-----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, Ctq+ek7cvrQHYS+GvC6K36NlASnAue1CyBSavqVgTCXQGvFwzZIV4WWkROen2vE3 lBfK/k85Xf/cgE2Y/TfXzg== 0000950135-96-004817.txt : 19961113 0000950135-96-004817.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950135-96-004817 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961112 SROS: NYSE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07484 FILM NUMBER: 96660004 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-Q 1 EKCO GROUP INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For quarterly period ended SEPTEMBER 29, 1996 ------------------ Commission File Number 1-7484 ------ EKCO GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 11-2167167 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 98 SPIT BROOK ROAD, NASHUA, NEW HAMPSHIRE 03062 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (603) 888-1212 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- As of November 1, 1996, there were issued and outstanding 18,567,918 shares of common stock of the registrant. 2 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 29, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) Current assets Cash and cash equivalents $ 290 $ 142 Accounts receivable, net 55,474 43,823 Inventories 60,136 47,565 Other current assets 6,464 6,719 Deferred income taxes 4,361 4,361 -------- -------- Total current assets 126,725 102,610 Property and equipment, net 54,907 56,380 Property held for sale or lease, net -- 2,830 Other assets 6,930 5,955 Excess of cost over fair value of net assets acquired, net 112,042 136,600 -------- -------- Total assets $300,604 $304,375 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term obligations 20 18,079 Accounts payable 17,948 15,607 Accrued expenses 29,891 23,711 Income taxes 538 -------- -------- Total current liabilities 47,859 57,935 -------- -------- Long-term obligations, less current portion 128,955 96,700 -------- -------- Other long-term liabilities 8,678 9,859 -------- -------- Series B ESOP Convertible Preferred Stock, net; outstanding 1,446 shares and 1,488 shares, respectively, redeemable at $3.61 per share 3,919 3,458 -------- -------- Commitments and contingencies -- -- Minority interest 498 498 -------- -------- Stockholders' equity Common stock, $.01 par value; outstanding 18,563 shares and 18,414 shares, respectively 186 184 Capital in excess of par value 107,542 106,916 Cumulative translation adjustment 903 929 Retained earnings 7,371 33,614 Unearned compensation (3,559) (3,970) Pension liability adjustment (1,748) (1,748) -------- -------- 110,695 135,925 Total liabilities and stockholders' equity $300,604 $304,375 ======== ========
The accompanying notes are an integral part of the financial statements. 2 3 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues $ 83,460 $83,041 $196,301 $203,464 -------- ------- -------- -------- Costs and expenses Cost of sales 55,903 56,935 136,336 140,889 Selling, general and administrative 17,079 12,954 44,328 38,637 Special charges 24,728 -- 24,728 -- Amortization of excess cost over fair value 1,109 1,109 3,327 3,326 -------- ------- -------- -------- 98,819 70,998 208,719 182,852 -------- ------- -------- -------- Income before interest and taxes (15,359) 12,043 (12,418) 20,612 -------- ------- -------- -------- Net interest expense (income) Interest expense 3,235 3,611 9,422 10,454 Investment income (2) (10) (101) (85) -------- ------- -------- -------- 3,233 3,601 9,321 10,369 -------- ------- -------- -------- Income (loss) before income taxes and extraordinary charge (18,592) 8,442 (21,739) 10,243 Income taxes (benefit) 2,738 3,795 504 4,651 -------- ------- -------- -------- Income (loss) before extraordinary charge (21,330) 4,647 (22,243) 5,592 Extraordinary charge for early retirement of debt, net of tax benefit of $2,139 -- -- (3,208) -- -------- ------- -------- -------- Net income (loss) $(21,330) $ 4,647 $(25,451) $ 5,592 ======== ======= ======== ======== Earnings (loss) per common share: Income (loss) before extraordinary charge $ (1.15) $ 0.23 $ (1.21) $ 0.28 Extraordinary charge -- (0.17) -- -------- ------- -------- -------- Earnings (loss) per common share $ (1.15) $ 0.23 $ (1.38) $ 0.28 ======== ======= ======== ======== Weighted average number of shares used in computation of per share data 18,515 20,404 18,462 20,312 ======== ======= ======== ========
The accompanying notes are an integral part of the financial statements. 3 4 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1996 1995 ---- ---- Cash flows from operating activities Net income (loss) $ (25,451) $ 5,592 Adjustments to reconcile net income to net cash provided by (used in) operations Depreciation and amortization 7,445 7,477 Amortization of excess of cost over fair value 3,327 3,328 Amortization of deferred finance costs 366 427 Other amortization 4,491 5,028 Special charges 24,728 -- Extraordinary charge 3,208 -- Other (798) (201) Changes in certain assets and liabilities, net of effects from acquisition of businesses, affecting cash provided by (used in) operations Accounts receivable (12,268) (11,961) Inventories (13,268) (5,150) Prepaid marketing costs (2,184) (4,166) Other assets 1,432 171 Accounts payable and accrued expenses 8,319 412 Income taxes payable (537) 1,661 --------- ------- Net cash provided by (used in) operations (1,190) 2,618 --------- ------- Cash flows from investing activities Proceeds from sale of property and equipment 1,789 245 Capital expenditures (7,362) (9,591) --------- ------- Net cash used in investing activities (5,573) (9,346) --------- ------- Cash flows from financing activities Proceeds from issuance of long-term obligations 125,292 31,183 Proceeds from sale of investment held as collateral -- 3,600 Payment of dividends (792) (1,201) Payment of long-term obligations (118,045) (26,726) Other 461 (27) --------- ------- Net cash provided by financing activities 6,916 6,829 Effect of exchange rate changes on cash (5) (17) --------- ------- Net increase in cash and cash equivalents 148 84 Cash and cash equivalents at beginning of year 142 129 --------- ------- Cash and cash equivalents at end of period $ 290 $ 213 ========= ======= Cash paid during the period for Interest $ 3,739 $ 7,084 Income taxes 52 2,800
The accompanying notes are an integral part of the financial statements. 4 5 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION AND OTHER MATTERS The consolidated condensed financial statements included herein have been prepared by Ekco Group, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is believed, however, that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The consolidated condensed financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The condensed financial statements, in the opinion of management, reflect all adjustments necessary to fairly state the Company's financial position and the results of its operations. Such adjustments are of a normal recurring nature. A large part of the Company's business is seasonal. Historically, revenues in the last half of the calendar year have been greater than revenues in the first half of the year. Accordingly, the results for the entire year may not necessarily be the product of annualizing results for any interim period. (2) ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following:
SEPTEMBER 29, 1996 DECEMBER 31, 1995 ------------------ ----------------- (AMOUNTS IN THOUSANDS) Accounts receivable $56,966 $44,871 Allowance for doubtful accounts (1,492) (1,048) ------- ------- $55,474 $43,823 ======= =======
(3) INVENTORIES The components of inventory were as follows:
SEPTEMBER 29,1996 DECEMBER 31, 1995 ----------------- ----------------- (AMOUNTS IN THOUSANDS) Raw materials $11,244 $11,489 Work in process 7,835 3,097 Finished goods 41,057 32,979 ------- ------- $60,136 $47,565 ======= =======
5 6 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (4) PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following:
