholders authorized a class of 20 million shares of preferred stock which may be divided and issued in one or more series having such relative rights and preferences as may be determined by the Company's Board of Directors. PREFERRED STOCK RIGHTS In 1987, the Board of Directors of the Company declared a dividend payable to stockholders of record as of April 9, 1987, of one preferred share purchase right ("Right") for each outstanding share of common stock. In 1988, 1989 and 1992, the Company's Board of Directors amended the preferred share purchase rights plan and in March 1997 amended and restated the plan. The amended and restated plan provides that each Right, when exercisable, will entitle the holder thereof until April 9, 2007, to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, at an exercise price of $30, subject to certain anti-dilution adjustments. The Rights will not be exercisable or transferable apart from shares of common stock until the earlier of (i) the day on which there is a public announcement that a person or group has acquired beneficial ownership of 15% or more of the outstanding shares of common stock (an "Acquiring Person") or (ii) the tenth business day after a person commences, or announces an intention to commence, a tender or exchange offer for 15% or more of the outstanding shares of common stock. The Rights are redeemable by the Company at $.01 per Right at any time prior to the time that a person or group becomes an Acquiring Person. At any time after a person becomes an Acquiring 32 33 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PREFERRED STOCK RIGHTS Person, the Company's Board of Directors may exchange all or any part of the Rights for common shares at an exchange ratio of one common share per Right. This option is extinguished when any person becomes the beneficial owner of 50% or more of the common shares outstanding. In the event that the Company is a party to a merger or other business combination transaction in which the Company is not the surviving entity, each Right will entitle the holder to purchase, at the exercise price of the Right, that number of shares of the common stock of the acquiring company which, at the time of such transaction, would have a market value of two times the exercise price of the Right. In addition, if a person or group becomes an Acquiring Person, each Right not owned by such person or group would become exercisable for the number of shares of common stock which, at that time, would have a market value of two times the exercise price of the Right. COMMON STOCK, $.01 PAR VALUE Share information regarding common stock consisted of the following:
JANUARY 3, 1999 DECEMBER 28, 1997 --------------- ----------------- Authorized shares 60,000,000 60,000,000 ========== ========== Shares issued 29,071,982 28,481,788 Shares held in treasury 10,006,907 9,415,361 ---------- ---------- Shares outstanding 19,065,075 19,066,427 ========== ==========
TREASURY STOCK As previously noted, during Fiscal 1998 the Company repurchased 593,360 shares of common stock, which represented all of the unallocated shares of the Company's common stock held by the ESOP. The value of the shares was equal to approximately $2.0 million in unearned compensation expense recorded on the Company's consolidated balance sheet at the time of repurchase. STOCK COMPENSATION PLANS At January 3, 1999, the Company had five stock based compensation plans which are described below. The Company applies APB 25 and related interpretations in accounting for its employee stock compensation plans. Accordingly, no compensation has been recognized for its stock option plans and its employee stock purchase plan for options issued to employees. Compensation costs for its restricted stock purchase plans and 1996 Performance Unit Rights Award Plan are described below. Since the Company accounts for compensation plans under APB 25, certain pro forma information regarding net income (loss) and earnings (loss) per share is required by FAS 123 as if the Company had accounted for its compensation plans under the fair value approach of this statement. For the purposes of the pro forma disclosures, the estimated fair value of the compensation plans is amortized to expense over the option vesting period. The Company's pro forma information is as follows: 33 34 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCK COMPENSATION PLANS (CONTINUED)
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss) As reported $(3,932) $6,017 $(34,174) Pro forma $(4,501) $4,961 $(35,891) Basic earnings (loss) per share As reported $ (.20) $ .32 $ (1.85) Pro forma $ (.23) $ .26 $ (1.94) Diluted earnings (loss) per share As reported $ (.20) $ .29 $ (1.85) Pro forma $ (.23) $ .24 $ (1.94)
