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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-49735
PROSPECTUS
RBX CORPORATION
OFFER TO EXCHANGE ITS 12% SERIES B SENIOR SECURED NOTES DUE 2003 FOR
ANY AND ALL OF ITS OUTSTANDING 12% SERIES A SENIOR SECURED NOTES DUE 2003
LOGO
(R)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 10,
1998, UNLESS EXTENDED
RBX Corporation, a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 12% Series B Senior
Secured Notes due 2003 (the "New Notes"), registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement of
which this prospectus is a part, for each $1,000 principal amount of its
outstanding 12% Series A Senior Secured Notes due 2003 (the "Old Notes"), of
which $100,000,000 principal amount is outstanding on the date hereof. The form
and terms of the New Notes are the same as the form and term of the Old Notes
(which they replace) except that the New Notes will bear a Series B designation
and will have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms of
the Old Notes in certain circumstances relating to the timing of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture (the "Indenture") dated as of December 11, 1997 between the Company
and State Street Bank and Trust Company, as trustee, governing the Notes. See
"The Exchange Offer" and "Description of New Notes."
Interest on the New Notes will be payable semi-annually on January 15 and
July 15 of each year, commencing July 15, 1998. The New Notes will mature on
January 15, 2003. The Company will not be required to make any mandatory
redemption or sinking fund payment with respect to the New Notes prior to
maturity. The New Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after July 15, 1999, at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, to the date of redemption. In the event of a Change of
Control (as defined), holders of the New Notes will have the right to require
the Company to purchase their New Notes, in whole or in part, at a purchase
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase.
The New Notes will be senior secured obligations of the Company and will
rank senior in right of payment to all existing and future subordinated
Indebtedness (as defined) of the Company, including the 11 1/4% Senior
Subordinated Notes due 2005 (the "Senior Subordinated Notes") of the Company.
The New Notes will be fully and unconditionally guaranteed on a joint and
several basis (the "Subsidiary Guarantees") by all of the Company's wholly owned
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees will be
senior secured obligations of each of the Subsidiary Guarantors and will rank
senior in right of payment to all existing and future subordinated Indebtedness
of the Subsidiary Guarantors, including the guarantees of the Senior
Subordinated Notes. The New Notes and the Subsidiary Guarantees will rank pari
passu in right of payment with borrowings under the Company's $25.0 million
revolving credit agreement (the "New Credit Agreement"). The New Notes and the
Subsidiary Guarantees will be secured by (i) a first priority lien on a
substantial portion of the owned and leased manufacturing facilities and on
substantially all of the equipment and general intangibles, including trademarks
and patents, of the Company and the Subsidiary Guarantors (ii) a second priority
lien on inventory, receivables and general intangibles (to the extent related to
inventory and receivables) of the Company and its existing and future
subsidiaries and (iii) a first priority lien on all of the capital stock of the
Company's existing and future subsidiaries. As of December 31, 1997, the Company
and the Subsidiary Guarantors had approximately $206.0 million of Indebtedness,
of which $100.0 million would be subordinated to the New Notes and the
Subsidiary Guarantees.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on July 10, 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were issued on December 11, 1997 to the Initial Purchaser (as
defined) in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchaser subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act. Accordingly, the Old Notes may not be reoffered,
resold or otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The New Notes are being offered
hereunder in order to satisfy the obligations of the Company under the
Registration Rights Agreement (as defined) entered into by the Company in
connection with the original transfer of the Old Notes to the Initial Purchaser.
See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. See "The Exchange Offer -- Purpose and Effect of
the Exchange Offer" and "The Exchange Offer -- Resale of the New Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
SEE "RISK FACTORS," BEGINNING ON PAGE 15, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 5, 1998.
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There has not previously been any public market for the Old Notes or the
New Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. See "Risk Factors -- Lack of Established Public Trading Market; Absence
of Trading Market for Old Notes Not Validly Tendered." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
The New Notes will be available initially in book-entry form and the
Company expects that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of a Global Note (as defined), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depositary" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note will be shown on, and transfer thereof will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Note, New Notes in certificated form
will be issued in exchange for the Global Note only under the limited
circumstances set forth in the Indenture. See "Description of New
Notes -- Book-Entry, Delivery and Form."
AVAILABLE INFORMATION
The Company and each of the Subsidiary Guarantors have filed with the
Commission a Registration Statement on Form S-4 (the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement. For further information with respect the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of
the Commission at 75 Park Place, New York, New York 10007 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Additionally, the Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company and each of the Subsidiary Guarantors will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will be
required to file periodic reports and other information with the Commission. The
obligation of the Company and each of the Subsidiary Guarantors to file periodic
reports and other information with the Commission will be suspended if the New
Notes are held of record by fewer than 300 holders as of the beginning of any
fiscal year of the Company and each of the Subsidiary Guarantors other than the
fiscal year in which the Exchange Offer Registration Statement is declared
effective. The Company and each of the Subsidiary Guarantors will nevertheless
be required to continue to file reports with the Commission if the New Notes are
listed on a national securities exchange. In the event the Company ceases to be
subject to the informational requirements of the Exchange Act, the Company will
be required under the Indenture to continue to file with the Commission the
annual and quarterly reports, information, documents or other reports,
including, without limitation, reports on Forms 10-K, 10-Q and 8-K, which would
be required pursuant to the informational requirements of the Exchange Act.
Under the Indenture, the Company shall file with the Trustee annual, quarterly
and other reports within fifteen days after it files such reports with the
Commission. Further, to the extent that annual, quarterly or other financial
reports are furnished by the Company to stockholders generally it will mail such
reports to holders of New Notes. The Company will furnish annual and quarterly
financial reports to stockholders of the Company and will mail such reports to
holders of New Notes pursuant to the Indenture, thus holders of New Notes will
receive financial reports every quarter. Annual reports delivered to the Trustee
and the holders of New Notes will contain financial information that has been
examined and reported upon, with an opinion expressed by an independent public
or certified public accountant. The Company will also furnish such other reports
as may be required by law.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS OFFERING MEMORANDUM, INCLUDING THE "SUMMARY," "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" SECTIONS, CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "INTEND," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. IN
PARTICULAR, ANY STATEMENT, EXPRESS OR IMPLIED, CONCERNING FUTURE OPERATING
RESULTS OR THE ABILITY TO GENERATE REVENUES, INCOME OR CASH FLOW TO SERVICE THE
NOTES ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THERE
CAN BE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. ALL
FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED BY SUCH CAUTIONARY
STATEMENTS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements (as defined), included elsewhere in this Prospectus.
Market data used throughout this Prospectus were obtained from internal Company
surveys and consultants' reports. The consultants' reports generally indicate
that the information contained therein has been obtained from sources believed
to be reliable, but the accuracy and completeness of such information is not
guaranteed. The Company has not independently verified this market data.
Similarly, internal Company surveys, while believed by the Company to be
reliable, have not been verified by any independent sources. Unless otherwise
stated in this Prospectus or unless the context otherwise requires, references
to the "Company" include the Company and each of its subsidiaries (and their
respective predecessors, as the context may require).
THE COMPANY
The Company believes that it is the leading domestic manufacturer of closed
cell rubber foam products, the second largest domestic custom mixer of rubber
polymers and a major competitor in several niche markets, including cross-linked
polyethylene foam. The Company's products are used in a wide range of
applications, including athletic equipment, sports medicine wraps, neoprene
wetsuits, hardware center products (do-it-yourself insulation, tubing, gardening
and construction kneepads), other consumer products (computer mouse pads,
beverage can insulators), insulation for refrigeration and air conditioning
systems, automotive components and other industrial products. Management
estimates that the Foam Group (as defined) has approximately a 40% market share
in the domestic market for closed cell rubber foam and related products and
approximately a 24% market share in the domestic market for cross-linked
polyethylene foam. The Company's Mixing Group (as defined) mixes a variety of
rubber polymers to serve a wide range of end-use markets. The Company combines
purchases of raw materials for both the Foam Group and Mixing Group to obtain
volume discounts from its suppliers. All of the Company's products begin with
essentially the same manufacturing process: the blending of synthetic compounds
in a mixer. The Mixing Group sells these compounds in uncured sheet or strip
form to its customers. The Foam Group performs additional manufacturing steps,
including curing, extruding, molding, fabrication and lamination, before selling
its products to customers. See "Business -- General."
The Foam Group, which contributed approximately 74% of the Company's sales
for the year ended December 31, 1997, is the largest domestic manufacturer of
closed cell rubber foam. Closed cell rubber foam is produced by the expansion of
synthetic rubber polymers through the infusion of millions of gas-filled cells
which are permanently sealed in the material. The closed cell structure is
flexible, resilient and shuts out water, dust and air, which makes the material
ideal for insulating, sealing, shock absorption and a variety of other uses. The
Foam Group designs and manufactures customized foam products for more than 9,000
active customers. These products are sold in a variety of forms including
sheets, tubes, buns, rolls and extruded and fabricated shapes. The Company has
expertise in a number of different manufacturing processes and techniques, which
the Company believes enables it to manufacture a wider variety of products than
its competitors and to respond effectively to a broad range of customer
requirements.
The Mixing Group, which contributed approximately 26% of the Company's
sales for the year ended December 31, 1997, is the second largest competitor in
the fragmented, regional domestic custom rubber mixing industry. The Mixing
Group mixes natural and synthetic rubbers with various additives and fillers for
more than 250 active customers. The custom-mixed compounds are delivered to
customers in sheets or strips of uncured rubber which the customers then process
and fabricate into a variety of end-use products, including automobile tires and
parts, industrial belts and hoses, agricultural tools and equipment and roofing
materials. The Mixing Group's seven mixing lines enable it to custom mix many
different compounds concurrently and to respond quickly to customers' requests,
even for unusual formulations or small orders. These factors, combined with the
Mixing Group's ability to maintain what the Company believes to be a high level
of product quality, enable the Mixing Group to compete effectively on price,
quality and service.
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The Company's eight wholly owned subsidiaries are Groendyk Manufacturing
Company, Inc. ("Groendyk"), Hoover-Hanes Rubber Custom Mixing Corp.
("Hoover-Hanes"), Midwest Rubber Custom Mixing Corp. ("Midwest"), OleTex Inc.
("OleTex"), Rubatex Corporation ("Rubatex"), Universal Polymer & Rubber Inc.
("Universal Polymer"), Universal Rubber Company ("Universal Rubber") and Waltex
Corporation ("Waltex"). See "Business -- General."
The Company's address is 5221 Valley Park Drive, Roanoke, Virginia 24019,
and its phone number is (540) 561-6000.
RECENT HISTORY
The Company is a wholly owned subsidiary of RBX Group, Inc. ("RBX Group").
The Company and RBX Group were formed by American Industrial Partners (together
with its affiliates, "AIP") to purchase RBX Investors, Inc. (the "Predecessor")
and its subsidiaries in October 1995 (the "Acquisition"). AIP's operational plan
for the Company included a cost reduction program consisting of strategic
capital expenditures designed to increase operating efficiency and selected
manufacturing and human resource changes. AIP identified in the Company an
opportunity to streamline production and improve operating performance at
certain of the Company's plants. In addition, the Company identified a
significant opportunity to make strategic acquisitions, which would expand the
Company's market share and capitalize on the operating leverage inherent in its
fixed cost structure.
Bedford Facility
The Company's largest plant, in Bedford, Virginia, represented a primary
profit improvement opportunity. At the time of the Acquisition, the 70 year old
plant was in need of equipment upgrades and operating refinements which would
reduce crew sizes, eliminate excess material handling, enhance work flow, reduce
scrap rates and consolidate discreet operations into a smaller number of core
manufacturing cells. Improvements in operating efficiency, quality and customer
service were also necessary to reverse an erosion in Bedford's sales experienced
from 1994 to 1996. In early 1996, in conjunction with the plan to address
equipment and plant layout issues, management worked closely with the union
representing the Bedford hourly employees to renegotiate certain terms of the
existing labor contract regarding work rules in order to increase efficiency at
the plant. These negotiations were completed successfully and the labor contract
was extended to September 1999. As of December 31, 1997, the Company had
invested $6.6 million in the Bedford facility since the Acquisition and intends
to invest an additional $2.8 million to complete major capital projects which
are currently underway. The Company expects to realize the full benefits of
these improvements in 1998 and 1999. Since the Acquisition, the Bedford facility
has improved on-time shipping performance, improved material yields in the
production process and improved product quality significantly. In addition,
productivity per employee has increased as the production process has been
streamlined. As part of the Company's capital expenditure program, the Company
has completed a major information systems upgrade which allows it to track, on a
daily basis, vital cost, shipping and inventory data that was previously
unavailable. While these changes were underway, Bedford's financial performance
began and continues to improve. For the year ended December 31, 1997, gross
profit at the Bedford facility increased by $5.1 million over the year ended
December 31, 1996.
Ensolite Acquisition
In June 1996, the Company acquired certain assets and assumed certain
liabilities of the Ensolite division ("Ensolite") of Uniroyal Technology
Corporation ("Uniroyal") for an aggregate purchase price of $28.5 million
including direct expenses (the "Ensolite Acquisition"). Ensolite, formerly a
major competitor, manufactured certain types of closed cell rubber foam,
including sheet foam products used for automotive applications, pool floats,
wrestling mats and artificial turf underlay. The Company purchased certain
manufacturing equipment from Uniroyal with the objective of moving the equipment
to the Company's Conover, North Carolina plant, a modern but underutilized
facility, and consolidating the Ensolite manufacturing operations with Conover's
existing operations. Pursuant to a toll manufacturing agreement, Uniroyal
continued to
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manufacture the Company's Ensolite product at Uniroyal's Mishawaka, Indiana
plant from June 1996 until the end of 1996. In addition to the Ensolite purchase
price, the Company invested $9.0 million in building additions and equipment
upgrades at the Conover facility as part of the transfer of the Ensolite
equipment. Movement of the Ensolite equipment to the Conover facility was
completed in October 1997. The Conover plant experienced production difficulties
related to the start-up of the Ensolite manufacturing equipment, including
installing, upgrading and testing new production equipment, coordinating interim
mixing at and delivery from several other facilities, hiring and training a
substantial number of new employees, and mastering a number of new production
formulations, which adversely affected Conover's financial performance in 1997.
With the hiring of new employees and the installation of the equipment now
completed, operational performance at the Conover facility is expected to
improve. The Company believes that integration of the Ensolite operation will be
complete by the end of the first half of 1998, at which time the Conover plant
will be well-positioned to realize its full profit potential.
Management Additions
The Company has recently hired a significant number of new senior
executives and operating personnel. In October 1996, the Company installed Frank
Roland as President and CEO, and by September 1997, had added a new Chief
Financial Officer, Vice President of Sales and Marketing, Vice President of
Human Resources and Vice President of Information Systems. At the Conover
facility, the Company has recently hired a new general manager, who had
previously managed the Ensolite manufacturing facility for Uniroyal in
Mishawaka. The Company has also hired a number of skilled employees at the plant
level to upgrade its technical and manufacturing expertise and believes that
these changes, combined with the operational changes underway, will allow the
Company to achieve its profitability goals and growth plans.