SEPTEMBER 29, 1996 DECEMBER 31, 1995 ------------------ ----------------- (AMOUNTS IN THOUSANDS) Property and equipment at cost Land, buildings and improvements $ 23,340 $22,856 Equipment, factory and other 77,689 71,922 -------- ------- 101,029 94,778 Less accumulated depreciation 46,122 38,398 ======== ======= $ 54,907 $56,380
(5) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET Excess of cost over fair value of net assets acquired is net of accumulated amortization of $27,274 September 29, 1996 and $27,727 as of December 31, 1995. (6) INCOME TAXES The Company's effective tax rate as reported in its latest annual report on Form 10-K was 50% for the year ended December 31, 1995 ("Fiscal 1995"). Income tax expense for the Fiscal 1996 periods has been calculated utilizing similar tax rates to those used for Fiscal 1995. However, due to the significant amount of goodwill expense primarily included in the special charge, the comparison of effective tax rate is not meaningful. Goodwill expense is not deductible for income taxes. (7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK Series B ESOP Convertible Preferred Stock, net, consisted of the following:
SEPTEMBER 29, 1996 DECEMBER 31, 1995 ------------------ ----------------- (AMOUNTS IN THOUSANDS) Series B ESOP Convertible Preferred Stock, par value $.01, redeemable at $3.61 per share $ 5,220 $ 5,372 Unearned compensation (1,301) (1,914) ------- ------- $ 3,919 $ 3,458 ======= =======
6 7 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (8) COMMON STOCK, $.01 PAR VALUE Share information regarding common stock consisted of the following:
SEPTEMBER 29, 1996 DECEMBER 31, 1995 ------------------ ----------------- Authorized shares 60,000,000 60,000,000 ========== ========== Shares issued 27,981,165 27,854,441 Shares held in treasury 9,417,947 9,440,577 ---------- ---------- 18,563,218 18,413,864 ========== ==========
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 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 is 1,000,000. On September 25, 1996, the Company awarded 400,000 rights to key employees and 100,000 rights to a director at fair market value which rights are exercisable through December 31, 2001. No provision was required in the accompanying financial statements. (9) NET INCOME PER COMMON SHARE Primary earnings per common share are based upon the weighted average of common stock and dilutive common stock equivalent shares outstanding during each period. Fully diluted earnings per share have been omitted since they are either the same as primary earnings per share or anti-dilutive. The weighted average number of shares used in computation of earnings per share consisted of the following for the periods presented:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, ------------- ---------- ------------- ---------- 1996 1995 1996 1995 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Weighted average shares of common stock outstanding during the period 18,515 18,432 18,462 18,326 Series B ESOP Convertible anti- anti- Preferred Stock dilutive 1,533 dilutive 1,545 Weighted average common equivalent anti- anti- shares due to stock options dilutive 439 dilutive 441 -------- ------ -------- ------ 18,515 20,404 18,462 20,312 ======== ====== ======== ======
7 8 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (10) CONTINGENCIES LEGAL PROCEEDINGS The Company is a party to several pending legal proceedings and claims, including the matters described below. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company's management 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. In April 1996, the U.S. District Court for the Northern District of Ohio ruled that certain insulated bakeware products manufactured by the Company infringed a patent held by a third-party plaintiff. The Company ceased manufacturing such products in December 1995. In July 1996, the Court concluded that a reasonable royalty is 2% of sales or $88,000. In August 1996, the plaintiff filed a motion to amend the Court's decision which motion is currently pending. The Company will vigorously pursue an appeal as it deems appropriate. The Company and its counsel believe that the Company has meritorious grounds for appeal. The Company's management believes that the final outcome will not have a material adverse effect upon 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 in Massillon and Hamilton, Ohio, Easthampton, Massachusetts, Lititz, Pennsylvania, Chicago, Illinois 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 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 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 Kellogg Brush Manufacturing Co. and subsidiaries ("Kellogg") by the Company in 1993, the Company engaged environmental engineering consultants ("Consultants") to review potential environmental liabilities at all of Kellogg'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. Based upon such engineering studies, management 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 remediation costs will be approximately $2.0 million and the expense for the ongoing operation, maintenance and ground water monitoring will be approximately $50,000 for Fiscal 1996 and approximately $25,000 for each of the 30 years thereafter. As of September 29, 1996, the Company has recorded a liability of approximately $3.4 million. The Company expects to pay approximately $180,000 of the remediation costs in the current year 8 9 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) ENVIRONMENTAL MATTERS CONTINUED ("Fiscal 1996") with the balance being paid out in fiscal years 1997 and 1998. During the First Nine Months of Fiscal 1996, the Company paid approximately $132,000 of such costs. The estimates may subsequently change should additional sites be identified or further remediation measures be required or undertaken or the 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. (11) EXTRAORDINARY CHARGE On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006 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 12.70% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) to repay substantially all amounts outstanding under its revolving credit facility. Concurrently with closing the sale of the 9.25% Senior Notes, the Company entered into an amendment to its revolving credit facility, which amendment consolidated the outstanding debt and borrowing capacity of the Company and its wholly-owned subsidiaries, Ekco Housewares, Inc. and Ekco Consumer Plastics, Inc. (formerly known as Frem Corporation), and revised certain financial covenants (as so amended, the "Revolving Credit Facility"). Borrowings under the Revolving Credit Facility 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. The Revolving Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount and a $60,000 annual agency fee. Borrowings under the Revolving Credit Facility mature in December 1998. The Senior Notes, as well as the Revolving Credit Facility, contain certain financial covenants that may restrict the sale of assets, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. In November 1996, the Company and its lender banks agreed to certain modifications of the Revolving Credit Facility. At the Company's request, the credit facility has been reduced to a maximum credit of $35.0 million from a level of $75.0 million under the original agreement. The maximum outstanding balance of the revised credit facility will equate to 80% of eligible accounts receivables as determined at the end of each calendar month. The revised credit-facility provides for a commitment fee of one-half of one percent on the unused portion of the commitment. Borrowings outstanding at September 29, 1996, totaled approximately $4.7 million. Additionally, the Company has letters of credit outstanding of $7.2 million. The early extinguishment of the 12.70% Notes and 7% Convertible Subordinated Note resulted in an extraordinary charge of $3.2 million consisting of the following:
(Amounts in thousands) Premium on 12.70% Notes, due 1998 $ 6,511 Discount on prepayment of 7% 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 =======