The fair value of the Company's stock option plans and 1996 Performance Unit Rights Award Plan was estimated at the grant date using a Black-Scholes option pricing model. The following table provides the estimated weighted average assumptions under that model:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- Volatility factor of the expected market price of the Company's stock .58 .40 .45 Future dividend yield 0% 0% 0% Risk free interest rates of U.S. Treasury Securities: One-year strip yield 4.53% 5.64% 5.60% Two-year strip yield 4.54% 5.66% 5.89% Three-year strip yield 4.55% 5.71% 6.05% Five-year strip yield 4.56% N/A N/A Six-year strip yield N/A 5.80% 6.22% Expected life of stock options 6.98 years 6.93 years 5.75 years Expected life of performance unit rights awards N/A N/A N/A
STOCK OPTION PLANS At January 3, 1999, approximately 1.8 million shares of the Company's stock were available for grants of options to employees, directors and consultants under the Company's stock option plans. Options granted under the plans are granted at prices not less than 100% of the fair market value (as defined) on the dates the options are granted. Accordingly, under APB 25 no compensation cost is recognized for options issued to employees. During Fiscal 1997 an option to purchase 15,000 shares of the Company's common stock was granted to a consultant for services rendered. Total compensation to be expensed over a five year period will be $50,000. The pro forma net income impact under FAS 123 included in the table above is $569,000 for Fiscal 1998, $1,029,000 for Fiscal 1997, and $1,183,000 for Fiscal 1996. Options must be exercised within the period described by the respective stock option plan agreements, but not later than 10 years for certain options. On December 14, 1998, the Company granted to all employees (other than the Company's Chief Executive Officer ("CEO")) holding unexercised stock options with an exercise price equal to or greater than $5.00 per share replacement stock options to 34 35 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCK OPTION PLANS(CONTINUED) purchase at the current market price that number of shares of common stock determined by multiplying the number of shares subject to the eligible option by a fraction, the numerator of which was $3.875 (the December 14, 1998 market price) and the denominator of which was the exercise price of the applicable eligible option. No changes were made to the vesting schedule of the options as originally granted other than precluding the employees from exercising such options for a period of six months from December 14, 1998, except in the event of death, permanent and total disability, retirement or, if the employee's option agreement or employment agreement or other agreement so specified, change of control (as defined). During Fiscal 1998 pursuant to this repricing, options to purchase 1,170,713 shares of common stock were exchanged for options to purchase 592,236 shares of common stock. 35 36 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the Company's stock option activity, and related information for Fiscal 1998, Fiscal 1997 and Fiscal 1996 follows (Amounts in thousands, except per share information):
FISCAL 1998 FISCAL 1997 ----------------------------------------- ----------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTION NUMBER OPTION OPTION NUMBER OPTION PRICE OF PRICE PRICE OF PRICE PER SHARE SHARES PER SHARE PER SHARE SHARES PER SHARE --------- ------ --------- --------- ------ --------- Options outstanding, beginning of year $2.13-$11.31 3,251 $5.12 $2.13-$11.31 2,810 $5.04 Options granted 3.88- 8.25 966 5.45 4.13- 8.19 869 4.86 Options exercised 2.13- 7.56 (412) 2.86 2.13- 6.31 (308) 2.43 Options canceled 5.78- 11.31 (1,300) 8.12 5.94- 11.31 (120) 8.21 ------ ----- Options outstanding, end of year 2.56- 11.31 2,505 4.06 2.13- 11.31 3,251 5.12 ====== ===== Options exercisable, end of year 2.56- 11.31 1,880 4.08 2.13- 11.31 2,987 4.96 ====== ===== Shares reserved for future grants 1,780 447 ====== ===== Weighted-average fair value of options granted during the year. $ 3.43 $2.46 ====== =====
FISCAL 1996 ------------------------------------------ WEIGHTED AVERAGE OPTION NUMBER OPTION PRICE OF PRICE PER SHARE SHARES PER SHARE --------- ------ --------- Options outstanding, beginning of year $2.13-$11.31 2,551 $6.36 Options granted 3.38- 5.94 1,208 4.02 Options exercised 2.25- 2.63 (25) 2.38 Options canceled 3.69- 11.31 (924) 7.42 ----- Options outstanding, end of year 2.13- 11.31 2,810 5.04 ===== Options exercisable, end of year 2.13- 11.31 1,840 5.11 ===== Shares reserved for future grants 1,196 ===== Weighted-average fair value of options granted during the year. $2.02 ====
Exercise prices for options outstanding as of January 3, 1999 ranged from $2.56 to $11.31. The weighted-average remaining contractual life of those options is 7.4 years. Included in the options granted and canceled for Fiscal 1998 were 592,236 shares granted and 1,170,713 shares cancelled, in connection with the December 14, 1998 repricing. 36 37 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTION PRICE AND MARKET VALUE AT DATE OF GRANT ---------------------------------------------- NUMBER OF SHARES PER SHARE AMOUNT --------- --------- ------ Options outstanding at January 3, 1999, which were granted during fiscal years: (Amounts in thousands, except per share) 1989 31 $ 3.19 $100 1990 51 2.56 131 1991 32 2.63 83 1992 3 10.06 30 1993 2 11.31 23 1994 3 7.56 19 1995 27 $6.19- 6.31 169 1996 907 3.38- 5.94 3,079 1997 733 4.13- 6.47 3,281 1998 716 3.88- 8.06 3,266 ----- ------ 2,505 $10,181 ===== ======