BUSINESS STRATEGY
The Company's strategy is to strengthen its leading market position and
improve its financial performance by continuing to improve its overall operating
efficiency. The Company expects that it will continue to grow through new
product and application development resulting from the efforts of its direct
sales force and from its strong technical and manufacturing capabilities. The
Company will continue to focus on service to its customers, operating efficiency
improvements and targeted capital expenditure programs. Specifically, the
Company's strategy capitalizes upon the following:
Upgraded Manufacturing Facilities and Information Systems. Since the
Acquisition in October 1995, the Company has invested approximately $23.7
million in capital projects to modernize manufacturing methods and update
facilities. Of that amount, approximately $9.0 million was spent in connection
with the Ensolite Acquisition in building additions and equipment upgrades at
the Conover facility. At Bedford, approximately $6.6 million has been spent to
install new financial systems, bring mixing capabilities to state-of-the-art and
modernize extrusion ovens to improve quality and reduce scrap. The Company
believes that these capital investments will yield improved financial
performance in the future.
Focus on Operating Efficiency. The Company continues to concentrate on
reducing operating costs, improving product quality and increasing customer
satisfaction. The Company believes it can further improve operations and
increase profitability and cash flow by focusing on opportunities that exist
internally and through the continued integration of the Ensolite Acquisition.
The acquisition of Ensolite, formerly a major competitor, is expected to improve
the Company's margins by combining Ensolite's manufacturing and marketing
functions with those of the Company's other operations. In addition, certain
product line and administrative redundancies have been eliminated. The new
management team continues to emphasize cost reduction programs which focus on
improving production yields, increasing process automation, decreasing overtime
and improving productivity per employee.
Leading Market Position with a Diversified Product and Customer Base. Due
to the Company's product design and manufacturing capabilities and its renewed
focus on quality and service, the Company is a leading supplier in virtually
every product category in which it competes. No competitor in the rubber foam
market offers a product line as broad as that offered by the Company. Rubatex(R)
is a well-recognized and respected
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brand name among builders and manufacturers nationwide. Additionally, the
Company intends to capitalize on the strength of the recently-acquired
ENSOLITE(R) brand name, which enjoys high customer recognition as a premium
closed cell rubber foam product. The Company has more than 9,000 active
customers serving a variety of markets, including construction, transportation,
consumer and leisure (such as sporting goods, footwear, sports medicine and
beverage can insulators). In 1997, no single customer accounted for more than 3%
of the Company's total revenues, and the Company's top 50 customers comprised
only 34% of its total revenues.
Direct Sales Force. The Company's sales force serves as the primary
contact with the vast majority of the Company's customers, in contrast to many
of the Company's competitors who rely largely on independent sales agencies.
Because of its close working relationship with customers, the Company can
quickly customize product properties such as shock absorption, thermal and sound
insulation, flexibility, tensile strength, color and texture to meet specific
customer requests. Furthermore, the Company believes that its direct sales
approach enables the Company to rapidly identify market trends in demand for its
products, new applications for existing products and new markets and product
opportunities. The cooperative efforts of the Company's sales, marketing and
technical personnel enable the Company to develop rapidly new products in
response to those market demands. For example, the Company has co-developed and
produced new sports medicine applications with major sporting goods
manufacturers, and the Company is presently working with a consortium of
American wine producers to develop a new closure seal product for the wine
industry.
Strong Design and Manufacturing Capabilities. Because of the breadth of
the Company's product lines and the variety of its end-use applications, the
Company has an extensive knowledge base which it is able to apply to the
development of new products in cooperation with its customers. The Company's
expertise in material formulation, product design, die fabrication and diverse
proprietary manufacturing techniques and processes enables it to manufacture a
wider variety of products than any of its competitors and to respond effectively
to a broader range of customer requirements. The Company extrudes sheets, rolls
and tubes for end uses such as insulation, artificial turf underlay and numerous
shapes for a variety of commercial and industrial applications and uses a
proprietary multi-die extrusion process which reduces production time and
increases efficiency. The Company also has various batch processes (some of
which use mold and press technology) which are highly flexible and permit
production of limited volumes of specialty products. The Company provides
fabrication and lamination services for its customers, including high precision
water jet cutting for intricate parts applications and fabric adhesion for
specific lamination applications.
THE REFINANCING TRANSACTIONS
The "Refinancing Transactions" refer collectively to issuance of the Old
Notes and the use of the proceeds therefrom to (i) repay in full the Company's
obligations under the old Credit Agreement (the "Old Credit Agreement") which
provided for an aggregate principal amount of loans of up to $106.0 million, and
(ii) pay all fees and expenses (including underwriting discounts) incurred in
connection therewith. The Refinancing Transactions increased the Company's
operating and financial flexibility, extended its debt maturities and provided
the Company with improved liquidity to meet its ongoing capital requirements,
which consist primarily of amounts required for working capital and capital
expenditures. See "Use of Proceeds."
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THE INITIAL OFFERING
OLD NOTES.................. The Old Notes were sold by the Company on December
11, 1997 (the "Issue Date") to Donaldson, Lufkin &
Jenrette Securities Corporation and Chase
Securities Inc. (the "Initial Purchasers") pursuant
to a Purchase Agreement dated as of December 5,
1997. The Initial Purchasers subsequently resold
the Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into a Registration
Rights Agreement dated December 11, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange and registration rights
which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of 12%
Series B Senior Secured Notes due 2003 (the "New
Notes").
THE EXCHANGE OFFER......... $1,000 principal amount of the New Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the New Notes
to holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such New Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives New Notes
for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer
in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading
activities.
8
<PAGE> 9
The Company has agreed that for a period of 180
days after the Expiration Date, it will make this
Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE............ 5:00 p.m., New York City time, on July 10, 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD
NOTES.................... Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the New Notes. Such interest will be paid with the
first interest payment on the New Notes. Interest
on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
OLD NOTES................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof or transmit an Agent's Message (as defined)
in connection with a book-entry transfer, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile or such
Agent's Message, together with the Old Notes and
any other required documentation to the Exchange
Agent (as defined) at the address set forth herein.
By executing the Letter of Transmittal or Agent's
Message, each holder will represent to the Company
that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, whether or not such
person is the holder, that neither the holder nor
any such other person (i) has any arrangement or
understanding with any person to participate in the
distribution of such New Notes, (ii) is engaging or
intends to engage in the distribution of such New
Notes or (iii) is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "-- Procedures for Tendering."
UNTENDERED NOTES........... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to
9
<PAGE> 10
be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Old Notes could be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Notes may be resold
only (i) to the Company, (ii) pursuant to Rule 144A
or Rule 144 under the Securities Act or pursuant to
some other exemption under the Securities Act,
(iii) outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act.
See "The Exchange Offer -- Consequences of Failure
to Exchange."
SHELF REGISTRATION
STATEMENT................ If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Old
Notes to the Company for use therein, the Company
has agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause it to
be declared effective by the Commission as promptly
as practical on or after the consummation of the
Exchange Offer. The Company has agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of three years, to cover resales of the Old
Notes held by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
The Company will keep the Exchange Offer open for
not less than twenty business days in order to
provide for the transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
bookentry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
10
<PAGE> 11
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange."
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange pursuant to the Exchange Offer should
not be a taxable event for Federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
USE OF PROCEEDS............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT............. State Street Bank and Trust Company.
THE NEW NOTES
GENERAL.................... The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will
not be entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer." The New Notes will evidence the
same debt as the Old Notes and will be entitled to
the benefits of the Indenture. See "Description of
New Notes." The Old Notes and the New Notes are
referred to herein collectively as the "Notes."
SECURITIES OFFERED......... $100 million aggregate principal amount of 12%
Series B Senior Secured Notes due 2003.
MATURITY DATE.............. January 15, 2003.
INTEREST PAYMENT........... January 15 and July 15, commencing July 15, 1998.
OPTIONAL REDEMPTION........ The Company may redeem the New Notes, in whole or
in part, at any time on or after July 15, 1999, at
the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption.
MANDATORY REDEMPTION....... None.
GUARANTEES................. The New Notes will be fully and unconditionally
guaranteed on a joint and several basis by each of
the Subsidiary Guarantors.
RANKING AND SECURITY....... The New Notes will be senior secured obligations of
the Company and will rank senior in right of
payment to all existing and future subordinated
Indebtedness of the Company, including the Senior
Subordinated Notes. The Subsidiary Guarantees will
be senior secured obligations of each of the
Subsidiary Guarantors and will rank senior in right
of payment to all existing and future subordinated
Indebtedness of the Subsidiary Guarantors,
including the guarantees of the Senior Subordi-
11
<PAGE> 12
nated Notes. The New Notes and the Subsidiary
Guarantees will rank pari passu in right of payment
with borrowings under the New Credit Agreement. The
New Notes and the Subsidiary Guarantees will be
secured by (i) a first priority lien on a
substantial portion of the owned and leased
manufacturing facilities and substantially all of
the equipment and general intangibles, including
trademarks and patents, of the Company and the
Subsidiary Guarantors, (ii) a second priority lien
on inventory, receivables and general intangibles
(to the extent related to inventory and
receivables) of the Company and its existing and
future subsidiaries and (iii) a first priority lien
on all of the capital stock of the Company's
existing and future subsidiaries (the
"Collateral"). As of March 31, 1998 and December
31, 1997, respectively, the Company and the
Subsidiary Guarantors had approximately $207.0
million and $206.0 million of Indebtedness,
respectively, of which $100.0 million was
subordinated to the Notes and the Subsidiary
Guarantees.
CHANGE OF CONTROL.......... Upon a Change of Control, the Company will be
required to make an offer to purchase all of the
New Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase.
COVENANTS.................. The Indenture contains certain covenants which,
among other things, limit the ability of the
Company and its subsidiaries to incur additional
indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase
equity interests or subordinated indebtedness,
create certain liens, enter into transactions with
affiliates or enter into certain mergers and
consolidations. In addition, under certain
circumstances, the Company is required to offer to
purchase New Notes at a price equal to the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of purchase, with the proceeds of certain
Asset Sales (as defined). See "Description of New
Notes -- Certain Covenants."
For a discussion of the Notes, see "Description of New Notes," and for a
discussion of certain factors that should be considered in connection with an
investment in the Notes, see "Risk Factors."
12
<PAGE> 13
SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical financial data were derived from the
audited historical consolidated financial statements of the Company and the
Predecessor. The historical consolidated financial data of the Predecessor as of
and for each of the years ended December 31, 1993, and 1994, and for the nine
and one-half month period ended October 16, 1995, were derived from the
consolidated financial statements of the Predecessor and represent the results
of operations of the Predecessor through the date of the Acquisition. The
historical consolidated financial data of the Company as of and for the two and
one-half month period ended December 31, 1995, and for the years ended December
31, 1996 and 1997, were derived from the consolidated financial statements of
the Company and represent the results of operations of the Company subsequent to
the Acquisition. The financial data for the three month periods ended March 31,
1998 and 1997 are derived from the Company's unaudited condensed consolidated
financial statements. In management's opinion, all adjustments (consisting of
adjustments of a normal recurring nature) necessary for a fair presentation have
been included in such unaudited condensed consolidated financial statements. The
results for the interim periods are not necessarily indicative of the results
for the full year. The information contained in this table should be read in
conjunction with the "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and accompanying notes thereto (the
"Financial Statements") included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- --------------------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS
YEARS ENDED ENDED ENDED YEARS ENDED 3 MONTHS ENDED
DECEMBER 31, OCTOBER 16, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ------------ ------------ ------------------- -------------------
1993 1994 1995 1995 1996 1997 1997 1998
-------- -------- ------------ ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $175,777 $197,913 $220,321 $ 51,646 $275,715 $281,662 $ 71,822 $ 72,441
Gross profit (1)........ 27,337 32,171 39,644 4,735 37,350 38,279 11,985 8,189
Selling, general and
administrative
costs(1).............. 17,313 18,478 21,112 5,193 30,474 28,265 7,213 7,563
Operating income
(loss)................ 8,486 13,317 16,878 (1,303) (24,626) 5,503 3,691 (484)
Interest Expense........ 3,381 3,334 6,878 3,867 18,685 20,285 4,834 6,319
Net income (loss)(2).... (22,905) 5,652 6,021 (3,321) (35,056) (28,990) (942) (6,803)
BALANCE SHEET DATA:
Net working capital..... 35,062 45,817 -- 61,055 44,671 43,722 40,743 40,016
Fixed assets, net....... 61,685 93,420 -- 81,277 91,068 97,374 93,733 96,641
Total assets............ 143,946 206,268 -- 285,736 280,700 275,921 287,805 279,737
Total debt.............. 50,204 95,795 -- 171,745 184,892 206,037 186,304 206,956
Stockholder's equity.... 26,827 33,383 -- 40,574 20,313 (9,264) 19,371 (16,067)
OTHER DATA:
Capital expenditures.... 3,390 5,817 6,323 823 11,818 15,582 5,144 1,757
Depreciation............ 4,608 5,121 5,820 1,310 7,124 8,370 2,073 2,459
Amortization of goodwill
and other
intangibles........... 276 319 565 733 3,943 3,332 830 833
Amortization of deferred
financing fees........ 239 140 289 190 882 946 227 319
Cash flows from (used
in):
Operating
activities.......... 12,441 9,291 8,440 1,785 9,137 (2,398) 1,260 914
Investing
activities.......... (3,305) (54,660) (7,291) (199,838) (33,829) (16,698) (5,965) (1,752)
Financing
activities.......... (9,849) 43,547 (1,916) 203,876 22,162 15,969 1,412 919
Ratio of earnings to
fixed charges(3)...... 2.4x 3.6x 2.3x -- -- -- -- --
Adjusted EBITDA(4)...... 17,863 20,106 25,607 3,826 22,879 22,370 7,027 3,344
AS ADJUSTED DATA:
Interest expense(5)..... 25,281
Ratio of Adjusted EBITDA
to interest expense... 0.88
Ratio of senior debt to
Adjusted EBITDA(6).... 4.74
Ratio of debt to
Adjusted EBITDA....... 9.21
</TABLE>
- ---------------
(1) Certain amounts from 1993 through 1995 have been reclassified to conform to
the 1996 and 1997 presentation.
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<PAGE> 14
(2) Net income (loss) for 1993, 1994, and 1997 includes extraordinary losses of
$1.2 million, $0.4 million, and $1.8 million, respectively, for the early
extinguishment of debt. Net loss in 1993 includes a $24.9 million loss from
the cumulative effect of a change in accounting principle for the adoption
of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions." Net loss for 1996 includes a loss on impairment of
long-lived assets of $26.5 million and additional charges of $8.7 million in
the aggregate, primarily relating to a reassessment of inventory carrying
values and liabilities incurred in connection with severance and certain
other personnel related costs.
(3) In computing the ratio of earnings to fixed charges, "earnings" represent
income (loss) before income taxes, extraordinary items and changes in
accounting principles plus "fixed charges." "Fixed charges" consist of
interest expense, amortization of deferred financing fees and the portion of
rental expenses representative of interest. For the two and one-half month
period ended December 31, 1995, earnings were insufficient to cover fixed
charges by $5.2 million. For the years ended December 31, 1996 and 1997,
earnings were insufficient to cover fixed charges by $43.3 million and $14.8
million, respectively. On a pro forma basis reflecting the Refinancing
Transactions, earnings were insufficient to cover fixed charges by $19.8
million for the year ended December 31, 1997. For the three month periods
ended March 31, 1997 and 1998, earnings were insufficient to cover fixed
charges by $1.1 million and $6.8 million, respectively.