9 10 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (12) SPECIAL CHARGES The loss from operations for the thirteen week period ending September 29, 1996 includes special charges of $24.7 million. The charges were determined in compliance with Statement of Financial Accounting Standard No. 121 which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets. Under provisions of the Statement, impairment losses are recognized when expected future cash flows are less than the assets' carrying value. Accordingly, the Company periodically evaluates the carrying value of property, plant and equipment and intangibles in relation to the operating performance and future undiscounted cash flows of the underlying business. The Company's plastic business has continued to suffer severe price and cost pressures, primarily as a result of higher product costs including higher resin costs which have not been recovered through increased sales prices. In addition, the Company's plastic business forecasts continuing deficits as it has been forced to offer larger discounts to remain competitive in the marketplace. The Company has determined that the carrying amount of the assets of the plastic business are no longer recoverable from the estimated future cash flows expected to result from its operations. Accordingly, the Company has reduced the carrying value of the assets (principally goodwill) by approximately $22.7 million to their fair value as determined primarily by independent third party appraisals of the property. Additionally, the Company determined that the carrying value of certain real property held for re-sale in Chicago, Illinois should be reduced by $2.0 million. For purposes of the Company's Consolidated Condensed Statement of Cash Flows, these special charges are treated as a non-cash transaction. 10 11 EKCO GROUP, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following discussion and analysis of the consolidated results of operations for the thirteen week periods ended September 29, 1996 (the "Third Quarter of 1996") and October 1, 1995 (the "Third Quarter of 1995") and for the thirty nine week periods ended September 29, 1996 (the "First Nine Months of 1996") and October 1, 1995 (the "First Nine Months of 1995") and the financial condition at September 29, 1996 should be read in conjunction with the Company's Consolidated Condensed Financial Statements and Notes thereto. Because of the seasonality of the Company's revenues, which have historically been concentrated in the second half of its fiscal year, the results of operations for any interim period and the balance sheet as of the end of any interim period are not indicative of either a full year's operations or the financial condition of the Company at the end of any fiscal year. NET REVENUES Net revenues for the Third Quarter of 1996 were approximately the same as the $83 million reported for the Third Quarter of 1995, however, net revenues for the First Nine Months of 1996 declined approximately $7.2 million from the prior year period. Although net revenues were essentially flat for the third quarter periods, there was a change in product mix. Net revenues from the Company's bakeware products increased approximately $1.2 million in the Third Quarter of 1996 compared to the prior year period. This increase was primarily due to sales of the Company's new insulated bakeware. Additionally, net revenues from the Company's new line of VIA products increased $2.2 million for the Third Quarter of 1996 compared to the prior year period. These increases in sales of bakeware and VIA products for the third quarter period were offset by declines in sales of the Company's kitchen tools and gadgets, cleaning and plastic products. For the nine month period the decline was primarily in net revenues from the Company's tools and gadgets ($8.2 million) and plastics products ($4.8 million) partially offset by an increase in sales ($5.8 million) of VIA products. The revenue decline reflects the weakness in general merchandise sales that began toward the end of 1995 and which carried over into 1996. Last year's below average consumer spending created higher than anticipated levels of inventory for retailers who lowered their volume of re-orders in the First Half of 1996. In addition, sales of the Company's plastic products were adversely affected by significant price competition and delays in seasonal shipping. The Company also experienced lower sales volumes to its smaller customers, largely attributable to transition issues associated with the consolidation of various Company units into a single operating entity during the past year. GROSS PROFIT The Company's gross profit margin for the First Nine Month periods remained constant at 31%, while for the Third Quarter periods there was an improvement from 31% in the prior year to 33% for 1996. The improvement in margin was primarily due to the change in revenue mix described above and improved facility utilization. This improvement offset declines in gross margin for the first half of 1996 which resulted from the continuation of increased promotional discounting, which was initiated in the fourth quarter of Fiscal 1995 to help stimulate consumer demand and unabsorbed manufacturing costs due to a shortfall in planned volumes. 11 12 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses for the Third Quarter and First Nine Months of 1996 increased approximately $4.1 million (32%) and $5.7 million (15%) from the comparable prior year periods. The primary factors contributing to the increase were new product development and introduction costs, principally for the Company's new insulated bakeware products and Roach Magnet[Trademark], increased expenditures associated with the growth of VIA and the Company's subsidiary in the United Kingdom, and an increase in the provision for doubtful accounts of approximately $500,000 and $1 million, respectively. Additionally, the prior year periods benefited from the collection of a previously written off receivable ($900,000 and $1.1 million, respectively) relating to a 1987 real estate transaction. The increase in selling, general and administrative expenses was also affected by marketing and advertising commitments geared to an anticipated higher level of sales. NET INTEREST EXPENSE Net interest expense for the 1996 periods decreased $376,000 from the Third Quarter of Fiscal 1995 level of $3.4 million and decreased $1 million from the First Nine Months of 1995 level of $6.8 million. The decline in net interest was primarily due to lower average borrowings and lower average interest rates. SPECIAL CHARGES The loss from operations for the thirteen week period ended September 29, 1996 includes special charges of $24.7 million. The charges include approximately $22.7 million related to the reduction of the carrying value (principally goodwill) of the Company's plastic business. The balance of $2.0 million reflects the adjustment to the carrying value of certain real property located in Chicago, Illinois. See Note 12 of Notes to Consolidated Condensed Financial Statements. On October 9, 1996, the Company announced that it will be consolidating its cleaning products manufacturing activities in Mexico. The consolidation will be implemented over an 18-month period, eliminating the manufacturing activities at the Company's plants in Hamilton, Ohio and Easthampton, Massachusetts. The consolidation will result in a fourth quarter 1996 pre-tax charge of $6.5 million related to severance costs and the write-down of assets at the Easthampton and Hamilton sites. There also will be additional operating expenses associated with the orderly transition of manufacturing activities between the various locations at least through 1997. The estimated annualized pre-tax savings from this consolidation is approximately $4 million. EXTRAORDINARY CHARGE An extraordinary charge of approximately $3.2 million in the First Nine Months of 1996 was due to the early extinguishment of the 12.7% Notes and 7% Convertible Subordinated Note. See Note 11 of Notes to Consolidated Condensed Financial Statements. LIQUIDITY AND CAPITAL RESOURCES During the First Nine Months of 1996, the Company utilized approximately $1.2 million to fund operating activities, primarily to increase working capital. Also, during the First Nine Months of 1996, the Company used the proceeds from the sale of facilities in Lititz, Pennsylvania and Niagara Falls, Canada ($1.8 million), net proceeds of $2.5 million from the refinancing of debt, seasonal borrowings of $4.7 million and proceeds from net issuances of common stock of $500,000, for capital expenditures of approximately $7.4 million and dividend payments of approximately $800,000. 