Of the options outstanding at January 3, 1999, options to acquire 906,766 shares became exercisable on the grant date at a weighted average exercise price of $4.79 per share. Under certain circumstances, a portion of the shares purchased pursuant to the exercise of such options are subject to repurchase by the Company within three years of the date of grant of the option at the option exercise price. At January 3, 1999, 225,288 of such shares were subject to such repurchase. Additionally, options to acquire 900,000 shares at an exercise price of $3.38 per share were outstanding and exercisable at January 3, 1999. As previously noted, 592,236 shares of the options outstanding at January 3, 1999 resulted from the Company's offer to re-price on December 14, 1998. On June 14, 1999, 461,617 of these shares will become exercisable at a price of $3.88; 63,379 of such shares are subject to repurchase by the Company. The remaining options outstanding at January 3, 1999, which cover the acquisition of 105,900 shares at a weighted average exercise price of $4.74 per share, become exercisable in five equal annual installments beginning on the first anniversary of the date of grant. RESTRICTED STOCK PURCHASE PLANS Under the Company's restricted stock purchase plans, the Company may offer to sell shares of common stock to employees of the Company and its subsidiaries at a price per share of not less than par value ($.01) and not more than 10% of market value on the date the offer is approved, and on such other terms as deemed appropriate. Shares are awarded in the name of the employee, who has all rights of a stockholder, subject to certain repurchase provisions. Restrictions on the disposition of shares purchased expire annually, over a period not to exceed five years, if certain performance targets are achieved; otherwise they lapse on the tenth anniversary. Common stock reserved for future grants under these plans aggregated approximately 680,000 shares at January 3, 1999. The following table summarizes the activity of the restricted stock purchase plans during the respective fiscal years (fair market value determined at date of purchase). 37 38 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- NUMBER FAIR NUMBER FAIR NUMBER FAIR OF MARKET OF MARKET OF MARKET SHARES VALUE SHARES VALUE SHARES VALUE ------ ----- ------ ----- ------ ----- (AMOUNTS IN THOUSANDS) Unvested shares outstanding, beginning of year 128 $785 132 $827 257 $ 1,660 Shares issued - - 3 19 40 232 Shares repurchased (1) (5) - - (13) (61) Shares vested (3) (17) (7) (61) (152) (1,004) --- --- --- --- ---- ------ Unvested shares outstanding, end of year 124 $763 128 $785 132 $ 827 === === === === === =====
The difference between the issue price and the fair market value of the shares at the date of issuance is accounted for as unearned compensation and amortized to expense over the lapsing of restrictions. During Fiscal 1998, Fiscal 1997, and Fiscal 1996, unearned compensation charged to operations was $77,000, $78,000, and $1.0 million (including a special charge of $482,000 pursuant to a severance arrangement with the Company's former chief executive officer), respectively. To the extent the amount deductible for income taxes exceeds the amount charged to operations for financial statement purposes, the related tax benefits are credited to additional paid-in-capital when realized. The pro forma net income impact under FAS 123 is not material. EMPLOYEE STOCK PURCHASE PLAN The Company has an employee stock purchase plan (the "Plan") that permits employees to purchase up to a maximum of 500 shares per quarter of the Company's common stock at a 15% discount from market value. During Fiscal 1998, Fiscal 1997, and Fiscal 1996, employees purchased 61,990 shares, 62,015 shares, and 56,983 shares, respectively, for a total of approximately $275,000, $248,000, and $255,000, respectively. At January 3, 1999, approximately 960,000 shares were reserved for future issuances under the Plan. Under APB 25, there have been no charges to income in connection with the Plan other than incidental expenses. The pro forma net income impact under FAS 123 is not material. 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN In September 1996, the Company's Board of Directors approved the 1996 Performance Unit Rights Award Plan whereby selected key employees and directors may receive performance unit rights ("Rights") which are rights to receive an amount based on the appreciated value of the Company's common stock over an established base price. The maximum number of Rights that may be granted under the plan as amended is 2,000,000. On December 4, 1996 the Company issued 525,718 Rights under a severance arrangement with the Company's former CEO, at a weighted average base price of $4.26 per Right with a cap on the value of the common stock underlying the Rights on the exercise date of $6.63 per Right. A provision of $256,000 for Fiscal 1996 was included in special charges for these Rights. The pro forma net income impact under FAS 123 for Fiscal 1996 was estimated to be $507,000 in additional compensation expense. During Fiscal 1997 the Rights were fully exercised and a provision of $783,000 was included in special charges. 