(4) Adjusted EBITDA as used herein represents the sum of income before income
taxes, extraordinary items and changes in accounting principles, interest
expense, depreciation and amortization, adjusted to add back the
amortization of purchase accounting write-ups of inventories and other
non-cash items (all as defined in the New Credit Agreement) plus
subordinated management fees. Pursuant to the terms of the New Credit
Agreement, the Indenture and the Senior Subordinated Indenture (as defined),
management fees are subordinated to payments owed under the New Credit
Agreement, the Notes and Senior Subordinated Notes. Adjusted EBITDA, as
presented above, may not be comparable to similarly titled measures of other
companies unless such measures are calculated in substantially the same
fashion. The Company believes that EBITDA, as one indicator of a company's
liquidity, provides useful information, but does not represent cash
available to service debt. EBITDA should not be considered in isolation or
as a substitute for information presented by the Company's consolidated
statement of operations prepared in accordance with generally accepted
accounting principles. For example, EBITDA should not be considered an
alternative to net income as an indicator of operating performance or an
alternative to the use of cash flows as a measure of liquidity. Moreover,
EBITDA does not reflect, as does cash flow from operations, the cash needed
to support changes in working capital. See "Selected Historical Financial
Data."
(5) Interest expense as adjusted to give effect to the Refinancing Transactions
is set forth below.
<TABLE>
<S> <C>
Interest expense on the Existing Credit Agreement........... $(7,397)
Interest expense on the Notes at 12%........................ 12,000
Amortization on existing deferred debt issue costs.......... (514)
Amortization on new deferred debt issue costs............... 907
-------
Net adjustments to interest expense......................... 4,996
Historical interest expense................................. 20,285
-------
Interest expense as adjusted................................ $25,281
=======
</TABLE>
(6) "Senior debt" represents total long-term indebtedness other than
indebtedness under the Senior Subordinated Notes. See "Capitalization."
14
<PAGE> 15
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making an
investment in the Notes offered hereby. The risk factors set forth below and
elsewhere in this Prospectus should be read as accompanying "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "plans," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The Company's actual results could differ materially from those
anticipated in such forward looking statements.
LEVERAGE
The Company is highly leveraged. At December 31, 1997, the Company's
indebtedness was $206.0 million and its stockholder's equity was a deficit of
$9.3 million. For the two and one-half month period ended December 31, 1995 and
the years ended December 31, 1996 and 1997, the Company's earnings were
insufficient to cover fixed charges by $5.2 million, $43.3 million and $14.8
million, respectively. On a pro forma basis reflecting the Refinancing
Transactions, earnings were insufficient to cover fixed charges by $19.8 million
for the year ended December 31, 1997. For the three month periods ended March
31, 1997 and 1998, earnings were insufficient to cover fixed charges by $1.1
million and $6.8 million, respectively.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to annual debt service of
approximately $25.4 million and will not be available for other purposes; (ii)
the Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures, research and development or acquisitions
may be limited; and (iii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in its markets and in economic conditions
generally.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control, as well as the availability of revolving credit borrowings under the
New Credit Agreement or a successor facility. The Company anticipates that its
operating cash flow, together with borrowings under the New Credit Agreement,
will be sufficient to meet its operating expenses and to service its debt
requirements as they become due. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness (which could include the Notes), or seeking additional equity
capital. There is no assurance that any of these remedies can be effected on
satisfactory terms, if at all.
HOLDING COMPANY STRUCTURE
The Company is a holding company, and its ability to pay interest on the
Notes is dependent upon the receipt of dividends from its subsidiaries. The
Company does not have and may not in the future have, any assets other than its
investment in its subsidiaries. As of the date hereof, there are no restrictions
on the ability of the subsidiaries of the Company to pay dividends to the
Company. Future borrowings by the subsidiaries of the Company can be expected to
contain restrictions or prohibitions on the payment of dividends by the
subsidiaries to the Company. In addition, under Delaware law, a company is
permitted to pay dividends on its capital stock, only out of its surplus or, in
the event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, the subsidiaries of the Company must have surplus or net
profits equal to the full amount of the cash dividend at the time such dividend
is declared. In determining a company's ability to pay dividends, Delaware law
permits the board of directors of a company to revalue its assets and
liabilities from time to time to their fair market values in order to create
surplus. The Company cannot predict what the value of its subsidiaries' assets
or the amounts of their liabilities will be in the future and, accordingly,
there can be no assurance that the Company will be able to pay its debt service
obligations on the Notes.
As a result of the holding company structure of the Company, the holders of
the Notes will be structurally junior to all creditors of the subsidiaries of
the Company, except to the extent that of the
15
<PAGE> 16
Subsidiary Guarantees. In the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of the subsidiaries of the Company, the Company
will not receive any funds available to pay to creditors of the subsidiaries.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the ability of the Company
and its subsidiaries to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the Company. As of March 31, 1998,
the Company and its subsidiaries had the ability to incur $21.8 million of
additional indebtedness (of which $16.8 million represents availability under
the New Credit Agreement) under the terms of the Indenture. In addition, the New
Credit Agreement will contain other and more restrictive covenants and will
prohibit the Company and its subsidiaries from prepaying other indebtedness. The
New Credit Agreement also will require the Company to maintain specified
financial ratios and satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those tests. A breach of any of these covenants could result in a default under
the New Credit Agreement or the Indenture. Upon the occurrence of an event of
default under the New Credit Agreement, the lenders could elect to declare all
amounts outstanding under the New Credit Agreement, together with accrued
interest, to be immediately due and payable. If the Company were unable to repay
those amounts, the lenders could proceed against the collateral granted to them
to secure that indebtedness. All the inventory, accounts receivable and general
intangibles (to the extent related to inventory and accounts receivables) and
proceeds of the foregoing (including cash, which will be required to be
maintained in a lockbox account over which the lenders under the New Credit
Agreement have a first priority security interest) of the Company and its
existing and future subsidiaries has been pledged as security under the New
Credit Agreement. The Company was in compliance with all terms of its
indebtedness at March 31, 1998. However, due to more restrictive covenant
requirements in future quarters and based on the levels of Adjusted EBITDA
generated from current operations, it is probable that the Company will not
satisfy its covenant requirements at June 30, 1998. The Company is negotiating
with its present lenders to obtain relief from future covenant restrictions.
There can be no assurance that any such amendment will be successful or, if
entered into, what the related terms and conditions would be. See "Description
of New Credit Agreement" and "Description of New Notes -- Certain Covenants."
CERTAIN LIMITATIONS ON THE COLLATERAL AND THE SUBSIDIARY GUARANTEES
The Notes will be obligations of the Company and will be fully and
unconditionally guaranteed on a joint and several basis by each of the
Subsidiary Guarantors. The Company will secure its obligations under the Notes
by the pledge of certain of its assets, including the capital stock of each
Subsidiary Guarantor, and each Subsidiary Guarantor will secure its obligation
under the Subsidiary Guarantee by the pledge of certain of its assets. However,
such Collateral will not include all of the assets of such entities and the
Notes and the Subsidiary Guarantees will be secured only by a second lien on the
accounts receivable and inventory of the Company and the Subsidiary Guarantors.
The fact that the lenders under the New Credit Agreement have a first priority
lien on the inventory, accounts receivable and general intangibles (to the
extent related to inventory and accounts receivable) of the Company and the
Subsidiary Guarantors could have a material adverse effect on the value of the
Collateral. See "Description of New Notes -- Certain Definitions" and
"Description of New Notes -- Ranking and Security."
The value of the Collateral in the event of a liquidation will depend upon
market and economic conditions, including the availability of buyers, and
similar factors. Additionally, because the Collateral does not include all of
the assets of the Company and the Subsidiary Guarantors, it may not be valued on
a "going concern" basis. Accordingly, there can be no assurance that the
proceeds of any sale of Collateral following an Event of Default (as defined)
would be sufficient to satisfy amounts due on the Notes. If the proceeds of any
sale of Collateral were not sufficient to repay amounts due on the Notes, the
holders of the Notes (to the extent not repaid from the proceeds of the sale of
Collateral) would have only an unsecured claim against the remaining assets of
the Company and the Subsidiary Guarantors. By its nature, some or all of the
Collateral
16
<PAGE> 17
will be illiquid and may have no readily ascertainable market value. Likewise,
there is no assurance that the Collateral will be saleable or, if saleable, that
there will not be substantial delays in its liquidation. To the extent that
liens, rights and easements granted to third parties encumber assets of the
Company and the Subsidiary Guarantors, such parties may have or exercise rights
or remedies with respect to the property subject to such liens that could
adversely affect the value of the Collateral and the ability of the Trustee or
the holders of the Notes to realize or foreclose upon such Collateral. The
granting and perfecting of liens in certain leasehold interests and intangible
rights (including intellectual property) may under certain laws require consents
of third parties which cannot be obtained. The Company believes, however, that
the failure to obtain such consents will not have a material adverse effect on
the value of the Collateral in the aggregate.
The collateral release provisions of the Indenture permit the release of
Collateral without the substitution of additional collateral under certain
circumstances. See "Description of New Notes -- Possession, Use and Release of
Collateral."
The Collateral includes certain leased real properties. The Liens upon such
leased real property Collateral are subject to the terms of the applicable
leases and the rights of landlords thereunder, including the right to terminate
the leases in the event of a breach. If any such lease were terminated, the
Company could lose possession of the leased properties, and the Liens in favor
of the Trustee would be extinguished. In the event the Trustee receives notice
of a default under any of the leases and has the right and opportunity to cure,
the Trustee has no obligation under the Indenture to cure any such defaults,
unless so instructed by holders of the outstanding Notes pursuant to the
Indenture. Further, the leases contain restrictions on assignment which may
affect the ability of the Trustee to sell or transfer the leasehold interests
following a foreclosure.
Because they will be secured in part by liens on real property located in
California, the Notes and the applicable Subsidiary Guarantees may be subject to
California's "one form of action rule" and "antideficiency laws," among other
laws applicable to real property collateral. Section 726 of the California Code
of Civil Procedure provides that "[t]here can be but one form of action for the
recovery of any debt or the enforcement of any right secured by mortgage upon
real property." Under judicial decisions applying such statute, a creditor
secured by a mortgage or deed of trust (i) must first exhaust all of its real
property collateral in California by judicial foreclosure if it wishes to
preserve a claim against the debtor for a deficiency and (ii) may be required to
realize upon its real property collateral before it may exercise other remedies.
If the secured creditor obtains a personal judgment on the debt before
exhausting its real property collateral in California, the secured creditor may
lose its lien on the real property located in California.
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by bankruptcy law if a bankruptcy case were to be
commenced by or against the Company or any of the Subsidiary Guarantors before
the Trustee is able to repossess and dispose of the Collateral and, in the case
of Collateral that is real property, could be impaired by restrictions under
state law. See "-- Certain Bankruptcy Considerations."
CERTAIN BANKRUPTCY CONSIDERATIONS
The ability of holders of the Notes to realize upon the Collateral will be
subject to certain bankruptcy law limitations in the event of a bankruptcy of
the Company or any of the Subsidiary Guarantors. Under applicable federal
bankruptcy laws, secured creditors are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such a debtor, without bankruptcy court approval. Moreover,
applicable federal bankruptcy laws generally permit the debtor to continue to
retain collateral even though the debtor is in default under the applicable debt
instruments, provided generally that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
the circumstances, but is intended in general to protect the value of the
secured creditor's interest in the collateral at the commencement of the
bankruptcy case and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition of the collateral by the debtor during the pendency
of the bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
the Company cannot predict whether payments under the Notes would be made
following commencement of and during a bankruptcy case, whether
17
<PAGE> 18
or when the Trustee could foreclose upon or sell the Collateral or whether or to
what extent holders of Notes would be compensated for any delay in payment or
loss of value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event the bankruptcy court determines that the
value of the Collateral is not sufficient to repay all amounts due on the Notes,
holders of Notes would hold "undersecured claims." Applicable federal bankruptcy
laws do not permit the payment or accrual of interest, costs and attorney's fees
for "undersecured claims" during a debtor's bankruptcy case.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the issuance of the Subsidiary Guarantees. To the extent that a
court were to find that (x) a Subsidiary Guarantee was incurred by a Subsidiary
Guarantor with intent to hinder, delay or defraud any present or future creditor
or such Subsidiary Guarantor contemplated insolvency with a design to prefer one
or more creditors to the exclusion in whole or in part of others, or (y) a
Subsidiary Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Subsidiary Guarantee and such Subsidiary Guarantor (i) was
insolvent, (ii) was rendered insolvent by reason of the issuance of its
Subsidiary Guarantee, (iii) was engaged or about to engage in a business or
transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, the court could avoid or subordinate such Subsidiary
Guarantee in favor of other creditors of such Subsidiary Guarantor. Among other
things, a legal challenge of any Subsidiary Guarantee may focus on the benefits,
if any, realized by such Subsidiary Guarantor as a result of the Company's
issuance of the Notes. The Subsidiary Guarantees will contain a savings clause,
which generally will limit the obligation of any Subsidiary Guarantor under its
Subsidiary Guarantee to the maximum amount as will, after giving effect to all
of the liabilities of such Subsidiary Guarantor, result in such obligation not
constituting a fraudulent conveyance. To the extent a Subsidiary Guarantee was
avoided or limited as a fraudulent conveyance or held unenforceable for any
other reason, holders of the Notes would cease to have any claim against such
Subsidiary Guarantor and would be creditors solely of the Company. In that
event, the claims of holders of the Notes against such Subsidiary Guarantor
would be subject to the prior payment of all liabilities (including trade
payables) of such Subsidiary Guarantor. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy the
claims of the holders of the Notes relating to any avoided portion of any
Subsidiary Guarantee.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a guarantor may be considered insolvent if the sum of its debts, including
contingent liabilities, is greater than the fair marketable value of all of its
assets at a fair valuation or if the present fair marketable value of its assets
is less than the amount that would be absolute and mature. Based upon financial
and other information, the Company believes that the Subsidiary Guarantors are
solvent and will continue to be solvent after issuing the Subsidiary Guarantees,
will have sufficient capital for carrying on their business after such issuance
and will be able to pay their debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with such beliefs.
See "Description of New Notes -- Subsidiary Guarantees."
COMPETITION
The Company faces competition across all of its product lines. Some of the
Company's competitors may have greater financial and other resources than the
Company and may consequently have more operating flexibility and a greater
ability to expand production capacity and increase research and development
expenditures. See "Business -- Competition."
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations. As a result, the Company is involved from
time to time in administrative and judicial proceedings and inquiries relating
to environmental matters. These include currently pending investigations at
certain of the Company's plants and at sites at which the Company may have
disposed of hazardous substances. Although management believes that the Company
is not likely to incur material environmental costs and liabilities, there can
be no
18
<PAGE> 19
assurance that the aggregate amount of future clean up costs and other
environmental liabilities will not be material. See "Business -- Environmental
Matters."
The Notes and the Subsidiary Guarantees will be secured by liens on real
property. Real property pledged as security to a lender may be subject to known
and unknown environmental risks, and these risks may reduce or eliminate the
value of such real property as Collateral. Under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), in certain circumstances a secured lender may be held liable for the
cost of remediating releases or threatened releases at the mortgaged property.
There may be similar risks under various state laws and common law theories. The
costs of environmental remediation are often substantial. In addition, a secured
lender may be liable for other damages allegedly caused by the contamination
under various federal and state laws, such as natural resource damage under
CERCLA.