12 13 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES CONTINUED The increase in the Company's account receivable balance relates to the seasonality of the Company's revenues, which have historically been concentrated in the second half of its fiscal year. The increase in inventory reflects seasonality previously mentioned, growth of VIA and lower-than-anticipated sales. 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 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) to repay substantially all amounts outstanding under its revolving credit facility. Concurrently with closing the sale of the 9.25% Senior Notes, the Company entered into an amendment to its revolving credit facility, which amendment consolidated the outstanding debt and borrowing capacity of the Company and its wholly-owned subsidiaries, Ekco Housewares, Inc. and Ekco Consumer Plastics, Inc., and revised certain financial covenants (as so amended, the "Revolving Credit Facility"). Borrowings under the Revolving Credit Facility 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. The Revolving Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount and a $60,000 annual agency fee. Borrowings under the Revolving Credit Facility mature in December 1998. The Senior Notes, as well as the Revolving Credit Facility, contain certain financial covenants that will restrict the sale of assets, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. At September 29, 1996, the Company was not in compliance with certain covenants of the Revolving Credit Facility and such noncompliance has been waived. 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 Senior Notes and Revolving Credit Facility would need to be amended. The Company and its lender banks ("Bank Group") have agreed to certain modifications of the Revolving Credit Facility. At the Company's request, the credit facility has been reduced to a maximum credit of $35.0 million from a level of $75.0 million under the original agreement. The maximum outstanding balance of the revised credit facility will equate to 80% of eligible accounts receivables as determined at the end of each calendar month. The revised agreement will provide the Company with a credit line sufficient to meet all working capital needs without paying the additional cost of carrying the higher credit limits. Funds that are required for acquisitions may be provided by the Bank Group upon review and approval on a case by case basis. The revised credit facility provides for a commitment fee of one-half of one percent on the unused portion of the commitment. Borrowings under the Revolving Credit Facility outstanding at September 29, 1996, totaled approximately $4.7 million. Additionally, the Company has letters of credit outstanding of $7.2 million. The Company has provided approximately $3.4 million 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. The Company believes the 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 interpretation of current laws or regulations be modified. BUSINESS OUTLOOK This Quarterly Report, including "Management's Discussion and Analysis of Results of Operations and Financial Conditions," contains forward-looking statements made pursuant to 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 level of the Company's indebtedness; restrictive covenants contained in the Company's various debt documents; general 13 14 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) BUSINESS OUTLOOK CONTINUED 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; 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 results may fluctuate. These forward looking statements represent the Company's best estimate as of the date of this Form 10-Q. The Company assumes no obligation to update such estimates except as required by the rules and regulations of the Securities and Exchange Commission. 14 15 EKCO GROUP, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to several pending legal proceedings and claims, including the matters described below. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company's management 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. In April 1996, the U.S. District Court for the Northern District of Ohio ruled that certain insulated bakeware products manufactured by the Company infringed a patent held by a third-party plaintiff. The Company ceased manufacturing such products in December 1995. In July 1996, the Court concluded that a reasonable royalty is 2% of sales, or $88,000. In August 1996, the plaintiff filed a motion to amend the Court's decision which motion is currently pending. The Company will vigorously pursue an appeal as it deems appropriate. The Company and its counsel believe that the Company has meritorious grounds for appeal. The Company's management believes that the final outcome will not have a material adverse effect upon 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 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 in Massillon (more fully described below) and Hamilton, Ohio, Easthampton, Massachusetts (more fully described in Note 10 of Notes to Consolidated Condensed Financial Statements hereinabove), Lititz, Pennsylvania, Chicago, Illinois and at its 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 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 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. Prior to the Company's acquisition of Ekco Housewares, Inc. ("Housewares") in 1987, Housewares' Massillon, Ohio steel bakeware manufacturing facility was the subject of administrative proceedings before the United States Environmental Protection Agency by issuance of an administrative complaint alleging violations of the Resource Conservation and Recovery Act resulting from operation of a wastewater lagoon at the facility. American Home Products Corporation ("AHP"), a former owner of Housewares, pursuant to an indemnity agreement (the "Indemnity Agreement") with Housewares relating to acts occurring prior to September 7, 1984, assumed the costs of remediation measures in addition to the defense of the administrative proceedings with federal and state environmental protection agencies, as well as preparation of closure plans and other plans called for as a result of these proceedings. While AHP has acknowledged its full responsibility under the Indemnity Agreement with respect to the wastewater lagoon, it has asserted that Housewares should contribute to the cost of a remediation study and certain remediation measures to the extent that Housewares exacerbated contamination at the facility since September 7, 1984. Housewares has denied that it has exacerbated contamination at the facility since such date. AHP and Housewares have agreed to allocate such costs in proportion to their respective responsibilities based on the results of an engineering study but in no event 15 16 EKCO GROUP, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) ENVIRONMENTAL REGULATION AND CLAIMS (CONTINUED) will Housewares' share with respect to the wastewater lagoon exceed the lesser of 25% of the total cost or $750,000. The Company is unable to determine to what extent, if any, it will be responsible to contribute to such costs but the Company does not believe that any such contribution that it may be required to make will have a material adverse effect on its financial position, results of operations or liquidity. In June 1992, the United States filed an action in the U.S. District Court for the Northern District of Ohio against Housewares seeking penalties and injunctive relief and alleging violations as a result of an alleged failure to provide certain