38 39 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAX BENEFITS Income tax benefits relating to stock option plans, restricted stock plans and employee stock purchase plan credited to capital in excess of par value as realized in Fiscal 1998 and Fiscal 1997 were $768,000 and $366,000, respectively. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) consisted of the following:
ACCUMULATED CUMULATIVE PENSION OTHER TRANSLATION LIABILITY COMPREHENSIVE ADJUSTMENT ADJUSTMENT INCOME (LOSS) ---------- ---------- ------------- (AMOUNTS IN THOUSANDS) Balance, December 31, 1995 $ 929 $(1,748) $ (819) Net change for the year (60) (99) (159) ---- ------ ------ Balance, December 29, 1996 869 (1,847) (978) Net change for the year (233) (326) (559) ---- ------ ------ Balance, December 28, 1997 636 (2,173) (1,537) Net change for the year (288) (442) (730) ---- ------ ------ Balance, January 3, 1999 $ 348 $(2,615) $(2,267) ==== ====== ======
(12) EARNINGS (LOSS) PER COMMON SHARE Basic earnings (loss) per common share is based upon the weighted average common stock outstanding during each period. Diluted earnings (loss) per common share is based upon the weighted average of common stock and dilutive common stock equivalent shares, including Series B ESOP Convertible Preferred Stock, outstanding during each period. The weighted average number of shares used in computation of diluted earnings (loss) per share consisted of the following for the periods presented:
FISCAL FISCAL FISCAL 1998 1997 1996 ------ ------ ------ (AMOUNTS IN THOUSANDS) Weighted average shares of common stock outstanding during the year 19,359 18,907 18,489 Weighted average common equivalent anti- anti- shares due to stock options dilutive 558 dilutive Series B ESOP Convertible anti- anti- Preferred Stock dilutive 1,384 dilutive -------- ------ -------- 19,359 20,849 18,489 ====== ====== ======
The income (loss) from continuing operations before extraordinary charge used in determining basic and diluted earnings from continuing operations before extraordinary charge per share was ($7,432,000), $6,017,000 and ($2,671,000) for Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. 39 40 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) COMMITMENTS AND CONTINGENCIES EMPLOYMENT CONTRACTS The Company has employment agreements and arrangements with its executive officers and certain management personnel. The agreements generally continue until terminated by the executive or the Company, and provide for severance payments under certain circumstances. The majority of the agreements and arrangements provide the employees with certain additional rights after a Change of Control (as defined) of the Company occurs. A portion of the Company's obligations under certain agreements are secured by letters of credit. Some of the agreements include a covenant against competition with the Company, which extends for a period of time after termination for any reason. As of January 3, 1999, if all of the employees under contract were to be terminated by the Company without good cause (as defined) under these contracts, the Company's liability would be approximately $6.4 million ($9.5 million following a Change of Control). SEVERANCE POLICY The Board of Directors of the Company has adopted a severance policy for all exempt employees of the Company. In the event of a Change of Control (as defined), each exempt employee of the Company whose employment is terminated, whose duties or responsibilities are substantially diminished, or who is directed to relocate within 12 months after such Change of Control, will receive, in addition to all other severance benefits accorded to similarly situated employees, salary continuation benefits for a period of months determined by dividing his or her then yearly salary by $10,000, limited to not more than 12 months. This policy does not apply to any exempt employee of the Company who is a party to a contractual commitment with the Company which provides him or her with greater than 12 months salary, severance payment or salary continuation upon his or her termination in the event of a Change of Control. This policy may be rescinded at any time by the Company's Board of Directors prior to a Change of Control. LEASES The Company leases offices, warehouse facilities, vehicles and equipment under operating and capital leases. The terms of certain leases provide for payment of minimum rent, real estate taxes, insurance and maintenance. Rents of approximately $3.2 million, $3.0 million and $2.6 million, were charged to operations for Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. The Company received rental income from properties held for sale in Fiscal 1998 and Fiscal 1996. Rental income included in selling, general and administrative expenses was approximately $63,000, and $96,000, for Fiscal 1998 and Fiscal 1996, respectively. Minimum rental payments required under leases that had initial or remaining noncancellable lease terms in excess of one year as of January 3, 1999, were as follows (amounts in thousands):