The state of the law as to whether and under what circumstances the
obligation to remediate or the liability to pay remediation costs or other
damages could be imposed on a secured lender is currently unclear. Under CERCLA,
for example, a lender may be liable as an "owner or operator" of a mortgaged
property for remediation costs if such lender or its agents or employees have
participated in the management of the operations of the mortgagor, even if the
environmental damage was caused by a prior owner, current owner or operator
other than the lender. However, CERCLA's definition of "owner or operator"
excludes a person "who without participating in the management of the facility,
holds indicia of ownership primarily to protect his security interest (the
"secured creditor exemption"). Generally, the secured creditor exemption
protects a holder of a security interest to the extent that such holder is
acting to protect its security interest in the facility or property. If a
lender's activities begin to encroach upon actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
property, the lender may incur potential CERCLA liability in certain
circumstances, including when it holds the property as an investment (including
leasing the property to a third party), failing to market the property in a
timely fashion or failing to properly address environmental conditions at the
property.
CYCLICAL INDUSTRY CUSTOMER BASE
Many of the end users of the Company's products typically experience
cyclical fluctuations in revenues and earnings. Such downturns will from time to
time adversely affect the demand for certain of the Company's products, and
general recessionary or slow growth economic conditions would likely have an
adverse effect on the Company's sales. Although the Company's management
believes that the breadth of the Company's products and the diversity of its
customer base should provide some protection against cyclical downturns in the
business of certain of the Company's customers, no assurance can be given that
the Company will not experience declining revenues in the future.
POTENTIAL INABILITY TO PURCHASE THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control as defined in the Indenture (such as, for example,
the acquisition of a majority of the outstanding voting stock of the Company by
a third party), the Company is required to offer to purchase all outstanding
Notes at 101% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase. The source of funds for
any such purchase will be the Company's available cash or cash generated from
operating or other sources, including borrowing, sales of assets, sales of
equity or funds provided by a new controlling person. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered. In addition, the
occurrence of a Change of Control would constitute an event of default under the
New Credit Agreement, which would allow the lenders thereunder to accelerate the
maturity of their loans and foreclose on their collateral (including cash in the
Company's cash management accounts). See "Description of New Notes -- Change of
Control."
19
<PAGE> 20
LACK OF ESTABLISHED PUBLIC TRADING MARKET; ABSENCE OF TRADING MARKET FOR
OLD NOTES NOT VALIDLY TENDERED
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for New Notes by
holders who are entitled to participate in this Exchange Offer. The holders of
Old Notes (other than any such holder that is an "affiliate" of Holdings within
the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company is required to file a Shelf Registration Statement with respect
to such Old Notes. The New Notes will constitute a new issue of securities with
no established trading market. The Company does not intend to list the New Notes
on any national securities exchange or seek the admission thereof to trading in
the National Association of Securities Dealers Automated Quotation System. The
Initial Purchasers advised the Company that they currently intend to make a
market in the New Notes, but they are not obligated to do so and may discontinue
such market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and may
be limited during the Exchange Offer and the pendency of the Shelf Registration
Statement. Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may be discontinued at any time.
If a public trading market develops for the New Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount from their
principal amount.
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal or
transmission of an Agent's Message and all other required documents. Therefore,
holders of the Old Notes desiring to tender such Old Notes in exchange for New
Notes should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect to
the tenders of Old Notes for exchange. Old Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof, and, upon consummation of the Exchange Offer certain registration
rights under the Registration Rights Agreement will terminate. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
CONTROL OF THE COMPANY BY AIP
AIP owns a majority of the outstanding capital stock of RBX Group, which
allows AIP to elect the directors of RBX Group and indirectly control the
Company. See "Security Ownership" and "Certain Transactions."
20
<PAGE> 21
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the New
Notes in the Exchange Offer. The proceeds of $100,000,000 from the issuance of
the Old Notes were used to consummate the Refinancing Transactions. In
consideration for issuing the New Notes contemplated in this Prospectus, the
Company will receive Old Notes in like principal amount, the form and terms of
which are the same as the form and terms of the New Notes (which they replace),
except as otherwise described herein. The Old Notes surrendered in exchange for
New Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase or decrease in the
indebtedness of the Company. See "The Refinancing Transactions."
21
<PAGE> 22
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
at December 31, 1997. This table should be read in conjunction with the Selected
Historical Financial Data and the Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt:
Senior Secured Notes.................................. $100,000
New Credit Agreement.................................. 5,000(a)
Senior Subordinated Notes............................. 100,000
Other long-term debt.................................. 1,037
--------
Total long-term debt.......................... 206,037
Stockholders' equity.................................... (9,264)
--------
Total capitalization.......................... $196,773
========
</TABLE>
- ---------------
(a) At December 31, 1997, the Company had $17.8 million of availability under
the New Credit Agreement after a reduction of $2.2 million for letters of
credit. See "Description of New Credit Agreement."
22
<PAGE> 23
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data were derived from the
audited historical consolidated financial statements of the Company and the
Predecessor. The historical consolidated financial data of the Predecessor as of
and for each of the years ended December 31, 1993, and 1994, and for the nine
and one-half month period ended October 16, 1995 were derived from the
consolidated financial statements of the Predecessor and represent the results
of operations of the Predecessor through the date of the Acquisition. The
historical consolidated financial data of the Company as of and for the two and
one-half month period ended December 31, 1995, and for the years ended December
31, 1996 and 1997, were derived from the consolidated financial statements of
the Company and represent the results of operations of the Company subsequent to
the Acquisition. The historical consolidated financial data for the three month
periods ended March 31, 1998 and 1997 are derived from the Company's unaudited
condensed consolidated financial statements. In management's opinion, all
adjustments (consisting of adjustments of a normal recurring nature) necessary
for a fair presentation have been included in such unaudited condensed
consolidated financial statements. The results for interim periods are not
necessarily indicative of the results for the full year. The information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- --------------------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS
YEARS ENDED ENDED ENDED YEARS ENDED 3 MONTHS ENDED
DECEMBER 31, OCTOBER 16, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ------------ ------------ ------------------- -------------------
1993 1994 1995 1995 1996 1997 1997 1998
-------- -------- ------------ ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $175,777 $197,913 $220,321 $ 51,646 $275,715 $281,662 $ 71,822 $ 72,441
Gross profit(a)............. 27,337 32,171 39,644 4,735 37,350 38,279 11,985 8,189
Selling, general and
administrative costs(a)... 17,313 18,478 21,112 5,193 30,474 28,265 7,213 7,563
Management fees............. -- -- 418 180 995 986 251 251
Operating income (loss)..... 8,486 13,317 16,878 (1,303) (24,626) 5,503 3,691 (484)
Interest Expense............ 3,381 3,334 6,878 3,867 18,685 20,285 4,834 6,319
Net income (loss)(b)........ (22,905) 5,652 6,021 (3,321) (35,056) (28,990) (942) (6,803)
BALANCE SHEET DATA:
Net working capital......... 35,062 45,817 -- 61,055 44,671 43,722 40,743 40,016
Fixed assets, net........... 61,685 93,420 -- 81,277 91,068 97,374 93,733 96,641
Total assets................ 143,946 206,268 -- 285,736 280,700 275,921 287,805 279,737
Total debt.................. 50,204 95,795 -- 171,745 184,892 206,037 186,304 206,956
Stockholder's equity........ 26,827 33,383 -- 40,574 20,313 (9,264) 19,371 (16,067)
OTHER DATA:
Capital expenditures........ 3,390 5,817 6,323 823 11,818 15,582 5,144 1,757
Depreciation................ 4,608 5,121 5,820 1,310 7,124 8,370 2,073 2,459
Amortization of goodwill and
other intangibles......... 276 319 565 733 3,943 3,332 830 833
Amortization of deferred
financing fees............ 239 140 289 190 882 946 227 319
Cash flows from (used in):
Operating activities...... 12,441 9,291 8,440 1,785 9,137 (2,398) 1,260 914
Investing activities...... (3,305) (54,660) (7,291) (199,838) (33,829) (16,698) (5,965) (1,752)
Financing activities...... (9,849) 43,547 (1,916) 203,876 22,162 15,969 1,412 919
Ratio of earnings to fixed
charges(c)................ 2.4x 3.6x 2.3x -- -- -- --
Adjusted EBITDA(d).......... 17,863 20,106 25,607 3,826 22,879 22,370 7,027 3,344
</TABLE>
- ---------------
(a) Certain amounts from 1993 through 1995 have been reclassified to conform to
the 1996 and 1997 presentation.
(b) Net income (loss) for 1993, 1994, and 1997 includes extraordinary losses of
$1.2 million, $0.4 million, and $1.8 million, respectively, for the early
extinguishment of debt. Net loss in 1993 includes a $24.9 million loss from
the cumulative effect of a change in accounting principle for the adoption
of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions." Net loss for 1996 includes a loss on impairment of
long-lived assets of $26.5 million and additional charges of $8.7 million in
the aggregate, primarily relating to a reassessment of inventory carrying
values and liabilities incurred in connection with severance and certain
other personnel related costs.
(c) In computing the ratio of earnings to fixed charges, "earnings" represent
income (loss) before income taxes, extraordinary items and changes in
accounting principles plus "fixed charges." "Fixed charges" consist of
interest expense, amortization of deferred financing fees and the portion of
rental expenses representative of interest. For the two and one-half month
period ended December 31, 1995, earnings were insufficient to cover fixed
charges by $5.2 million. For the years ended December 31, 1996 and 1997,
earnings were insufficient to cover fixed
23
<PAGE> 24
charges by $43.3 million and $14.8 million, respectively. On a pro forma
basis reflecting the Refinancing Transactions, earnings were insufficient to
cover fixed charges by $19.8 million for the year ended December 31, 1997.
For the three month period ended March 31, 1997 and 1998, earnings were
insufficient to cover fixed charges by $1.1 million and $6.8 million,
respectively.
(d) Adjusted EBITDA as used herein represents the sum of income before income
taxes, extraordinary items and changes in accounting principles, interest
expense, depreciation and amortization, adjusted to add back the
amortization of purchase accounting write-ups of inventories and other
non-cash items (all as defined in the New Credit Agreement) plus
subordinated management fees. Pursuant to the terms of the New Credit
Agreement, the Indenture and the Senior Subordinated Indenture, management
fees are subordinated to payments owed under the New Credit Agreement, the
Notes and Senior Subordinated Notes. Adjusted EBITDA is calculated as
follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------- --------------------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS 3 MONTHS
YEARS ENDED ENDED ENDED YEARS ENDED ENDED
DECEMBER 31, OCTOBER 16, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------ ------------ ------------ ------------------- -------------------
1993 1994 1995 1995 1996 1997 1997 1998
-------- ------- ------------ ------------ -------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).............. $(22,905) $ 5,652 $ 6,021 $(3,321) $(35,056) $(28,990) $ (942) $(6,803)
Income taxes (benefit)......... 1,981 3,865 3,979 (1,849) (8,255) 12,422 (201) --
Extinguishment of debt......... 1,176 466 -- -- -- 1,786 -- --
Effect of changes in accounting
principle.................... 24,853 -- -- -- -- -- -- --
Interest expense............... 3,381 3,334 6,878 3,867 18,685 20,285 4,834 6,319
Depreciation................... 4,608 5,121 5,820 1,310 7,124 8,370 2,073 2,459
Amortization of intangibles.... 276 319 565 733 3,943 3,332 830 833
-------- ------- ------- ------- -------- -------- ------- -------
EBITDA......................... 13,370 18,757 23,263 740 (13,559) 17,205 6,594 2,808
Management fees expensed....... -- -- -- 180 995 986 251 251
Management fees paid........... -- -- -- -- (1,060) (1,015) (42) (12)
Amortization of purchase
accounting inventory
adjustment................... -- 230 817 2,671 140 -- -- --
Unusual item................... -- -- 620 -- -- -- -- --
Noncash items as defined in the
New Credit Agreement......... 3,793 619 489 235 805 906 182 285
Special noncash items(1)....... -- -- -- -- 34,498 3,273 -- --
-------- ------- ------- ------- -------- -------- ------- -------
EBITDA as defined in the New
Credit Agreement............. 17,163 19,606 25,189 3,826 21,819 21,355 6,985 3,332
Management fees subordinated to
New Credit Agreement, Senior
Secured Notes and Senior
Subordinated Notes........... 700 500 418 -- 1,060 1,015 42 12
-------- ------- ------- ------- -------- -------- ------- -------
Adjusted EBITDA................ $ 17,863 $20,106 $25,607 $ 3,826 $ 22,879 $ 22,370 $ 7,027 $ 3,344
======== ======= ======= ======= ======== ======== ======= =======
</TABLE>
- ---------------
(1) Special noncash items as allowed by the credit agreements.
Adjusted EBITDA, as presented above, may not be comparable to similarly
titled measures of other companies unless such measures are calculated in
substantially the same fashion. The Company believes that EBITDA, as one
indicator of a company's liquidity, provides useful information, but does
not represent cash available to service debt. EBITDA should not be
considered in isolation or as a substitute for information presented by the
Company's consolidated statement of operations prepared in accordance with
generally accepted accounting principles. For example, EBITDA should not be
considered an alternative to net income as an indicator of operating
performance or an alternative to the use of cash flow as a measure of
liquidity. Moreover, EBITDA does not reflect, as does cash flow from
operations, the cash needed to support changes in working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements.
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Historical
Financial Data" and the Financial Statements included elsewhere in this
Prospectus.
INTRODUCTION
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources for the Company and the
Predecessor. As further discussed in Note 2 to the Company's Financial
Statements, the Company acquired the Predecessor in October 1995 and Ensolite in
June 1996. These acquisitions were accounted for using the purchase method of
accounting and accordingly, the operating results of the Company reflect the
operations of the Predecessor and Ensolite subsequent to the dates of their
respective acquisitions. Unless otherwise indicated, 1995 historical results
represent the combined operating results of the Predecessor for the nine and
one-half month period through the date of the Acquisition and the Company for
the two and one-half month period subsequent to the Acquisition.
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, gross
profit, selling, general and administrative costs ("SG&A"), operating income
(loss) and net income (loss) in millions of dollars and as a percentage of net
sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------ -----------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $272.0 100.0% $275.7 100.0% $281.7 100.0% $71.8 100.0% $72.4 100.0%
Gross profit............ 44.4 16.3 37.4 13.6 38.3 13.6 12.0 16.7 8.2 11.3
SG&A.................... 26.3 9.7 30.5 11.1 28.3 10.0 7.2 10.0 7.6 10.5
Operating income (loss). 15.6 5.7 (24.6) (8.9) 5.5 2.0 3.7 5.2 (0.5) -0.7
Net income (loss)....... 2.7 1.0 (35.1) (12.7) (29.0) (10.3) (0.9) -1.3 (6.8) -9.4
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net Sales. Net sales increased to $72.4 million for the three months ended
March 31, 1998 compared to $71.8 million for the same period in 1997, an
increase of $0.6 million or 0.8%.
Net sales for the Company's foam product operations (the "Foam Group")
increased to $54.4 million for the quarter ended March 31, 1998 from $53.1
million for the quarter ended March 31, 1997, an increase of $1.3 million or
2.4%. Increases at Rubatex and OleTex of $3.0 and $0.1 million, respectively,
were offset by decreases at Universal and Groendyk of $1.1 million and .7
million, respectively.