closure and post-closure financial assurances with respect to the Massillon, Ohio site. Pursuant to the Indemnity Agreement and a confirmatory letter from AHP to Housewares on December 19, 1988 (the "Indemnity Documents"), AHP conducted and controlled all matters relating to such financial assurances and the defense of the action filed in June 1992. In January 1994, the court entered judgment against Housewares in the amount of $4.6 million in the lawsuit. AHP filed a notice of appeal on behalf of Housewares. In August 1995, the Court of Appeals affirmed in part and reversed in part the penalty imposed on Housewares and remanded the redetermination of civil penalties for certain periods of time. The penalty affirmed by the Court of Appeals amounted to $2,858,000, and, pursuant to the Indemnity Documents, AHP paid that amount, plus applicable interest, on Housewares' behalf. With respect to the penalty reversed and remanded by the Court of Appeals, a stipulated judgment was entered by the Court in July 1996 which fully resolved the remaining claims for $400,000 plus accrued interest. By letter dated May 6, 1996, AHP notified Housewares that if such judgment is entered AHP would not seek reimbursement from the Company of the amounts AHP had paid or would pay on Housewares' behalf in this litigation. AHP has paid the foregoing amounts, and notice that the judgment is fully satisfied was entered by the Court in September 1996. 16 17 EKCO GROUP, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) Item 6. Exhibits and Reports on Form 8-K. a.) Exhibits: 10.1 Amendment to 1995 Restatement of the Incentive Compensation Plan for Executive Employees of Ekco Group, Inc. and Subsidiaries dated as of June 21, 1996. 10.2 Ekco Group, Inc. 1996 Performance Unit Rights Award Plan and Forms of Award Agreements for Employees and Directors. 27 Financial Data Schedule. b.) Reports on Form 8-K: None. 17 18 SIGNATURES Pursuant to the requirements 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. ------------------------------------ (Registrant) Date: November 12, 1996 By: /s/ ROBERT STEIN --------------------------- --------------------------------- Robert Stein President and Chief Executive Officer By: /s/ DONATO A. DENOVELLIS --------------------------------- Donato A. DeNovellis Executive Vice President, Finance and Administration, and Chief Financial Officer 18 19 INDEX TO EXHIBITS FILED WITH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996 Exhibit No. Description - ----------- ----------- 10.1 Amendment to 1995 Restatement of the Incentive Compensation Plan for Executive Employees of Ekco Group, Inc. and Subsidiaries dated as of June 21, 1996. 10.2 Ekco Group, Inc. 1996 Performance Unit Rights Award Plan and Forms of Award Agreements for Employees and Directors. 27 Financial Data Schedule. 19 EX-10.1 2 AMEND 1995 RESTATEMENT OF THE INCENTIVE COMP. 1 EXHIBIT 10.1 ------------ EKCO GROUP, INC. AMENDMENT TO 1995 RESTATEMENT OF THE INCENTIVE COMPENSATION PLAN FOR EXECUTIVE EMPLOYEES OF EKCO GROUP, INC. AND SUBSIDIARIES The 1995 Restatement of the Incentive Compensation Plan for Executive Employees of Ekco Group, Inc. and Subsidiaries (the "Incentive Compensation Plan") is hereby amended as follows: 1. Section 6.4 is deleted in its entirety and the following is inserting in its place: "6.4 For 1995 the Committee shall decide and for 1996 and subsequent years the Executive may decide whether any increases over the Executive's 1994 Base Compensation level will be paid under any of the payment choices in Section 6.6 or a combination of two or more of them. The Committee decisions with respect to the manner in which 1995 Base Compensation increases will be paid is scheduled in the Appendix." 2. Section 6.5 is deleted in its entirety and the following is inserting in its place: "6.5 For 1995 and subsequent years the Executive may decide whether any percentage up to one hundred percent (100%) of his Bonus will be paid under any of the payment choices in Section 6.6 or a combination of two or more of them." 3. Except as expressly provided for herein, the Incentive Compensation Plan is hereby ratified and confirmed and shall continue in full force and effect. 4. This Amendment may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. Dated as of June 21, 1996. Compensation Committee of the Board of Directors /S/ T. MICHAEL LONG ------------------------------ T. Michael Long /S/ STUART B. ROSS ------------------------------ Stuart B. Ross /S/ BILL W. SORENSON ------------------------------ Bill W. Sorenson EX-10.2 3 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN 1 EXHIBIT 10.2 ------------ EKCO GROUP, INC. 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN 2 TABLE OF CONTENTS ----------------- 1. Purpose.................................................................. 1 2. Administration........................................................... 1 3. Participants............................................................. 1 4. Operation................................................................ 1 5. Appreciation of Rights................................................... 2 6. Nature of Rights......................................................... 2 7. Effective Date........................................................... 2 8. Limits on Awards......................................................... 3 9. Dilution................................................................. 3 10. Award Agreements......................................................... 3 11. Transferability.......................................................... 3 12. Securities Act of 1933................................................... 3 13. Withholding of Tax....................................................... 4 14. Termination and Amendment of Plan........................................ 4 15. Rights of Employees...................................................... 4 16. Compliance with Laws..................................................... 4 17. Nonexclusivity of Plan................................................... 5 18. Severability............................................................. 5 19. Applicable Law........................................................... 5 i 3 EKCO GROUP, INC. 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN 1. Purpose The purpose of the Performance Unit Rights Award Plan (the "Plan") is to provide a means by which Ekco Group, Inc. (the "Company") and/or its subsidiary corporations shall be able to attract and retain competent key employees and directors and provide those persons with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce. 2. Administration (a) The Plan shall be administered on behalf of the Company by the Compensation Committee (the "Committee") of the Board of Directors (the "Board") as that Committee may be constituted from time to time. (b) Subject to the express provisions of the Plan, the Committee shall have complete and discretionary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Committee on the matters referred to in this paragraph 2 shall be conclusive. 3. Participants Participants in the Plan shall be selected by the Committee from key employees and directors of the Company or any subsidiary of the Company (the "Participants"). 4. Operation (a) Participants shall be awarded Performance Unit Rights (the "Rights") for a period of six years or such shorter period as may be determined by the Committee (the "Designated Period"). The Designated Period may vary as among Participants and as among awards to a Participant. On the date on which the Right is exercised ("Exercise Date"), the Participant shall receive an amount equal to the appreciation in market value of his or her Rights as determined in paragraph 5 of the Plan. That amount shall be payable in cash, shares of common stock of the Company ("Company Common Stock"), or some combination of both, as set forth in the Award Agreement. No fractional shares shall be issued but a Participant shall be entitled to a cash adjustment for a fractional share that would otherwise be issued. Rights will be cancelled upon the Participant's exercise of such Rights, and no further payment shall be made as to Rights exercised by a Participant. 