FISCAL YEAR 1999 $3,290 2000 2,601 2001 2,580 2002 1,908 2003 504
40 41 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LEGAL PROCEEDINGS The Company is a party to several pending legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company's management, after consultation with outside legal counsel, is of the opinion that the expected final outcome should not have a material adverse effect on the Company's financial position, results of operations or liquidity. ENVIRONMENTAL MATTERS From time to time, the Company has had claims asserted against it by regulatory agencies or private parties for environmental matters relating to the generation or handling of hazardous substances by the Company or its predecessors and has incurred obligations for investigations or remedial actions with respect to certain of such matters. While the Company does not believe that any such claims asserted or obligations incurred to date will result in a material adverse effect upon the Company's financial position, results of operations or liquidity, the Company is aware that at its facilities at Massillon and Hamilton, Ohio; Easthampton, Massachusetts; Chicago, Illinois; Lititz, Pennsylvania and at the previously owned facility in Hudson, New Hampshire hazardous substances and oil have been detected and that additional investigation will be, and remedial action will or may be, required. Operations at these and other facilities currently or previously owned or leased by the Company utilize, or in the past have utilized, hazardous substances. There can be no assurance that activities at these or any other facilities owned or operated by the Company or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. In connection with the acquisition of Cleaning by the Company in 1993, the Company engaged environmental engineering consultants ("Consultants") to review potential environmental liabilities at all of Cleaning's properties. Such investigation and testing resulted in the identification of likely environmental remedial actions, operation, maintenance and ground water monitoring and the estimated costs thereof. Management, based upon the engineering studies, originally estimated the total remediation and ongoing ground water monitoring costs to be approximately $6.0 million, including the effects of inflation, and accordingly at that time, recorded a liability of approximately $3.8 million, representing the undiscounted costs of remediation and the net present value of future costs discounted at 6%. Based upon the most recent cost estimates provided by the Consultants, the Company believes the total remaining remediation and compliance costs will be approximately $1.1 million and the expense for the ongoing operation, maintenance and ground water monitoring will be approximately $20,000 for fiscal 1999 and for each of the thirty years thereafter. As of January 3, 1999, the liability recorded by the Company was approximately $2.5 million. Although the current estimated costs of remediation are less than the liability recorded at January 3, 1999, the Company does not consider any further adjustment to be prudent at this time given the inherent uncertainties involved in completing the remediation processes. The Company expects to pay approximately $600,000 of the remediation costs in fiscal 1999 with the balance being paid out in fiscal 2000. During Fiscal 1998, the Company paid approximately $87,000 of such costs. The estimates may subsequently change should additional sites be identified or further remediation measures be required or undertaken or interpretation of current laws or regulations be modified. The Company has not anticipated any insurance proceeds or third-party payments in arriving at the above estimates. 41 42 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONCENTRATIONS OF CREDIT RISK Financial instruments which subject the Company to concentrations of credit risk consist primarily of trade receivables. Mass merchandisers comprise a significant portion of the Company's customer base. The Company had trade receivables of approximately $21.7 million and $17.7 million from mass merchandisers at January 3, 1999 and December 28, 1997, respectively. Although the Company's exposure to credit risk associated with non-payment by mass merchandisers is affected by conditions or occurrences within the retail industry, trade receivables from mass merchandisers were current at January 3, 1999 and two mass merchandisers accounted for 16.4% and 10.5%, respectively, of the Company's receivables at that date while no other retailer accounted for more than 10% of