Universal's sales decreased due to a continued softening in demand for
certain of its products and due to customers lost in connection with the
relocation of extrusion operations from Dawsonville, Georgia to Middlefield,
Ohio. Groendyk's net sales were also impacted by a softening in the markets for
its products.
Net sales at the Company's custom rubber mixing operations (the "Mixing
Group") decreased slightly to $20.8 million in the first quarter of 1998
compared to $20.9 million in the first quarter of 1997, a decrease of $0.1
million or 0.5%.
Gross Profit. Gross profit decreased to $8.2 million for the three months
ended March 31, 1998 from $12.0 million for the three months ended March 31,
1997, a decrease of $3.8 million or 31.7%.
Efforts to improve operations and reduce costs in Rubatex's Bedford,
Virginia operations yielded an improvement in gross profit of $0.8 million in
the first quarter of 1998 compared to the first quarter of 1997. However, the
improvement at Bedford was more than offset by decreased gross profit at
Rubatex's Conover, North Carolina plant. The decrease in gross profit at Conover
is the result of continued difficulties associated
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with the relocation of Ensolite production from Mishawaka Indiana to the Conover
North Carolina facility. Management has focused its efforts on correcting the
problems at Conover and recent improvements have been noted in terms of reduced
scrap and machinery uptime; however, these operating improvements, which were
noted late in the first quarter, have not yet resulted in a measurable
improvement in the financial results. Although it is difficult to predict the
timing of the turnaround of Conover with any degree of precision, management
anticipates that the problems will be corrected and the facility's financial
results will improve over the next six to twelve months.
Foam Group gross profit decreased to $5.8 million in the first quarter of
1998 from $10.0 million in the first quarter of 1997, a decrease of $4.2 million
or 42.0%. Although Conover was the largest cause of the decline, decreases in
gross profit of $0.4 million, $0.3 million, and $0.3 million were experienced at
Universal, Groendyk, and OleTex, respectively.
Mixing Group gross profit increased to $2.7 million in the first quarter of
1998 from $2.3 million in the first quarter of 1997, an increase of $0.4 million
or 17.4%.
SG&A. SG&A increased to $7.6 million in the first quarter of 1998 from
$7.2 million in the first quarter of 1997, an increase of $0.4 million or 5.6%.
As a percentage of net sales, SG&A increased slightly to 10.5% in 1998 from
10.0% in 1997. This increase in SG&A is due primarily to increased commissions
resulting from the overall higher sales at Rubatex and increased personnel costs
at Universal in the sales and marketing and engineering areas.
Operating Income. Operating income decreased to an operating loss of $0.5
million for the three months ended March 31, 1998 compared to operating income
of $3.7 million for the three months ended March 31, 1997, a decrease of $4.2
million. The aforementioned declines at Conover and Universal as well as the
increase in SG&A are the primary cause of the decrease in operating income.
Net Loss. The first-quarter net loss increased to $6.8 million from $0.9
million in the prior year. In addition to the aforementioned factors, the net
loss was impacted by an increase in interest expense of $1.5 million due to
higher overall levels of indebtedness and higher carrying cost of the Senior
Secured Notes. A decrease in income tax benefits recorded of $0.2 million also
impacted the net loss.
1997 compared to 1996
Net Sales. Net sales increased to $281.7 million in 1997 from $275.7
million in 1996, an increase of $6.0 million or 2.2%.
Net sales for the Foam Group increased to $208.0 million in 1997 from
$204.5 million in 1996, an increase of $3.5 million or 1.7%. The increase in the
Foam Group's net sales is attributable to a $4.5 million increase in net sales
at Rubatex, primarily from the Bedford, Virginia plant, and increases totaling
$1.2 million at Groendyk and OleTex. A decrease in sales at Universal Polymer of
$2.2 million partially offset the gains experienced at the other companies
comprising the Foam Group. Universal Polymer's sales decreased due to a
softening in demand for certain of the Company's products as well as problems
associated with the relocation of production from the Company's Dawsonville,
Georgia plant to the Middlefield, Ohio plant which caused delays in shipping,
lost sales and lost customers. Net sales for the Mixing Group increased to $83.1
million in 1997 compared to $78.4 million in 1996, an increase of $4.7 million
($2.5 million of which related to intercompany sales to Conover which are
eliminated in consolidation) or 6%. These improvements are the result of
strengthened demand in the Mixing Group's core markets in comparison to the
conditions existing in 1996.
Gross Profit. Gross profit increased to $38.3 million in 1997 from $37.4
million in 1996, an increase of $0.9 million or 2.4%. As a percentage of net
sales, gross profit remained virtually unchanged between 1997 and 1996 at 13.6%.
In 1996, gross profit included a $4.9 million fourth-quarter charge related
primarily to Bedford. The charge was comprised of: (i) a $2.1 million charge for
labor variances related to production inefficiencies and volume variances
attributable to underutilized capacity; and (ii) a $2.8 million charge resulting
from management's assessment of the future benefit of such inventory, especially
taking into consideration the quality and service problems experienced in
Bedford during 1996.
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Efforts to improve operations and reduce costs at Rubatex's Bedford,
Virginia plant yielded a $5.1 million improvement in gross profit at Bedford;
however, the improvements at Bedford were more than offset by decreased gross
profit at Rubatex's Conover, North Carolina plant. The decrease in gross profit
at Conover is the result of start-up difficulties associated with the relocation
of Ensolite production from Mishawaka, Indiana to the Conover, North Carolina
facility. Such difficulties include: (i) excessive downtime due to technical
difficulties encountered in connection with relocated as well as newly acquired
machinery and equipment; (ii) excessive scrap due to a greater than expected
learning curve associated with running Ensolite material at Conover; and (iii)
training issues associated with the large number of new employees necessary to
support Ensolite production. As a result of the problems at Conover, Foam Group
gross profit decreased to $27.6 million in 1997 from $30.7 million in 1996, a
decrease of $3.1 million or 10.1%.
Management has undertaken steps which it believes will address these
problems, including hiring a new plant manager who is familiar with the Ensolite
production process and materials. Additionally, management is aggressively
implementing proactive maintenance and monitoring programs to ensure the
continuous operation of the machinery and equipment as well as promoting
education and training programs to ensure that employees are able to carry out
their duties while maintaining appropriate control of the manufacturing process.
Gross profit at the Mixing Group increased to $10.5 million in 1997 from
$7.9 million in 1996, an increase of $2.6 million. The improvement in the Mixing
Group's gross profit resulted primarily from the increase in net sales; however,
gross profit as a percentage of net sales also increased to 12.6% in 1997 from
10.1% in 1996. The Company's gross profit was also positively impacted by
credits in the third quarter of 1997 of $1.7 million related to an employee
healthcare cost rebate and certain royalties.
SG&A. SG&A decreased to $28.3 million in 1997 from $30.5 million in 1996,
a decrease of $2.2 million or 7.2%. As a percentage of net sales, SG&A decreased
to 10.0% in 1997 from 11.1% in 1996. In 1996, SG&A included $3.4 million of
fourth-quarter charges. Such charges include approximately $2.4 million for
costs incurred in connection with routine personnel related matters including
employee relocation, hiring, termination, and legal costs as well as costs
associated with employee post-retirement benefits. Also included are $1.0
million in charges primarily related to the reassessment of the future value of
on-going capital projects and certain legal and consulting costs. Excluding
these 1996 charges, SG&A was $27.1 million in 1996, indicating an increase
during 1997 of $1.2 million or 4.4%. As a percentage of net sales, excluding the
1996 charges, SG&A increased slightly to 10.0% in 1997 from 9.8% in 1996.
Operating Income (Loss). Operating income increased to $5.5 million in
1997 from an operating loss of $24.6 million in 1996. As a result of declining
sales and profits experienced at Rubatex's Bedford, Virginia plant, management
reassessed the carrying value of the long-lived assets at Bedford and determined
that there was an impairment. Accordingly, a loss on impairment of $26.4 million
was recorded in the fourth quarter of 1996 based on the excess of the carrying
value of Bedford's long-lived assets over the expected discounted future cash
flows. Exclusive of the effects of all of the aforementioned fourth-quarter
charges, operating income decreased to $5.5 million in 1997 from $10.6 million
in 1996, a decrease of $5.1 million. The decrease, which is attributable to the
difficulties encountered at Conover, would have been greater except for the
improvements in the Company's other operations which partially offset the
effects of Conover.
Net Loss. The net loss improved to $29.0 million in 1997 from $35.1
million in 1996, an improvement of $6.1 million or 17.4%. In addition to the
factors discussed elsewhere herein, the net loss in 1997 was impacted by an
increase in interest expense of $1.6 million and charges in the fourth quarter
of $18.8 million to establish a full valuation allowance against the Company's
deferred tax assets and $1.8 million to reflect an extraordinary loss on
extinguishment of debt.
During the fourth quarter of 1997, the Company reevaluated its deferred tax
asset to determine the need for a valuation allowance given the Company's
revised expectations with respect to future taxable income due primarily to the
increased levels of interest associated with the additional indebtedness
incurred in 1997 as well as the expiration dates of the Company's net operating
loss carryforwards. As a result of the foregoing, a valuation allowance of $18.8
million was recorded in the fourth quarter of 1997. The Company periodically
reviews this valuation allowance and makes required adjustments as appropriate.
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1996 compared to 1995
Net Sales. Net sales increased to $275.7 million in 1996 from $272.0
million in 1995, an increase of $3.7 million or 1.4%. Ensolite added $13.9
million in net sales for 1996. Without Ensolite, net sales would have decreased
by $10.2 million or 3.8%. Net sales for the Foam Group, excluding Ensolite,
decreased to $190.6 million in 1996 from $192.8 million in 1995, a decrease of
$2.2 million or 1.1%. The decline in net sales of the Foam Group is primarily
attributable to a decrease in net sales of 6.2% at the Bedford, Virginia
operations of Rubatex. Net sales for the Mixing Group decreased to $78.4 million
in 1996 from $86.2 million in 1995, a decrease of $7.8 million or 9.0% due to a
general economic slow down in their markets, resulting in lower sales volumes
and lower price realizations. Additionally, the decline in net sales in 1996 for
the Mixing Group reflects the loss of sales at a major tire manufacturer who
began mixing with his own equipment in 1996.
Gross Profit. Gross profit decreased to $37.4 million in 1996 from $44.4
million in 1995, a decrease of $7.0 million or 15.8%. As a percentage of net
sales, gross profit decreased to 13.6% in 1996 from 16.3% in 1995. Ensolite
added $3.2 million in gross profit for 1996. Without Ensolite, gross profit
would have decreased by $10.2 million or 23.0%. Each of the Company's
subsidiaries experienced decreases in gross profit except for OleTex which
realized an improvement of 9.4%. Gross profit at Rubatex's Bedford, Virginia
operations declined by $8.5 million or 83.3% of the overall decline in 1996
gross profit (excluding Ensolite). Decreases in gross profit resulted from lower
sales volumes, downward pressure on margins due to competitive markets, and
increased costs associated with addressing the quality problems at Bedford.
Additionally, gross profit was impacted by a fourth-quarter charge of $4.9
million related to certain inventory adjustments. The charge was comprised of:
(i) a $2.1 million charge for labor variances related to production
inefficiencies and volume variances attributable to underutilized capacity; and
(ii) a $2.8 million charge resulting from management's assessment of the future
benefit of such inventory, especially taking into consideration the quality and
service problems experienced in Bedford during 1996. Excluding the
fourth-quarter charges and including Ensolite, gross profit decreased to $42.7
million, a decrease of $1.7 million or 3.8%.
SG&A. SG&A increased to $30.5 million in 1996 from $26.3 million in 1995,
an increase of $4.2 million or 16.0%. As a percentage of net sales, SG&A
increased to 11.1% in 1996 from 9.7% in 1995. The increase in SG&A includes $3.4
million of fourth-quarter charges. Such charges include approximately $2.4
million for costs incurred in connection with routine personnel related matters
including employee relocation, hiring, termination, and legal costs as well as
costs associated with employee post-retirement benefits. Also included are $1.0
million in charges primarily related to the reassessment of the future value of
on-going capital projects and certain legal and consulting costs. Excluding
these charges, SG&A would have been $27.1 million or 9.8% of net sales in 1996,
which represents an increase of $0.8 million or 3.0% over 1995.
Operating Income (Loss). Operating income (loss) decreased to an operating
loss of $24.6 million in 1996 from operating income of $15.6 million in 1995, a
decrease of $40.2 million. As a result of declining sales and profits
experienced at Rubatex's Bedford, Virginia plant, management reassessed the
carrying value of the long-lived assets at Bedford and determined that there was
an impairment. Accordingly, a loss on impairment of $26.4 million was recorded
in the fourth quarter of 1996 based on the excess of the carrying value of
Bedford's long-lived assets over the expected discounted future cash flows.
Exclusive of the effects of all of the aforementioned fourth-quarter charges,
operating income decreased to $10.6 million in 1996 from $15.6 million in 1995,
a decrease of $5.0 million or 32.1%.
Net Income (Loss). Net income (loss) decreased to a net loss of $35.1
million in 1996 from net income of $2.7 million in 1995, a decrease of $37.8
million. In addition to the effects of the matters referred to above, net income
(loss) was effected by an increase in interest expense of $8.0 million as a
result of: (i) 1996 reflecting a full year of interest expense related to
additional debt incurred in connection with the Acquisition; (ii) increased
borrowings in connection with the Ensolite Acquisition; (iii) increased
borrowings under the revolving credit agreement; and (iv) increased interest
rates. An income tax benefit of $8.3 million in 1996 partially mitigates the net
income effect of the lower profits, fourth-quarter charges and higher interest
expense.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations and
borrowings under the New Credit Agreement. Pursuant to its operating strategy,
the Company maintains minimal or no cash balances and is substantially dependent
upon, among other things, the availability of adequate working capital financing
to support inventories and accounts receivable. The New Credit Agreement
provides for a $25.0 million revolving credit facility, subject to a borrowing
base formula, $2.2 million of which is used for an irrevocable standby letter of
credit. As of December 31, 1997, borrowings against the revolving credit
facility were $5.0 million and unused borrowing capacity was $17.8 million. As
of March 31, 1998 such borrowings were $6.0 million and unused borrowing
capacity was 16.8 million.
The Company is highly leveraged. At December 31, 1997, the Company's
indebtedness was $206.0 million and its stockholder's equity was a deficit of
$9.3 million. At March 31, 1998 indebtedness stood at $207.0 million and the
deficit was $16.1 million. For the two and one-half month period ended December
31, 1995 and the years ended December 31, 1996 and 1997, the Company's earnings
were insufficient to cover fixed charges by $5.2 million, $43.3 million and
$14.8 million, respectively. For the three month periods ended March 31, 1997
and 1998, earnings were insufficient to cover fixed charges by $1.1 million and
$6.8 million, respectively. The problems at Conover had a negative impact on the
Company's results of operations during 1997, particularly in the fourth quarter.
If improvements in Conover's operating performance do not materialize during
1998, the Company may be required to take additional measures to ensure the
availability of sufficient cash to sustain operations. Such measures may
include, among other things, reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There is no assurance that any of these measures can be effected
on satisfactory terms, if at all.
The Company receives substantial ongoing financial and management services
from AIP, an affiliate of the majority stockholders of the Company. AIP has
deferred cash payments with respect to the management fees it charges the
Company; however, the accrual of such fees will continue. As of March 31, 1998,
such accrued and unpaid fees were $0.3 million.