1 4 (b) Vesting of Rights. The Committee may designate a vesting schedule with respect to each separate Award of Rights. The Committee may, in its sole discretion (but is not obligated to) provide for the acceleration of vesting of Rights upon the occurrence of certain enumerated events, including, but not limited to, the death, disability or retirement of the Participant. (c) Definition of Performance Unit Rights. A Right is an award in the form of a right to receive, upon exercise of the right during the Designated Period, but without other payment, an amount based on appreciation in the value of Company Common Stock over a base price established in the Award Agreement. Unless the Committee provides otherwise, and such provision is reflected in the Award Agreement, the minimum base price of a Performance Unit Right granted under this Plan shall be not less than the Fair Market Value (as defined below) of the underlying Company Common Stock on the date the Right is granted. 5. Appreciation of Rights Each Participant's Award Agreement shall identify a formula, based on the market value of the Company Common Stock on a particular day or the average price over a series of days, for determining the underlying value (the "Fair Market Value") of the Company Common Stock on both the date the Right is awarded ("Award Date") or an Exercise Date. The appreciation in the Fair Market Value of Rights for purposes of determining payments to be made to a Participant shall be measured by determining the Fair Market Value of Rights held by that Participant on the Exercise Date and subtracting from that the Fair Market Value of the same Rights on the Award Date. The measurement of appreciation shall be made separately with respect to each separate award of Rights. 6. Nature of Rights The Rights shall be used solely as a device for the measurement and determination of the amount to be paid to Participants as provided in the Plan. The Rights shall not constitute or be treated as property or as a trust fund of any kind. All amounts at any time attributable to the Rights shall be and remain the sole property of the Company and all Participants' rights hereunder are limited to the rights to receive cash or shares of Company Common Stock as provided in this Plan. 7. Effective Date The Plan shall become effective upon approval of it by the affirmative vote of a majority of the Board of Directors of the Company and the Plan shall be deemed to be adopted on the date of that meeting. 2 5 8. Limits on Awards The maximum number of Rights that may be granted under the Plan is 1,000,000. 9. Dilution In the event of a stock split, stock dividend, reclassification, reorganization, or other capital adjustment of shares of Company Common Stock, the number of Rights of a Participant and the maximum number of Rights provided in paragraph 8 shall be adjusted in the same manner as shares of the Company Common Stock reflected by those Rights would be adjusted. 10. Award Agreements Each award of a Right under this Plan shall be evidenced by an Award Agreement in a form approved by the Committee setting forth the number of Rights, vesting schedule if any, the formula for determining the price of Company Common Stock upon which the Right is based, and the term. The Award Agreement shall also set forth (or incorporate by reference) other material terms and conditions applicable to the Award as determined by the Committee consistent with the limitations of this Plan. 11. Transferability Any rights arising under the Plan shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder). 12. Securities Act of 1933 Upon issuance of Company Common Stock to the Participant, or his heirs, the recipient of that Company Common Stock shall represent that the shares of Company Common Stock are taken for investment and not resale and make those other representations as may be necessary to qualify the issuance of the shares as exempt from the Securities Act of 1933 or to permit registration of the shares and shall represent that he or she shall not dispose of those shares in violation of the Securities Act of 1933, or any applicable state securities laws. The Company reserves the right to place a legend on any stock certificate issued under the Plan to assure compliance with this paragraph. No shares of Company Common Stock shall be required to be distributed until the Company or Participant shall have taken such action, if any, as is then required to comply with the provisions of the Securities Act of 1933 or any other then applicable federal or state securities law. 3 6 13. Withholding of Tax There shall be deducted from each distribution under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Company to that governmental authority for the account of the person entitled to the distribution. 14. Termination and Amendment of Plan The Board of Directors or the Committee may at any time amend, suspend or terminate the Plan, as it shall deem advisable; provided, however, that no such amendment or termination may, without the consent of the Participant to whom any Right shall have been previously awarded, adversely affect any of the Participant's rights with respect to that Right. 15. Rights of Employees and Directors (a) No Right to an Award. Status as an employee or director shall not be construed as a commitment that any one or more awards of Rights will be made under this Plan to an employee or director or to employees or directors generally. Status as a Participant shall not entitle the Participant to any additional awards of Rights. (b) No Assurance of Employment or Director Status. Nothing contained in this Plan (or in any other documents related to this Plan or to any Right awarded hereunder) shall confer upon any Participant any right to continue in the employ or other service of the Company or any subsidiary or constitute any contract of employment or change any employee's or Participant's compensation or other benefits or limit the right of the Company (or, if applicable, a subsidiary) to terminate the employment or other service of any Participant with or without cause. 16. Compliance with Laws This Plan, Award Agreements, and the grant, exercise, conversion, operation and vesting of Rights, and the issuance and delivery of shares of Company Common Stock and/or other securities or property or the payment of cash under this Plan or Award Agreements, are subject to compliance with all applicable federal and state laws, rules and regulations (including, but not limited to, state and federal insider trading, registration, reporting and other securities laws and federal margin requirements) and to such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions (and provide such evidence, assurance and representations to the Company as to compliance with any thereof) as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. 4 7 17. Nonexclusivity of Plan Nothing in this Plan shall limit or be deemed to limit the authority of the Company, the Board of Directors or the Committee to grant awards or authorize any other compensation, with or without reference to the Company Common Stock, under any other plan or authority. 18. Severability In case any provision in this Plan shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions, or of such provision in any other jurisdiction, shall not in any way be affected or impaired hereby. 19. Applicable Law This Plan, Award Agreements and any related documents and matters shall be governed in accordance with the laws of the State of New Hampshire, except as to matters of Federal law. 5 8 EKCO GROUP, INC. 