receivables. (14) INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company is a manufacturer and marketer of branded consumer products, whose principal business segments are Housewares Products, Pest Control and Small Animal Care and Control Products and Pet Products. The Company's products are broadly marketed primarily through major mass merchant, supermarket, home, hardware, specialty and department stores. The Company's products include household items such as bakeware, kitchenware, pantryware, brooms, brushes and mops, as well as nonpoisonous and low-toxic household pest control products, such as rodent and insect traps, and small animal care and control products, such as pet cages and live animal cage traps. In addition, the Company also markets pet supplies and accessories, such as ropes, chews, collars and leashes. The following table summarizes the Company's net revenues from continuing operations by product category over the last three fiscal years:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Bakeware $ 94,916 $89,957 $ 86,709 Kitchenware 105,988 88,972 74,296 Cleaning products 53,873 56,043 54,248 Pest control and small animal care and control products 41,327 35,564 34,617 Pet products 32,844 - - ------- ------- ------- Total net revenues $328,948 $270,536 $249,870 ======= ======= =======
During Fiscal 1998, two customers accounted for $42.6 million (13.0%) and $33.6 million (10.2%) of net revenues, respectively. One such customer accounted for net revenues from continuing operations of approximately $35.9 million (13.3%) and $27.5 million (11.0%) for Fiscal 1997 and Fiscal 1996, respectively. The Company adopted Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), during the fourth quarter of Fiscal 1998. FAS 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance. The operating segments are managed separately because each operating segment represents a strategic business unit that offers different products and serves different markets. 42 43 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's reportable segments include (i) Housewares Products, (ii) Pest Control and Small Animal Care and Control Products and (iii) Pet Products. The Housewares Products segment is engaged in the manufacturing and marketing within the United States of branded housewares products principally bakeware, kitchen tools and gadgets, cutlery, cookware and cleaning products for everyday home use. The Pest Control and Small Animal Care and Control segment is engaged in the manufacturing and marketing principally within the United States of non-toxic pest control products, rodent traps, live animal cage traps, dog crates and rabbit hutches. The Pet Products segment is engaged in the manufacturing and marketing of a broad line of pet products including leashes, collars, toys and accessories. Sales and marketing operations outside the United States are conducted principally through subsidiaries in Canada and the United Kingdom and by direct sales. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company generally evaluates performance of its operating segments based on income before goodwill, amortization, interest expense, income taxes, special charges, and inter-segment profit ("segment profit"). Summarized financial information concerning the Company's reportable segments is shown in the following table. The "other" column includes the Company's International Operations, which do not meet quantitative thresholds or aggregation criteria, as well as corporate expenses and elimination of inter-segment transactions.
PEST CONTROL & SMALL ANIMAL HOUSEWARES CARE CONTROL PET PRODUCTS PRODUCTS PRODUCTS OTHER CONSOLIDATED ---------- -------------- -------- ----- ------------ (AMOUNTS IN THOUSANDS) Fiscal 1998 External net revenues $216,144 $39,445 $32,844 $40,515 $328,948 Segment profit 18,876 5,601 7,740 1,428 33,645 Total assets 222,103 31,701 36,334 28,102 318,240 Capital expenditures 6,713 1,412 550 2,687 11,362 Depreciation and amortization 5,066 1,884 381 452 7,783 Fiscal 1997 External net revenues 208,304 33,920 - 28,312 270,536 Segment profit 22,732 4,927 - 655 28,314 Total assets 235,702 30,496 - 34,607 300,805 Capital expenditures 7,311 973 - 283 8,567 Depreciation and amortization 5,038 1,905 - 254 7,197 FISCAL 1996 External net revenues 192,162 33,127 - 24,581 249,870 Segment profit 20,228 4,359 - 1,041 25,628 Total assets 214,473 32,899 - 44,704(1) 292,076 Capital expenditures 5,032 1,747 - 1,541 8,320 Depreciation and amortization 5,215 1,938 - 221 7,374
(1) Includes $17,030 of net assets of discontinued operations 43 44 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents revenues by country based on location of customer.
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) United States $286,268 $241,677 $224,604 Canada 20,520 13,679 13,085 United Kingdom 9,013 3,053 1,271 All other (over 80) 13,147 12,127 10,910 ------- ------- ------- $328,948 $270,536 $249,870 ======= ======= =======
The following table presents long-lived assets by country based on location of the asset.