Cash Flow From Operating Activities. Cash used in operating activities was
$2.4 million in 1997 compared to cash provided of $9.1 million in 1996. Accounts
receivable and inventory increased by a total of $5.5 million during 1997
compared to a decrease of $13.6 million in 1996. Cash flow from operating
activities in 1997 also reflects cash of $1.3 million provided by an employee
healthcare cost rebate of $0.8 million and cash royalties received of $0.5
million.
Cash flow from operating activities for the first quarter of 1998 decreased
to $0.9 million from $1.3 million for the first quarter of 1997. The increased
net loss in the first quarter of 1998 was the primary contributor to the
decreased operating cash flows for the same period; however, the cash effect of
the increased net loss was partially mitigated by a decrease in working capital
requirements of $3.7 million for the three months ended March 31, 1998.
Cash Flow From Investing Activities. Cash used in investing activities was
$16.7 million in 1997 compared to $33.8 million in 1996. Cash used in connection
with the acquisition of Ensolite totaled $23.5 million, $22.0 million of which
was spent in 1996 with the remainder spent in 1997. Capital expenditures were
$15.6 million in 1997 compared to $11.8 million in 1996. The Company intends to
continue its strategy of investing in improved plant and equipment with planned
capital expenditures of approximately $7.6 million in 1998. Such capital
expenditures will be financed through cash from operations and borrowings under
the New Credit Agreement. Expansion at Rubatex's Conover, North Carolina plant
and relocation of Ensolite from Mishawaka, Indiana accounted for a substantial
portion of the 1997 capital expenditures. In 1996, the Company received an
equity contribution from RBX Group of $15 million which was used, along with
$10.0 million of additional borrowings, to acquire Ensolite from Uniroyal. The
equity contribution was derived from a $10.0 million cash contribution to RBX
Group by AIP and from a subordinated unsecured note of $5.0 million issued by
RBX Group to Uniroyal.
Cash used in investing activities was $1.8 million for the first quarter of
1998 compared to $6.0 million for the first quarter of 1997. Capital
expenditures were $1.8 million for three months ended March 31, 1998 compared to
$5.1 million for the three months ended March 31, 1997. The Company intends to
continue its
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strategy of investing in improved plant and equipment with planned capital
expenditures of approximately $7.6 million for 1998 subject to the availability
of cash.
Cash Flow From Financing Activities. Cash provided by financing activities
was $16.0 million in 1997 compared to $22.2 million in 1996. In the fourth
quarter of 1997, the Company issued $100.0 million in 12.0% Senior Secured
Notes. The proceeds of the Senior Secured Notes were used to repay the
outstanding indebtedness under the Old Credit Agreement, and pay issuance costs.
Cash provided from financing activities decreased to $0.9 million in the
first quarter of 1998 from $1.4 million in the first quarter of 1997. For the
three months ended March 31, 1998, proceeds from borrowings under the revolving
credit facility were $1.0 million compared to $5.0 million for the three months
ended March 31, 1997.
During 1998, interest payments in connection with the Senior Secured Notes
and Senior Subordinated Notes are required as follows: $5.6 million in April;
$6.0 million in July; and $5.6 million in October. The Senior Secured Notes and
the Senior Subordinated Notes mature as follows: $100 million in January 2003
and $100 million in October 2005.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the New Revolving
Credit Facility, to meet required interest payments and meet working capital and
capital expenditures requirements through December 31, 1998 and for the
foreseeable future.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization. Adjusted earnings before interest, taxes, depreciation, and
amortization ("Adjusted EBITDA"), decreased to $3.3 million in the first quarter
of 1998 from $7.0 million in the first quarter of 1997. Adjusted EBITDA
decreased to $22.4 million in 1997 from $22.9 million in 1996, a decrease of
$0.5 million or 2.2%.
Management believes EBITDA is one indicator of a company's liquidity;
however, EBITDA, as presented above, may not be comparable to similarly titled
measures of other companies unless such measures are calculated in substantially
the same fashion. The Company believes that EBITDA, as one indicator of a
company's liquidity, provides useful information, but does not represent cash
available to service debt. EBITDA should not be considered in isolation or as a
substitute for the information presented in the Company's consolidated statement
of operations prepared in accordance with generally accepted accounting
principles. For example, EBITDA should not be considered an alternative to net
income as an indicator of operating performance or an alternative to the use of
cash flows as a measure of liquidity. Moreover, EBITDA does not reflect, as does
cash flow from operations, the cash needed to support changes in working
capital.
The Company's indebtedness contains certain restrictions which, among other
things, restrict its ability to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of its assets. In addition, the
Company's indebtedness contains certain financial covenants including
maintenance of a consolidated interest expense coverage ratio, a leverage ratio,
and maintenance of a minimum level of earnings before interest, taxes,
depreciation and amortization. The financial covenants to which the Company is
subject which are contained in the New Credit Agreement become more restrictive
during 1998. The Company was in compliance with all terms of its indebtedness at
March 31, 1998. However, due to more restrictive covenant requirements in future
quarters and based on the levels of Adjusted EBITDA generated from current
operations, it is probable that the Company will not satisfy its covenant
requirements at June 30, 1998. The Company is negotiating with its present
lenders to obtain relief from future covenant restrictions. There can be no
assurance that any such amendment will be successful or, if entered into, what
the related terms and conditions would be.
YEAR 2000
The arrival of the year 2000 poses a unique challenge to all enterprises
which depend on computers, computer software and other equipment including
machinery and equipment utilizing microprocessors in
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conducting their normal operations. As the year 2000 approaches, such systems
may become unable to function properly or may even fail completely as the result
of programming which recognizes dates using only two digits rather than four.
Consequently, operations could be disrupted or temporarily halted if the
deficiencies in such systems are not corrected in a timely manner.
The Company is undertaking a comprehensive assessment and corrective action
program designed to ensure that its essential systems will appropriately
recognize the year 2000. Beginning in 1995, the Company started a project to
replace substantially all of its primary business systems. Management estimates
that this project will be completed by the end of the first quarter of 1999.
Although the costs incurred in connection with this project would have been
incurred regardless of the existence of year 2000 issues, the replacement
project is expected to provide year 2000 compliance with respect to such
systems. The Company estimates capital expenditures of approximately $3.3
million in connection with updating its primary business systems. Corrective
action related to the Company's other essential systems and equipment is also
expected to be completed by the end of the first quarter of 1999.
The Company's assessment of the impact of year 2000 issues and the related
timing associated with the completion of efforts intended to resolve year 2000
issues are based on management's estimates, which were developed utilizing
certain assumptions with respect to future events. Based on these estimates and
assumptions, management believes it will achieve year 2000 readiness in a timely
manner for essential systems. However, actual circumstances could differ from
those anticipated by management thereby altering the timetable for completion,
the effectiveness of implementation and the related costs of year 2000
compliance programs.
IMPACT OF INFLATION
The Company believes that inflation has not had a significant effect on its
results of operations over the periods presented. Many of the Company's raw
materials are petrochemical derivatives. Substantial increases in costs of such
materials could adversely affect the operations of the Company, although the
Company believes such cost increases could be passed onto customers in less than
a one year period.
NEW ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The adoption of this statement, which was required at the
beginning of 1998, had no effect on the Company's financial statements.
In April 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued Statement of
Position 98-5 (the "SOP"), "Reporting on the Costs of Start-Up Activities." The
SOP requires that the costs of start-up activities be expensed as incurred.
Management estimates that previously capitalized start-up costs of approximately
$5.4 million meet the definitions set forth in the SOP. Initial adoption of the
SOP must be reported as a cumulative effect of a change in accounting
principles. The SOP is effective for fiscal years beginning after December 15,
1998; however, earlier application is encouraged. Management has not yet
determined if the provisions of the SOP will be adopted prior to its effective
date.
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BUSINESS
GENERAL
The Company is the successor to the business of RBX Investors, Inc., which
began operations in the 1930s. The Company believes that it is the leading
domestic manufacturer of closed cell rubber foam products, the second largest
domestic custom mixer of rubber polymers and a major competitor in several niche
markets, including cross-linked polyethylene foam. The Company's products are
used in a wide range of applications, including athletic equipment, sports
medicine wraps, neoprene wetsuits, hardware center products (do-it-yourself
insulation, tubing, gardening and construction kneepads), other consumer
products (computer mouse pads, beverage can insulators), insulation for
refrigeration and air conditioning systems, automotive components and other
industrial products. Management estimates that the foam products operations of
Groendyk, OleTex, Rubatex, Universal Polymer, Universal Rubber and Waltex
(collectively, the "Foam Group") has approximately a 40% market share in the
domestic market for closed cell rubber foam and related products and
approximately a 24% market share in the domestic market for cross-linked
polyethylene foam. The custom rubber mixing operations of Hoover-Hanes and
Midwest (collectively, the "Mixing Group") mixes a variety of rubber polymers to
serve a wide range of end-use markets. The Company combines purchases of raw
materials for both the Foam Group and Mixing Group to obtain volume discounts
from its suppliers. All of the Company's products begin with essentially the
same manufacturing process: the blending of synthetic compounds in a mixer. The
Mixing Group sells these compounds in uncured sheet or strip form to its
customers. The Foam Group performs additional manufacturing steps, including
curing, extruding, molding, fabrication and lamination, before selling its
products to customers.
The Foam Group, which contributed approximately 74% of the Company's sales
for the year ended December 31, 1997, is the largest domestic manufacturer of
closed cell rubber foam. Closed cell rubber foam is produced by the expansion of
synthetic rubber polymers through the infusion of millions of gas-filled cells
which are permanently sealed in the material. The closed cell structure is
flexible, resilient and shuts out water, dust and air, which makes the material
ideal for insulating, sealing, shock absorption and a variety of other uses. The
Foam Group designs and manufactures customized foam products for more than 9,000
active customers. These products are sold in a variety of forms including
sheets, tubes, buns, rolls and extruded and fabricated shapes. The Company has
expertise in a number of different manufacturing processes and techniques, which
the Company believes enables it to manufacture a wider variety of products than
its competitors and to respond effectively to a broad range of customer
requirements.
The Mixing Group, which contributed approximately 26% of the Company's
sales for the year ended December 31, 1997, is the second largest competitor in
the fragmented, regional domestic custom rubber mixing industry. The Mixing
Group mixes natural and synthetic rubbers with various additives and fillers for
more than 250 active customers. The custom-mixed compounds are delivered to
customers in sheets or strips of uncured rubber which the customers then process
and fabricate into a variety of end-use products, including automobile tires and
parts, industrial belts and hoses, agricultural tools and equipment and roofing
materials. The Mixing Group's seven mixing lines enable it to custom mix many
different compounds concurrently and to respond quickly to customers' requests,
even for unusual formulations or small orders. These factors, combined with the
Mixing Group's ability to maintain what the Company believes to be a high level
of product quality, enable the Mixing Group to compete effectively on price,
quality and service.
The Company's address is 5221 Valley Park Drive, Roanoke, Virginia 24019,
and its telephone number is (540) 561-6000.
RECENT HISTORY
The Company is a wholly owned subsidiary of RBX Group. The Company and RBX
Group were formed by AIP to purchase the Predecessor and its subsidiaries in
October 1995. AIP's operational plan for the Company included a cost reduction
program consisting of strategic capital expenditures designed to increase
operating efficiency and selected manufacturing and human resource changes. AIP
identified in the Company an opportunity to streamline production and improve
operating performance at certain of the Company's plants. In addition, the
Company identified a significant opportunity to make strategic acquisitions,
which
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would expand the Company's market share and capitalize on the operating leverage
inherent in its fixed cost structure.
Bedford Facility
The Company's largest plant, in Bedford, Virginia, represented a primary
profit improvement opportunity. At the time of the Acquisition, the 70 year old
plant was in need of equipment upgrades and operating refinements which would
reduce crew sizes, eliminate excess material handling, enhance work flow, reduce
scrap rates and consolidate discreet operations into a smaller number of core
manufacturing cells. Improvements in operating efficiency, quality and customer
service were also necessary to reverse an erosion in Bedford's sales experienced
from 1994 to 1996. In early 1996, in conjunction with the plan to address
equipment and plant layout issues, management worked closely with the union
representing the Bedford hourly employees to renegotiate certain terms of the
existing labor contract regarding work rules in order to increase efficiency at
the plant. These negotiations were completed successfully and the labor contract
was extended to September 1999. As of December 31, 1997, the Company had
invested $6.6 million in the Bedford facility since the Acquisition and intends
to invest an additional $2.8 million to complete major capital projects which
are currently underway. The Company expects to realize the full benefits of
these improvements in 1998 and 1999. Since the Acquisition, the Bedford facility
has improved on-time shipping performance, improved material yields in the
production process and improved product quality significantly. In addition,
productivity per employee has increased as the production process has been
streamlined. As part of the Company's capital expenditure program, the Company
has completed a major information systems upgrade which allows it to track, on a
daily basis, vital cost, shipping and inventory data that was previously
unavailable. While these changes were underway, Bedford's financial performance
began and continues to improve. For the year ended December 31, 1997, gross
profit at the Bedford facility increased by $5.1 million over the year ended
December 31, 1996.
Ensolite Acquisition
In June 1996, the Company acquired certain assets and assumed certain
liabilities of the Ensolite division of Uniroyal for an aggregate purchase price
of $28.5 million including direct expenses. Ensolite, formerly a major
competitor, manufactured certain types of closed cell rubber foam, including
sheet foam products used for automotive applications, pool floats, wrestling
mats and artificial turf underlay. The Company purchased certain manufacturing
equipment from Uniroyal with the objective of moving the equipment to the
Company's Conover, North Carolina plant, a modern but underutilized facility,
and consolidating the Ensolite manufacturing operations with Conover's existing
operations. Pursuant to a toll manufacturing agreement, Uniroyal continued to
manufacture the Company's Ensolite product at Uniroyal's Mishawaka, Indiana
plant from June 1996 until the end of 1996. In addition to the Ensolite purchase
price, the Company invested $9.0 million in building additions and equipment
upgrades at the Conover facility as part of the transfer of the Ensolite
equipment. Movement of the Ensolite equipment to the Conover facility was
completed in October 1997. The Conover plant experienced production difficulties
related to the start-up of the Ensolite manufacturing equipment, including
installing, upgrading and testing new production equipment, coordinating interim
mixing at and delivery from several other facilities, hiring and training a
substantial number of new employees, and mastering a number of new production
formulations, which adversely affected Conover's financial performance in 1997.
With the hiring of new employees and the installation of the equipment now
completed, operational performance at the Conover facility is expected to
improve. The Company believes that integration of the Ensolite operation will be
complete by the end of the first half of 1998, at which time the Conover plant
will be well-positioned to realize its full profit potential.
Management Additions
The Company has recently hired a significant number of new senior
executives and operating personnel. In October 1996, the Company installed Frank
Roland as President and CEO, and by September 1997, had added a new Chief
Financial Officer, Vice President of Sales and Marketing, Vice President of
Human Resources and Vice President of Information Systems. At the Conover
facility, the Company has recently
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<PAGE> 34
hired a new general manager, who had previously managed the Ensolite
manufacturing facility for Uniroyal in Mishawaka. The Company has also hired a
number of skilled employees at the plant level to upgrade its technical and
manufacturing expertise and believes that these changes, combined with
operational changes underway, will allow the Company to achieve its
profitability goals and growth plans.