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN FORM OF AWARD AGREEMENT FOR EMPLOYEES ------------------------------------- This 1996 Performance Unit Rights Award Plan Award Agreement (hereinafter "Award Agreement") is entered into as of [Date] ("Award Date") between Ekco Group, Inc., a Delaware corporation with a principal place of business in Nashua, New Hampshire (hereinafter the "Company") and [Name of Employee] (hereinafter "Executive"), an individual who resides at [Address]. The Company has adopted the 1996 Performance Unit Rights Award Plan (hereinafter "the Plan"). All capitalized terms used in this Award Agreement which are defined in the Plan shall have the meaning given in the Plan. Pursuant to Section 3 of the Plan, the Executive has been designated as a Participant in the Plan. Pursuant to Section 4 of the Plan, the Company has granted Performance Unit Rights (hereinafter "Rights") to the Executive upon the terms and conditions set forth herein, as required by the Plan. In consideration of the services rendered and to be rendered by the Executive, the Company and the Executive hereby agree to the terms and conditions set forth herein as required by the terms of the Plan: 1. NUMBER OF RIGHTS AWARDED. This Award Agreement evidences the award by the Company to Executive of [No. of Rights] (_______) Rights, effective as of the Award Date, and pursuant to Section 4 of the Plan. 2. DESIGNATED PERIOD. Pursuant to Section 4 of the Plan, the Executive may exercise the Rights awarded under this Award Agreement at any time or times during a period of time commencing on the Award Date and ending on [Ending Date] ("Designated Period"). Executive may exercise any or all of his Rights on any given day or days during the Designated Period and any such day or days shall be known as an Exercise Date. The amount of the award paid to Executive on such Exercise Date by the Company shall be calculated pursuant to Section 3 of this Award Agreement and pursuant to the other applicable terms and conditions of this Award Agreement and the Plan. 9 3. VALUE OF THE RIGHT. (a) Value. Upon exercise of any Right on an Exercise Date, Executive shall be entitled to payment of an amount equal to the appreciation in value of the Right awarded hereunder, as determined according to paragraph (b) below, multiplied by the number of Rights exercised on the Exercise Date. The Executive shall receive payment upon exercise of the Right in cash, unless the executive elects payment in shares of Company Common Stock, or a combination of cash and Company Common Stock, subject to the approval of the Committee. (b) Formula. The formula for determining the value of the Right shall be as follows: (i) the average value of Company Common Stock over the ten (10) business days preceding the Award Date is (ii) subtracted from the average value of Company Common Stock over the ten (10) business days preceding any Exercise Date. The closing price of Company Common Stock on the New York Stock Exchange for each of the ten (10) business days shall be the basis for determining the ten-day average discussed above. If Company Common Stock is not traded on the New York Stock Exchange, the closing price on the principal exchange on which the shares are traded shall be used, or, if no closing price is available, the basis for determining the value of the shares of Company Common Stock shall be determined by the Committee, in its sole discretion. 4. EFFECT OF CERTAIN EVENTS ON RIGHTS. (a) If Executive voluntarily terminates his employment, is terminated from employment by the Company (or any subsidiary) for any reason other than for Good Cause, as defined below, or terminates his employment with the Company because of death or disability, Executive shall have, or Executive's beneficiaries shall have, notwithstanding Section 2 above, three (3) months from such termination date to exercise any unexercised Rights hereunder, according to Section 3 and the other applicable terms of this Award Agreement and the Plan. Immediately after the expiration of such three-month period, all Rights hereunder which have not been exercised shall be forfeited, and the Executive (and his beneficiaries, if applicable) shall thereafter have no rights or entitlement with respect to such forfeited Rights. (b) If Executive is terminated from his employment by the Company (or any subsidiary) for Good Cause, any Right that has not been exercised shall be immediately forfeited, and the Executive shall thereafter have no rights or entitlement with respect to such forfeited Rights. For purposes of this Award Agreement, termination for Good Cause shall [have the same meaning as found in Section of the Employment Agreement by and between [Name of Company] and [Name of Employee], dated [Date of Employment Agreement], as amended or modified. 5. TAXES AND WITHHOLDING. The Executive agrees that to the extent applicable, Executive shall be responsible for any and all federal, state or local taxes which 2 10 may become due and owing in relation to the Rights awarded herein, and that the Company may withhold any federal, state or local taxes upon the exercise of the Rights, at such time and upon such terms and conditions as required by law. 6. NO ASSIGNABILITY. Any rights arising hereunder shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder). During the lifetime of the Executive the Rights may be exercised only by the Executive or by his guardian or legal representative. 7. GENERAL TERMS. The Rights and this Award Agreement are subject to, and the Company and the Executive agree to be bound by, all applicable provisions of the Plan. Such provisions are incorporated herein by this reference. Executive acknowledges receipt of a copy of the Plan. In the event of a conflict between the terms of this Award Agreement and the Plan, the Plan shall be the controlling document. 8. OTHER PROVISIONS. (a) Neither the Executive nor any person entitled to exercise the Rights shall have any rights as a stockholder with respect to any Rights. (b) The Executive acknowledges that the Company has the right to terminate, modify, or amend the Plan at any time, but that no such termination, modification or amendment may, without the Executive's consent, adversely affect the rights of the Executive hereunder. (c) In the event that any provision of the Award Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Award Agreement. (d) The rights and obligations under this Award Agreement shall inure to the benefit of, and shall be binding upon, the Company, the Executive and the Executive's representatives and beneficiaries. (e) Any notices or communications under this Award Agreement or the Plan shall be given by delivering the same in hand or by depositing such notice or communication in the mail, certified or registered mail, return receipt requested, postage prepaid, as follows: TO THE COMPANY: EKCO GROUP, INC. 98 Spit Brook Rd. Nashua, New Hampshire 03062 Attention: PRESIDENT 3 11 TO EXECUTIVE: or at such other address as either party may hereafter designate in writing to the other. (f) The interpretation, performance and enforcement of this Award Agreement shall be governed by the laws of the State of New Hampshire. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EKCO GROUP, INC. By: --------------------------- Attest: - -------------------------------- Secretary [NAME OF EMPLOYEE] ------------------------------ [Name and Address of Employee] 4 12 SCHEDULE TO FORM OF AWARD AGREEMENT FOR EMPLOYEES The following employees of the Company have Award Agreements with the Company pursuant to the Company's 1996 Performance Unit Rights Award Plan which are identical in form to the foregoing Form of Award Agreement except as to the number of Rights awarded, the designated period and the value thereof:
Employee Name Designated Average Pre-Award and Job Titles Date of Award No. of Rights Period Date Value - -------------- ------------- ------------- ---------- ----------------- Donato A. DeNovellis 09/25/96 100,000 09-25-96 to $4.8875 Executive Vice Presi- 12-31-01 dent, Finance & Ad- ministration, and Chief Financial Officer and Senior Vice President, Ekco Housewares, Inc. Robert Varakian 09/25/96 250,000 09-25-96 to $4.8875 Senior Vice President, 12-31-01 Marketing, Ekco House- wares, Inc. and President, B. VIA Inter- national Housewares, Inc. Jeffrey A. Weinstein 09/25/96 50,000 09-25-96 to $4.8875 Executive Vice President, 12-31-01 Secretary & General Counsel and President, Ekco Consumer Plastics, Inc.