JANUARY 3, 1999 DECEMBER 28, 1998 DECEMBER 29, 1996 --------------- ----------------- ----------------- (AMOUNTS IN THOUSANDS) United States $155,762 $147,217 $148,455 Canada 4,703 3,286 3,455 Other 649 160 789 ------- ------- -------- Consolidated $161,114 $150,663 $152,699 ======= ======= =======
(15) SUPPLEMENTARY INFORMATION The following amounts were charged to costs and expenses:
FISCAL 1998 FISCAL 1997 FISCAL 1996 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Advertising $9,862 $6,784 $6,971 ===== ===== ===== Provision for doubtful accounts $ (54) $ 183 $ 130 ===== ===== ===== Amortization of excess of cost over fair value $4,221 $3,631 $3,636 ===== ===== ===== Amortization of deferred finance costs $ 666 $ 578 $ 517 ===== ===== ===== Other amortization Prepaid marketing costs $3,994 $4,308 $5,025 Unearned compensation 236 983 1,509 Favorable lease rights 73 73 73 ----- ----- ----- $4,303 $5,364 $6,607 ===== ===== =====
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table presents the unaudited quarterly results of operations for Fiscal 1998 and Fiscal 1997: 44 45 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ----- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL 1998 - ----------- CONTINUING OPERATIONS Net revenues $67,416 $70,955 $89,052 $101,525 $328,948 Gross profit 20,294 21,936 30,394 33,769 106,393 Special charges - - - (16,245) (16,245) Income (loss) before taxes (1,255) 773 7,149 (7,572) (905) Income (loss) (645) 396 3,648 (10,831) (7,432) Basic earnings (loss) per share (.03) .02 .19 (.56) (.38) Diluted earnings (loss) per share (.03) .02 .17 (.56) (.38) DISCONTINUED OPERATIONS Income - - - 3,500 3,500 Income per share - - - .18 .18 NET INCOME (LOSS) (645) 396 3,648 (7,331) (3,932) Basic net income (loss) per share (.03) .02 .19 (.38) (.20) Diluted net income (loss) per share (.03) .02 .17 (.38) (.20) FISCAL 1997 CONTINUING OPERATIONS Net revenues $53,888 $57,510 $81,818 $77,320 $270,536 Gross profit 17,018 18,352 29,184 24,675 89,229 Special charges (294) (320) (169) - (783) Income (loss) before taxes (1,950) (578) 8,986 5,806 12,264 Net income (loss) (1,008) (297) 4,536 2,786 6,017 Basic earnings (loss) per share (.05) (.02) .24 .15 .32 Diluted earnings (loss) per share (.05) (.02) .22 .13 .29
45 46 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (17) SPECIAL CHARGES During the fourth quarter of Fiscal 1998, the Company decided to sell the business and assets of Wright-Bernet and Cleaning Specialty divisions (collectively, "WB") of the Housewares Products segment's cleaning business. The Company completed the sale in January 1999 effective December 31, 1998. The expected proceeds consist of a $747,000 note due in July 1999, a $500,000 January 1999 cash payment and additional cash payments to be received during fiscal 1999 totaling $4.5 million. The $5.8 million of expected proceeds have been recorded as other current assets at January 3, 1999. The sales agreement also provided for royalty payments over a five year period with minimum annual payments of $200,000. The Company recorded a special charge of $16.2 million in the fourth quarter of Fiscal 1998 in connection with this transaction. The special charge consisted of the following (amounts in thousands): Proceeds Expected cash proceeds $ 5,033 Note due July 1999 747 Present value of minimum royalty payments 800 $ 6,580 ----- Costs and expenses Net unamortized goodwill associated with business sold 13,700 Assets sold, primarily inventory and equipment 8,805 Severance, professional fees and other costs of the transaction 320 22,825 ------- $(16,245) =======
The special charge for Fiscal 1997 relates to the exercise of stock appreciation rights granted to the Company's former chief executive officer ("CEO") pursuant to a December 1996 severance arrangement. The special charges in Fiscal 1996 consisted of the following (amounts in thousands): Writedown of the carrying value of certain real property to fair market value $2,000 Severance arrangement of the Company's former CEO 2,956 Consolidation of the Company's cleaning products manufacturing activities 4,921 ----- $9,877 =====
The components of the Fiscal 1996 pre-tax charge set out above for consolidation of the Company's cleaning products manufacturing activities are as follows (amounts in thousands): Severance and other personnel related costs $1,806 Write-off of equipment 499 Write-down of real property to fair market value 2,424 Other 192 ----- $4,921 ======
46 47 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) DISCONTINUED OPERATIONS On January 31, 1997, the Company's Board of Directors approved management's plan to dispose of the Company's molded plastic products business. Accordingly, the Company reported the results of the operations of the molded plastic products business and the loss on disposal as discontinued operations. During Fiscal 1997, the Company sold all of the assets of its molded plastics products business for cash proceeds of approximately $17.6 million and a $2.0 million promissory note, which is included in other assets in the Company's consolidated balance sheet. Certain information with respect to discontinued operations is summarized as follows:
Fiscal 1996 ----------- (Amounts in thousands) Net revenues $ 26,764 ------- Cost of sales 26,758 Selling, general and administrative 3,325 Special charges 22,728 Goodwill amortization 601 ------- Cost and expenses 53,412 ------- Loss before income taxes (26,648) Income tax benefit (1,928) ------- Loss from discontinued operations $(24,720) =======