BUSINESS STRATEGY
The Company's strategy is to strengthen its leading market position and
improve its financial performance by continuing to improve its overall operating
efficiency. The Company expects that it will continue to grow through new
product and application development resulting from the efforts of its direct
sales force and from its strong technical and manufacturing capabilities. The
Company will continue to focus on service to its customers, operating efficiency
improvements and targeted capital expenditure programs. Specifically, the
Company's strategy capitalizes upon the following:
Upgraded Manufacturing Facilities and Information Systems. Since the
Acquisition in October 1995, the Company has invested approximately $23.7
million in capital projects to modernize manufacturing methods and update
facilities. Of that amount, approximately $9.0 million was spent in connection
with the Ensolite Acquisition in building additions and equipment upgrades at
the Conover facility. At Bedford, approximately $6.6 million has been spent to
install new financial systems, bring mixing capabilities to state-of-the-art and
modernize extrusion ovens to improve quality and reduce scrap. The Company
believes that these capital investments will yield improved financial
performance in the future.
Focus on Operating Efficiency. The Company continues to concentrate on
reducing operating costs, improving product quality and increasing customer
satisfaction. The Company believes it can further improve operations and
increase profitability and cash flow by focusing on opportunities that exist
internally and through the continued integration of the Ensolite Acquisition.
The acquisition of Ensolite, formerly a major competitor, is expected to improve
the Company's margins by combining Ensolite's manufacturing and marketing
functions with those of the Company's other operations. In addition, certain
product line and administrative redundancies have been eliminated. The new
management team continues to emphasize cost reduction programs which focus on
improving production yields, increasing process automation, decreasing overtime
and improving productivity per employee.
Leading Market Position with a Diversified Product and Customer Base. Due
to the Company's product design and manufacturing capabilities and its renewed
focus on quality and service, the Company is a leading supplier in virtually
every product category in which it competes. No competitor in the rubber foam
market offers a product line as broad as that offered by the Company. Rubatex(R)
is a well-recognized and respected brand name among builders and manufacturers
nationwide. Additionally, the Company intends to capitalize on the strength of
the recently-acquired ENSOLITE(R) brand name, which enjoys high customer
recognition as a premium closed cell rubber foam product. The Company has more
than 9,000 active customers serving a variety of markets, including
construction, transportation, consumer and leisure (such as sporting goods,
footwear, sports medicine and beverage can insulators). In 1997, no single
customer accounted for more than 3% of the Company's total revenues, and the
Company's top 50 customers comprised only 34% of its total revenues.
Direct Sales Force. The Company's sales force serves as the primary
contact with the vast majority of the Company's customers, in contrast to many
of the Company's competitors who rely largely on independent sales agencies.
Because of its close working relationship with customers, the Company can
quickly customize product properties such as shock absorption, thermal and sound
insulation, flexibility, tensile strength, color and texture to meet specific
customer requests. Furthermore, the Company believes that its direct sales
approach enables the Company to rapidly identify market trends in demand for its
products, new applications for existing products and new markets and product
opportunities. The cooperative efforts of the Company's sales, marketing and
technical personnel enable the Company to develop rapidly new products in
response to those market demands. For example, the Company has co-developed and
produced new sports medicine applications with major sporting goods
manufacturers, and the Company is presently working with a consortium of
American wine producers to develop a new closure seal product for the wine
industry.
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<PAGE> 35
Strong Design and Manufacturing Capabilities. Because of the breadth of
the Company's product lines and the variety of its end-use applications, the
Company has an extensive knowledge base which it is able to apply to the
development of new products in cooperation with its customers. The Company's
expertise in material formulation, product design, die fabrication and diverse
proprietary manufacturing techniques and processes enables it to manufacture a
wider variety of products than any of its competitors and to respond effectively
to a broader range of customer requirements. The Company extrudes sheets, rolls
and tubes for end uses such as insulation, artificial turf underlay and numerous
shapes for a variety of commercial and industrial applications and uses a
proprietary multi-die extrusion process which reduces production time and
increases efficiency. The Company also has various batch processes (some of
which use mold and press technology) which are highly flexible and permit
production of limited volumes of specialty products. The Company provides
fabrication and lamination services for its customers, including high precision
water jet cutting for intricate parts applications and fabric adhesion for
specific lamination applications.
THE FOAM GROUP
Products
The Foam Group's products are formulated to provide specific performance
characteristics based on their end-use applications. Closed cell rubber foam is
elastic and impervious to gases and liquids, which makes it an ideal material
for insulation, sealing, shock absorption and waterproofing. Products made with
closed cell rubber foam include residential and industrial building insulation,
plumbing insulation, automotive gaskets, home and hardware center products, such
as grips, handles and foam cushions, and a broad range of consumer products such
as wetsuits, ski masks, knee braces and other sports medicine applications, foam
beverage can insulators and computer mouse pads. Cross-linked polyethylene foam,
which has many of the same physical properties as closed cell rubber foam, is
less elastic but relatively less expensive and is easily thermoformed.
Polyethylene foam is used in such products as athletic mats, marine flotation
buoys, ship fenders, shoe insoles and artificial turf underlay. Silicone rubber
is flame resistant and possesses a number of exceptional physical and chemical
properties which make it suitable for products which are exposed to extreme
temperatures. The Company manufactures silicone-based products for a number of
high-performance applications including commercial lighting, automobile gaskets,
commercial aircraft, aerospace and electronics. The Company also produces a
range of solid rubber products such as tarp straps, pipe gaskets and customized
window glazings.
Products sold in the most basic form include (i) extruded sheets and tubes,
used for insulation in air conditioning, plumbing and refrigeration, and (ii)
molded sheets which are sold to manufacturers who slit, cut, and fabricate the
material into industrial and consumer products ranging from automotive gaskets
to football padding to children's toys. The Company also produces extruded
shapes of closed cell rubber which are sold in various lengths for specialized
sealing or gasket applications that require unusual profiles. In addition, the
Company performs value-added lamination and fabrication processes on its foam
products for many of its customers. The Company can die-cut, thin-slit, apply
adhesive and laminate fabric to the material to render it suitable for light
manufacturing and assembly applications. The Company can also precision-cut
intricate foam products using computer-aided high pressure water jet cutting
technology. The following is a summary of the main product groups produced by
the Foam Group and their principal end-use applications:
<TABLE>
<CAPTION>
PRODUCT MATERIAL PRINCIPAL APPLICATION
------- -------- ---------------------
<S> <C> <C>
Sheets/Rolls................ Rubber Foam Artificial turf underlay, athletic mats, casual footwear,
life vests
Cross-linked Polyethylene Artificial turf underlay, shoe insoles, athletic mats, toys,
novelties, marine buoys, ship fenders, performance
packaging
Silicone Rubber Commercial lighting gaskets, aerospace gaskets
Buns........................ Rubber Foam Automotive gaskets and seals, shock absorbing devices
Extruded Insulation......... Rubber Foam Commercial and residential HVAC insulation
Polyethylene Foam Do-it-yourself piping insulation
Extruded Shapes............. Rubber Foam Weather stripping, gaskets, drink cup holders
Rubber Commercial glazings
Silicone Rubber Marine seals, appliance gaskets
Molded Products............. Rubber Tarp straps, pipe gaskets
Silicone Rubber Appliance gaskets, automotive parts
Laminated Sheets............ Rubber Foam/Fabric Wetsuits, knee braces, elbow braces, medical braces, ski
masks
Fabricated Products......... Rubber Foam Closure seals, automotive parts, sports helmet padding
</TABLE>
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<PAGE> 36
Customers
The Foam Group serves a wide array of industrial and consumer end-user
markets. The Foam Group's base of over 9,000 active customers is comprised of a
large group of core customers who rely on the Company for their ongoing needs
and a smaller number of customers who approach the Company on a project-specific
basis. The Foam Group is able to serve both types of customers because of its
wide range of products, its design and production capabilities and its sales
force which assesses the customers' requirements in order to develop products
which meet their specifications. The size and diversity of the Foam Group's
customer base reduces the Company's reliance on any individual customer or
industry segment.
The Company's products are sold to end product manufacturers, intermediate
fabricators and distributors. End product manufacturers operate in a wide range
of industrial and commercial segments that produce subassemblies and finished
products. Fabricators slice and cut foam into shaped pieces and then sell them
to other manufacturers. Distributors purchase tubes, sheets and buns for resale
to smaller contractors.
Industry
The market for closed cell rubber foam and related products had estimated
annual sales of approximately $450 million in 1997. Industry growth is expected
to come from increased use of closed cell rubber foam in automotive sound and
vibration insulation, new applications in sports and leisure markets and growth
in the consumer and residential housing markets for HVAC insulation. The market
includes rubber foams sold for thermal insulation and for processing into
components or finished parts or products but does not include rubber foams
manufactured by vertically integrated companies exclusively selling finished
products. The overall market is comprised of several segments that are defined
by the product's end use and this market continues to expand as new products and
applications are developed. Some segments, such as insulation, represent a large
share of the overall market and have a large number of customers and suppliers.
A number of other segments represent niche product markets constituting a small
share of the overall market and have relatively few customers and suppliers. The
overall market includes a large number of customers from a variety of
industries, and even established customers in the larger segments of this market
generally represent only a small percentage of the market's total sales. The
Company believes that it has approximately a 40% share of the overall market.
The next six largest producers account for approximately 40% of this market,
with a large number of smaller competitors comprising the remainder.
The market for cross-linked polyethylene foam is believed to represent
approximately a $150 million segment of the $5 billion market for plastic foams
in general. Industry growth is expected to come largely from the continued
development of new applications for cross-linked polyethylene foam. Management
believes that it has the second largest share of this market with an estimated
24% share. Approximately 85% of the Company's 1997 plastic foam sales were for
end-use markets such as automotive, construction, performance packaging, ship
fenders and marine buoys.
THE MIXING GROUP
Products
The Company's Mixing Group mixes rubber polymers and chemical additives to
customer specifications. The various ingredients of a custom formulation are
carefully weighed into a mixer which blends the components and feeds the mixture
onto a large mill. The milled rubber is then pulled off the mill in a wide
ribbon, cooled, and then cut into rough sheets or strips of uncured compound.
These sheets and strips are molded or extruded by the customer into a wide
variety of products including automobile tires and parts, industrial belts and
hoses, agricultural tools and equipment and roofing materials.
Customers
The Company's Mixing Group serves more than 250 active customers from a
variety of industries. In most instances, the Company supplies the raw materials
for a given customer formulation and charges the customer on a "cost-plus"
basis, reflecting raw material costs plus a usage fee for time used on the
mixing line.
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<PAGE> 37
In cases where a customer supplies the raw materials, the Mixing Group charges a
"tolling" fee for providing the mixing service.
Industry
The domestic custom rubber mixing market is a fragmented $1.2 billion
industry. This market includes custom mixers that mix rubber compounds for third
parties but excludes vertically integrated manufacturers that mix rubber
compounds for their own consumption. There are over 150 companies that mix
rubber based on a customer's specifications or the mixer's own proprietary
formulations. The Company estimates that it is the second largest domestic
custom rubber mixer, with an estimated 7% share of the market. Due to
transportation costs, competition in the custom mixing business is largely
regional. For example, the Company generally does not deliver custom compounds
beyond the range of a one-day truck run (approximately 500 miles).
The critical elements in custom compounding are quality, service and
efficiency. The accuracy of the mix is critical to ensure smooth processing
through the customer's manufacturing equipment and the proper performance of the
finished product. While price is important, customers choose suppliers who can
provide rapid turnaround, maximize throughput and minimize waste while
maintaining high quality standards.
Since raw materials represent on average 76% of the manufactured cost of
mixed compound, the product is priced on essentially a "cost-plus" basis. Most
custom compounders effect price changes on 15 to 30 days' notice, effectively
passing through raw material price increases and decreases almost as soon as
they are issued by the primary chemical producers, thereby reducing the mixers'
exposure to raw material price changes.
SALES, MARKETING AND DISTRIBUTION
The Company relies on its direct sales force to market and sell the vast
majority of its products. The Company's direct sales force maintains contact
with the Company's customers, a large percentage of which are end product
manufacturers. For products targeted to certain markets, the Company will use
independent sales agencies which have the industry expertise necessary to market
and sell the product effectively. For example, the Company relies on independent
sales agencies with automotive expertise to sell foam products to automotive
OEMs. For certain products that are manufactured in standard configurations, the
Company will sell directly to distributors for resale to end users. For example,
insulation tubing (which is manufactured in a number of standard sizes) is sold
to the construction industry through distributors. Products are distributed
either directly to customers or through distribution warehouses strategically
located throughout the country.
CAPACITY
Although actual utilization varies depending upon the product line and
manufacturing location, the Foam Group's facilities generally are operating at
approximately 80% of capacity, operating three shifts a day, five days a week,
with occasional Saturday shifts. The Mixing Group's manufacturing facilities are
operating at 80-85% of capacity, operating three shifts a day, generally five,
and occasionally six, days a week.
COMPETITION
The Company believes that it is a leading supplier in most of its principal
product lines. The Company faces domestic and foreign competition across its
product lines ranging from divisions of leading national and international
manufacturers to small, regional competitors.
The Company believes that it is the largest domestic manufacturer of rubber
foam products. The Company believes that it is the second largest domestic
supplier of cross-linked polyethylene foam with an estimated 26% market share.
Based on management's estimates, the Voltek division of Sekesui America
Corporation ("Voltek") is the largest domestic supplier of cross-linked
polyethylene foam with an estimated market share of 55%. However, due to
differences between the Company's and Voltek's products which make them suitable
for different applications, management believes that the Company's customer base
has limited overlap with that of Voltek.
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<PAGE> 38
The Company, with a mixing capacity of approximately 165 million pounds per
year, estimates that it is the second largest domestic custom rubber mixer, with
an estimated 7% share of the market. The Company estimates that there are 150
domestic custom mixers, approximately 20 of which have annual capacity greater
than 35 million pounds. Because transportation costs affect a custom mixer's
ability to compete, competition tends to be focused regionally. The Company
believes that the significant discounts it receives through Company wide raw
material purchases, its proprietary formulations, emphasis on quality control
and ability to provide rapid turnaround of unusual formulations and small orders
enable it to compete effectively in mixing.
RAW MATERIALS
The Company's key raw material inputs are synthetic polymers, specialty
chemicals, carbon black, synthetic fabrics, natural rubber and polyethylene,
which represented, respectively, 37%, 17%, 7%, 4%, 4%, and 3% of the Company's
raw material purchases during 1997. Due to the volume of its raw material
purchases, the Company receives substantial discounts and rebates from its
suppliers. Raw material purchases accounted for approximately 50% of the cost of
goods sold by the Foam Group and approximately 76% of the cost of goods sold by
the Mixing Group in 1997. The Company purchases raw materials from a number of
suppliers through short-term purchasing arrangements, and the Company believes
that there are sufficient sources of supply for the foreseeable future.
The Company expects that it will continue to experience raw material price
fluctuations from time to time. Many of the raw materials used by the Company
are petrochemical derivatives, which are subject to periodic price fluctuations.
Historically, the Company has been able to pass along increased raw material
costs to its customers. For the majority of its products, the Company's pricing
strategy is flexible enough to permit cost increases to be passed through
promptly.