5 13 EKCO GROUP, INC. 1996 PERFORMANCE UNIT RIGHTS AWARD PLAN FORM OF AWARD AGREEMENT FOR DIRECTORS This 1996 Performance Unit Rights Award Plan Award Agreement (hereinafter "Award Agreement") is entered into as of [Date] ("Award Date") between Ekco Group, Inc., a Delaware corporation with a principal place of business in Nashua, New Hampshire (hereinafter the "Company") and [Name of Director] (hereinafter "Director"), an individual who resides [Address]. The Company has adopted the 1996 Performance Unit Rights Award Plan (hereinafter "the Plan"). All capitalized terms used in this Award Agreement which are defined in the Plan shall have the meaning given in the Plan. Pursuant to Section 3 of the Plan, the Director has been designated as a Participant in the Plan. Pursuant to Section 4 of the Plan, the Company has granted Performance Unit Rights (hereinafter "Rights") to the Director upon the terms and conditions set forth herein, as required by the Plan. In consideration of the services rendered and to be rendered by the Director, the Company and the Director hereby agree to the terms and conditions set forth herein as required by the terms of the Plan: 1. NUMBER OF RIGHTS AWARDED. This Award Agreement evidences the award by the Company to Director of [No. of Rights] (_________) Rights, effective as of the Award Date, and pursuant to Section 4 of the Plan. 2. DESIGNATED PERIOD. Pursuant to Section 4 of the Plan, the Director may exercise the Rights awarded under this Award Agreement at any time or times during a period of time commencing on the Award Date and ending on [Ending Date] ("Designated Period"). Director may exercise any or all of his Rights on any given day or days during the Designated Period and any such day or days shall be known as an Exercise Date. The amount of the award paid to Director on such Exercise Date by the Company shall be calculated pursuant to Section 3 of this Award Agreement and pursuant to the other applicable terms and conditions of this Award Agreement and the Plan. 14 3. VALUE OF THE RIGHT. (a) Value. Upon exercise of any Right on an Exercise Date, Director shall be entitled to payment of an amount equal to the appreciation in value of the Right awarded hereunder, as determined according to paragraph (b) below, multiplied by the number of Rights exercised on the Exercise Date. The Director shall receive payment upon exercise of the Right in cash, unless the director elects payment in shares of Company Common Stock, or a combination of cash and Company Common Stock, subject to the approval of the Committee. (b) Formula. The formula for determining the value of the Right shall be as follows: (i) the average value of Company Common Stock over the ten (10) business days preceding the Award Date is (ii) subtracted from the average value of Company Common Stock over the ten (10) business days preceding any Exercise Date. The closing price of Company Common Stock on the New York Stock Exchange for each of the ten (10) business days shall be the basis for determining the ten-day average discussed above. If Company Common Stock is not traded on the New York Stock Exchange, the closing price on the principal exchange on which the shares are traded shall be used, or, if no closing price is available, the basis for determining the value of the shares of Company Common Stock shall be determined by the Committee, in its sole discretion. 4. EFFECT OF CERTAIN EVENTS ON RIGHTS. (a) If Director is no longer a member of the Board of Directors for any reason (including death or disability) other than removal from the Board of Directors for cause, Director shall have, or Director's beneficiaries shall have, notwithstanding Section 2 above, three (3) months from such termination date to exercise any unexercised Rights hereunder, according to Section 3 and the other applicable terms of this Award Agreement and the Plan. Immediately after the expiration of such three-month period, all Rights hereunder which have not been exercised shall be forfeited, and the Director (and his beneficiaries, if applicable) shall thereafter have no rights or entitlement with respect to such forfeited Rights. (b) If Director is removed from the Board of Directors for cause, any Right that has not been exercised shall be immediately forfeited, and the Director shall thereafter have no rights or entitlement with respect to such forfeited Rights. 5. TAXES AND WITHHOLDING. The Director agrees that to the extent applicable, Director shall be responsible for any and all federal, state or local taxes which may become due and owing in relation to the Rights awarded herein, and that the Company may withhold any federal, state or local taxes upon the exercise of the Rights, at such time and upon such terms and conditions as required by law. 2 15 6. NO ASSIGNABILITY. Any rights arising hereunder shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder). During the lifetime of the Director the Rights may be exercised only by the Director or by his guardian or legal representative. 7. GENERAL TERMS. The Rights and this Award Agreement are subject to, and the Company and the Director agree to be bound by, all applicable provisions of the Plan. Such provisions are incorporated herein by this reference. Director acknowledges receipt of a copy of the Plan. In the event of a conflict between the terms of this Award Agreement and the Plan, the Plan shall be the controlling document. 8. OTHER PROVISIONS. (a) Neither the Director nor any person entitled to exercise the Rights shall have any rights as a stockholder with respect to any Rights. (b) The Director acknowledges that the Company has the right to terminate, modify, or amend the Plan at any time, but that no such termination, modification or amendment may, without the Director's consent, adversely affect the rights of the Director hereunder. (c) In the event that any provision of the Award Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Award Agreement. (d) The rights and obligations under this Award Agreement shall inure to the benefit of, and shall be binding upon, the Company, the Director and the Director's representatives and beneficiaries. (e) Any notices or communications under this Award Agreement or the Plan shall be given by delivering the same in hand or by depositing such notice or communication in the mail, certified or registered mail, return receipt requested, postage prepaid, as follows: TO THE COMPANY: EKCO GROUP, INC. 98 Spit Brook Rd. Nashua, New Hampshire 03062 Attention: PRESIDENT TO DIRECTOR: 3 16 or at such other address as either party may hereafter designate in writing to the other. (f) The interpretation, performance and enforcement of this Award Agreement shall be governed by the laws of the State of New Hampshire. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EKCO GROUP, INC. By: ------------------------ Attest: - -------------------- Secretary [Name of Director] ---------------------- [Name and Address of Director] 4 17 SCHEDULE TO FORM OF AWARD AGREEMENT FOR DIRECTORS The following director of the Company has an Award Agreement with the Company pursuant to the Company's 1996 Performance Unit Rights Award Plan which is identical in form to the foregoing Form of Award Agreement except as to the number of Rights awarded, the designated period and the value thereof:
Director Name Designated Average Pre-Award and Title Date of Award No. of Rights Period Date Value - -------------- ------------- ------------- ---------- ----------------- Malcolm L. Sherman 09/25/96 100,000 09-25-96 to $4.8875 Chairman of the 12-31-01 Board of Directors
5 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-29-1996 JAN-01-1996 SEP-29-1996 1 290 0 56,966 1,492 60,136 126,725 101,029 46,122 300,604 47,859 128,975 186 3,919 0 110,509 300,604 196,301 196,301 136,336 180,664 28,055 614 9,422 (21,739) 504 (22,243) 0 (3,208) 0 (25,451) (1.38) (1.38)
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