The special charge of $22.7 million (principally goodwill) was a reduction in the third quarter of Fiscal 1996 of the carrying value of the molded plastic products business. Under the provisions of Statement of Financial Accounting Standards No. 121, which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets, the Company determined in the third quarter of Fiscal 1996 that an adjustment to the carrying value of the molded plastic products business was required. The charge in Fiscal 1996 for loss on disposal of the molded plastic business includes the following: (Amounts in thousands) Carrying value of net assets in excess of anticipated proceeds $3,300 Expenses of asset disposal and anticipated operating loss for the period December 29, 1996 through the estimated date of disposal 2,200 ----- Loss on disposal before taxes 5,500 Income tax benefit 1,925 ----- Loss on disposal $3,575 =====
During Fiscal 1998, the Company recorded a $3.5 million income tax benefit associated with the 1997 disposal of its molded plastic products business. (19) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. 47 48 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (19) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amount of the debt issued pursuant to the Company's bank credit agreement approximates fair value because the interest rates change with market interest rates. The Senior Notes are not actively traded and there was no quoted market price at January 3, 1999. The estimated per note market price is $101.75 resulting in an aggregate fair value of $127.2 million at January 3, 1999. There are no quoted market prices for the Series B ESOP Preferred Stock. Each share of Series B ESOP Preferred Stock is redeemable at a price of $3.61 per share or convertible into one share of the Company's common stock. Assuming all shares were allocated and all employees were fully vested, the redemption value of the ESOP Preferred Stock would be $3.9 million. Given these same assumptions, the shares could be converted into common stock having a market value of $4.0 million at January 3, 1999. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue derivative financial or derivative commodity instruments for any purpose. 48 49 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders EKCO Group, Inc. We have audited the accompanying consolidated balance sheets of EKCO Group, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended January 3, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EKCO Group, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended January 3, 1999, in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP Boston, Massachusetts February 12, 1999 49 EX-21 11 LIST OF SUBSIDIARIES 1 EXHIBIT 21 ---------- SUBSIDIARIES OF EKCO GROUP, INC. The following are the subsidiaries of the registrant, all of which are wholly-owned except for Woodstream Corporation, which is majority-owned: JURISDICTION OF SUBSIDIARY NAME INCORPORATION - --------------- --------------- OPERATING SUBSIDIARIES: Aspen Pet Products, Inc. Delaware B. VIA International Housewares, Inc. Delaware EKCO Canada Inc. Ontario, Canada EKCO Cleaning, Inc. Massachusetts EKCO Distribution of Illinois, Inc. Delaware EKCO International Housewares Limited United Kingdom EKCO International, Inc. Delaware EKCO Housewares, Inc. Delaware EKCO Manufacturing of Ohio, Inc. Delaware Woodstream Corporation Pennsylvania INACTIVE SUBSIDIARIES: APP Holding Corporation Delaware CSC of Tennessee, Inc. Tennessee Delhi Manufacturing Corporation Delaware EKCO Capital Enterprises, Inc. Delaware EKCO Consumer Plastics, Inc. Massachusetts EKCO Wood Products Co. Delaware Fenwick California FPI, Inc. Washington Trappe of Aspen, Inc. Pennsylvania Wright-Bernet, Inc. Ohio EX-23 12 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS Board of Directors and Stockholders EKCO Group, Inc. We consent to incorporation by reference in the Registration Statement on Form S-8 (File No. 33-42785) pertaining to the 1984 and 1985 Restricted Stock Purchase Plans of EKCO Group, Inc., in the Registration Statement on Form S-8 (File No. 33-50800) pertaining to the 1984 Employee Stock Purchase Plan of EKCO Group, Inc., in the Registration Statement on Form S-8 (File No. 33-50802) pertaining to the 1987 Stock Option Plan of EKCO Group, Inc., in the Registration Statement on Form S-8 (File No. 33-29448) pertaining to the 1988 Directors' Stock Option Plan of EKCO Group, Inc., and in the Registration Statement on Form S-3 (File No. 33-58319) pertaining to the Dividend Reinvestment and Stock Purchase Plan of EKCO Group, Inc., of our report dated February 12, 1999 relating to the consolidated balance sheets of EKCO Group, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended January 3, 1999, which report is included in the January 3, 1999 Annual Report on Form 10-K of EKCO Group, Inc. /S/ KPMG Peat Marwick LLP Boston, Massachusetts March 29, 1999 EX-27 13 FINANCIAL DATA SCHEDULE
5 12-MOS JAN-03-1999 DEC-29-1997 JAN-03-1999 1,179 0 60,416 643 75,751 157,126 83,972 45,085 318,240 59,089 136,136 3,868 0 191 108,133 318,240 328,948 328,948 222,555 311,548 4,221 (54) 14,371 (905) 6,527 (7,432) 3,500 0 0 (3,932) (0.20) (0.20)
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