TRADEMARKS AND PATENTS
The Company has numerous trademarks and several patents effective in the
United States and several trademarks effective in several foreign countries for
varying lengths of time. Company trademarks include Rubatex(R) under which it
markets particular products, Insul-Tube(R) and Therma-Cel(R) under which it
markets certain insulation products, ENSOLITE(R) under which it markets certain
rubber foam sheets/rolls, SeaTex(R) under which it markets wetsuit material and
Comfortex(R) under which it markets sports/medical material. The Company also
has a number of applications for trademarks pending in the United States and
abroad. Management considers its various trademarks, trademark applications and
patents to be valuable assets but believes that the loss of any one trademark or
patent would not have a material adverse effect on the Company's operations.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations ("Environmental Laws") which continue to be
adopted and amended. These Environmental Laws regulate, among other things, air
and water emissions and discharges at the Company's manufacturing facilities;
the generation, storage, treatment, transportation and disposal of solid and
hazardous waste by the Company, the release of hazardous substances, pollutants
and contaminants into the environment at properties operated by the Company and
at other sites; and, in some circumstances, the environmental condition of
property prior to transfer or sale to the Company. Risks of significant
environmental costs and liabilities are inherent in the operations and
facilities of the Company, as well as other participants in the industry. The
Company believes, however, that its current operations are in substantial
compliance with Environmental Laws.
The Company anticipates capital expenditures of approximately $1.7 million
in the aggregate over the next three to five years relating to environmental
matters. These expenditures include, among other things, making improvements in
the Company's underground storage tank systems, designing and installing air
emission control equipment and implementing spill control plans. As a result of
internal evaluations and discussions with its advisors and consultants, the
Company estimates that the cost of the Company's known potential environmental
liabilities ranges from $1.8 million to $2.9 million. Based on the reasonably
expected
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<PAGE> 39
amount of such liabilities, the Company has established a reserve on its balance
sheet for environmental liabilities, which as of December 31, 1997 and March 31,
1998 was approximately $2.1 million. Management believes such amounts, under
existing laws and regulations, are adequate to cover presently identified
environmental liabilities, but no assurance can be given that such amounts will
be adequate to cover the ultimate costs of these liabilities, or the cost of
environmental liabilities that may arise or be identified in the future.
Although management expects that any cash outlays with respect to such matters
would be made over a number of years, the timing of any such expenditures cannot
be determined.
The Company has been named as a "potentially responsible party" at two
federal "Superfund" sites and one other site where its wastes are alleged to
have been disposed of. Based upon information known to the Company concerning
the size of these sites, their years of operation, the number of past users and
the characteristics of the Company's waste streams, management believes that the
Company's proportionate share of the cost of the necessary investigation and
eventual remedial work that may need to be performed at such sites will not be
material. A "potentially responsible party" under applicable federal regulations
would have joint and several liability for the total costs of any cleanup or
other remediation. The Company does not presently have any cost sharing
arrangements with any other potentially responsible parties. However, the
Company has no reasonable basis to believe that any other potentially
responsible party will be unable to make its pro rata contribution with respect
to any cleanup or other remediation.
During 1997, the North Carolina Department of Environment and Natural
Resources asserted that the Company's Conover, North Carolina plant was in
violation of the visible emissions requirement of that state's clean air act and
assessed a minimal penalty. The Company is currently investigating the problem
and has hired a consulting firm to identify potential methods of complying with
the state's visible emissions requirements. The Company believes that add-on
pollution control technology is available which would allow the Company to
comply with such requirements. A report from the consultant is due in the second
quarter of 1998. The Company does not expect the costs of complying with such
requirements to be material.
The Company's leased Barberton, Ohio facility was listed in the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS") index with the designation "No Further Remedial Action
Planned." However, such facility was delisted from the CERCLIS index on August
31, 1995, based on a follow-up site investigation that year by a United Stated
Environment Protection Agency ("U.S. EPA") contractor. The property remains
identified on the Ohio 1994 Master Sites List, with a designation of "medium
priority." The Ohio EPA issued a complaint with respect to the Barberton
facility in 1991 and, although such complaint remains open, the Company believes
that all noted items have been corrected. Although some further investigation or
cleanup of the site may be required, the Company does not expect that the costs
of those activities would have a material adverse effect on the Company's
financial condition, operations or liquidity. Any such costs would likely be
incurred over several years.
EMPLOYEES AND EMPLOYEE RELATIONS
At December 31, 1997, the Company employed 2,272 persons, of whom
approximately 28% were salaried employees, and 72% were hourly employees.
Approximately 75% of the Company's hourly employees are represented by labor
unions pursuant to collective bargaining agreements that expire between January
1998 and August 2002. The Company believes its relations with both union and
non-union employees are good.
SEASONAL NATURE OF BUSINESS
The Company participates in a number of markets, some of which have slight
seasonalities, but this wide market participation insulates against significant
seasonal business fluctuations.
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PROPERTIES
In addition to its leased 24,000 square foot headquarters in Roanoke,
Virginia, the Company operates eight manufacturing facilities, the majority of
which are located in the southeastern United States. The Company also owns or
leases warehouse facilities throughout the U.S. The size and location of the
Company's significant facilities are summarized below:
<TABLE>
<CAPTION>
LOCATION SIZE (SQ. FT.) LEASED/OWNED
-------- -------------- ------------
<S> <C> <C>
Manufacturing:
Bedford, VA...................................... 782,000 Owned
Conover, NC...................................... 275,000 Owned
Middlefield, OH.................................. 119,000 Owned
Buchanan, VA..................................... 77,000 Owned
Colt, AR......................................... 223,000 Leased(a)
Barberton, OH.................................... 197,000 Leased
Tallapoosa, GA................................... 165,000 Leased(a)
South Holland, IL................................ 164,000 Leased
Warehouse:
Conover, NC...................................... 88,000 Leased
Sante Fe Springs, CA............................. 44,000 Owned
Decatur, GA...................................... 37,000 Owned(b)
Conover, NC...................................... 36,000 Leased
St. Louis, MO.................................... 28,000 Leased
Hickory, NC...................................... 28,000 Leased
Houston, TX...................................... 22,000 Leased
Kent, WA......................................... 14,000 Leased
</TABLE>
- ---------------
(a) Subject to a lease with nominal lease payments. The Company has the
option to purchase this property for a nominal amount.
(b) The Company no longer stores inventory at the Decatur, GA facility,
which facility is currently being offered for sale.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management believes that none of the
matters in which the Company is currently involved, either individually or in
the aggregate, is expected to have a material adverse effect on the Company's
business, financial condition or liquidity. See "-- Environmental Matters."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the name, age as of December 31, 1997, and a brief
account of the business experience of each person who is, or was at December 31,
1997, a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank H. Roland...................... 62 President, Chief Executive Officer and Director
John C. Cantlin...................... 49 Vice President, Chief Financial Officer and Treasurer
Mark T. Dobbins...................... 52 Vice President -- Human Resources
Timothy J. Bernlohr.................. 38 Vice President -- Sales and Marketing
Alfred H. Turner..................... 57 Vice President -- Information Systems
Harry L. Schickling.................. 59 Vice President -- Administration and Secretary
Tom H. Barrett....................... 67 Chairman of the Board and Director
W. Richard Bingham................... 62 Director
Theodore C. Rogers................... 63 Director
Lawrence W. Ward, Jr. ............... 45 Director
Robert J. Klein...................... 33 Director
Steven W. Schaefer................... 60 Director
</TABLE>
Mr. Roland has been the President and Chief Executive Officer of the
Company since October 1996. He became President of Rubatex in April 1995. The
former President of Halstead Industries, Inc. ("Halstead"), Mr. Roland joined
the Company in January 1995 upon the Company's acquisition of Halstead
Corporation, a subsidiary of Halstead. Mr. Roland joined Halstead in May 1989 as
Chief Financial Officer and Treasurer and was promoted to President in April
1992. Prior to his employment with Halstead, he served in various executive
capacities with H. H. Roberston Co. and United Dominion Industries, Inc.
Mr. Cantlin has been a Vice President of the Company since September 1997.
Prior to joining the Company, Mr. Cantlin spent seven years as the Executive
Vice President of Finance and Corporate Secretary of Stockham Valves, Inc. He
also has ten years experience as Chief Financial Officer of several divisions of
FMC Corporation.
Mr. Dobbins has been a Vice President of the Company since November 1996.
Between 1991 and 1996, Mr. Dobbins was Vice President -- Human Resources for
Halstead. Prior to 1991, Mr. Dobbins spent seven years as Director of Training
and Industrial Relations as well as Director International Human Resources for
ICI Americas Corporation. Prior experience included Vice President -- Human
Resources Engineered Products/ITT Grinnell and various human resource
assignments with Cutler-Hammer Corporation and Masonite Corporation.
Mr. Bernlohr has been a Vice President of the Company since May 1997. Prior
to joining the Company, Mr. Bernlohr spent 16 years with Armstrong World
Industries ("Armstrong") and spent his last five years at Armstrong as Division
Sales & Marketing Manager for North America.
Mr. Turner has been a Vice President of the Company since July 1997. Prior
to joining the Company, Mr. Turner spent four years as the Director of
Information Systems for OSI, Specialities Division of Witco Chemical
Corporation. Prior to 1993, Mr. Turner held the Senior Information Services role
at TRACO, Robertson-Ceco Corporation and Amca Corporation.
Mr. Schickling has been a Vice President of the Company since 1990. He
joined the Company in 1980 as Manager of Software Systems and also held the
position of Environmental and Legal Director before his promotion to Vice
President. Immediately before coming to the Company, Mr. Schickling headed the
Navy Field Engineering Office in Charleston, SC. Prior to that he held various
positions with Honeywell, Inc., Sears Roebuck & Company and the U.S. Navy.
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<PAGE> 42
Mr. Barrett has been a director of the Company since the Acquisition. Mr.
Barrett is the former Chairman, President and Chief Executive Officer of
Goodyear Tire & Rubber Company, where he also served in various executive
capacities from 1953 to 1991. Mr. Barrett joined AIP in 1992 and is a limited
partner of American Industrial Partners II, L.P. ("AIP-LP"), the general partner
of AIP-CF, and is a director and officer of American Industrial Partners
Corporation ("AIPCorp."), and a director of AO Smith Corporation, Rubbermaid
Inc. and Air Products & Chemicals, Inc. He is also a trustee of Mutual Life
Insurance Company of New York.
Mr. Bingham has been a director of the Company since the Acquisition. Mr.
Bingham co-founded AIP and has been a director and officer of the firm since
1989. He is also a limited partner of AIP-LP and an officer and director of
AIPCorp. Prior to co-founding AIP, Mr. Bingham was a Managing Director of
Shearson Lehman Brothers Inc. from 1984 until late 1987. Prior to joining
Shearson Lehman Brothers, Mr. Bingham was director of the Corporate Finance
Department, member of the Board, and, most recently, head of Mergers and
Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he directed
investment banking operations at Kuhn Loeb & Company where he was a partner and
member of the Board and Executive Committee. Mr. Bingham is currently a director
of Sweetheart Holdings Inc. ("Sweetheart"), Stanadyne Automotive Corp.
("Stanadyne") and Bucyrus International, Inc. ("Bucyrus"). He formerly served on
the boards of Avis, Inc., ITT Life Insurance Corporation and Valero Energy
Corporation.
Mr. Rogers has been a director of the Company since the Acquisition. Mr.
Rogers co-founded AIP and has been a director and officer of the firm since
1989. He is also a limited partner of AIP-LP and an officer and director of
AIPCorp. From 1980 to 1987, he served as Chairman, President and Chief Executive
Officer of NL Industries, Inc., a petroleum service and chemical company. Mr.
Rogers is a former director of Allied Stores Corporation, Allied-Signal Inc.,
Parsons Corporation, MCorp and Southwest Bancshares Inc. He is currently a
director of Easco, Inc. ("Easco"), Sweetheart, Stanadyne, Bucyrus and Derby
International.
Mr. Ward has been a director of the Company since the Acquisition. Mr. Ward
has been an employee of AIP since 1992. From 1989 to 1992, he was Vice President
and Chief Financial Officer of Plantronics, Inc., a telecommunications equipment
company, and from 1980 to 1989, he held several investment banking positions at
Kidder, Peabody & Co., Incorporated, including Senior Vice President. Mr. Ward
is a director of Easco, Stanadyne, Sweetheart and Bucyrus.
Mr. Klein has been a director of the Company since the Acquisition. Mr.
Klein has been an employee of AIP since 1992. From 1991 to 1992, he was an
associate at The First Boston Corporation and prior thereto was an associate
with Acadia Partners, L.P. From 1986 to 1988, he served as a financial analyst
in the mergers and acquisitions department of Morgan Stanley & Co. Incorporated.
Mr. Klein is a director of Easco.
Mr. Schaefer is the former President and Chief Executive Officer of the
Company, where he served from April 1993 to October 1996. Between 1983 and 1993,
Mr. Schaefer was employed at Occidental Petroleum Corporation in a variety of
officer positions, including Vice President, Occidental Petroleum Corp.;
Executive Vice President, Polymers and Plastics Division; and Senior Vice
President, PVC Products Division. Prior to 1983, Mr. Schaefer held a variety of
line and senior management positions at Diamond Shamrock, most recently as
Corporate Director, Human Resources and Vice President and General Manager,
Plastics Division.
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<PAGE> 43
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth information
concerning the compensation for Mr. Roland, the four other most highly
compensated officers of the Company and the two highest compensated former
officers of the Company for the years ended December 31, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
----------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Frank H. Roland.............................. 1997 $330,000 -- $4,101(6)
President and Chief Executive Officer and 1996 288,919 -- 4,134(6)
Director
John C. Cantlin.............................. 1997 63,333(2) $25,000(5) 118(6)/15,833(7)
Chief Financial Officer and Treasurer 1996 -- --
Timothy J. Bernlohr.......................... 1997 107,404(3) 30,000(5) 236(6)/77,000(8)
Vice President -- Marketing & Sales 1996 -- --
Mark T. Dobbins.............................. 1997 144,800 -- 354(6)
Vice President -- Human Resources 1996 17,190 -- 11,460(7)
Alfred H. Turner............................. 1997 104,240(4) -- 268(6)/10,425(7)
Vice President -- Information Systems 1996 -- --
Steven W. Schaefer(1)........................ 1997 -- -- --
1996 341,195 -- 4,134(6)
Thomas F. Lemker(1).......................... 1997 96,250 -- 2,425(6)
1996 179,586 -- 4,134(6)
</TABLE>
- ---------------
(1) No longer employed by the Company.
(2) Reflects Mr. Cantlin's earnings from September 1997 (when he joined the
Company) through December 1997. His annual Salary is $190,000.
(3) Reflects Mr. Bernlohr's earnings from April 1997 (when he joined the
Company) through December 1997. His annual Salary is $150,000.
(4) Reflects Mr. Turner's earnings from January 1997 (when he joined the
Company) through December 1997. His annual Salary is $125,100.
(5) Reflects guaranteed minimum bonus for 1997.
(6) Reflects 1996 and 1997 total term life insurance premiums paid by the
Company and 1997 total amounts contributed under the Company's 401(k) plan
for each executive.
(7) Reflects signing bonus.
(8) Reflects payments made by the Company to compensate Mr. Bernlohr for the
forfeiture of stock options and performance restricted shares of his prior
employer.
Stock Options and Stock Appreciation Rights ("SARs"). No options to
acquire common stock, $.01 par value, of RBX Group (the "Common Stock") or SARs
were granted to any named executive officer of the Company during the year ended
December 31, 1997. The following table provides information on options exercised
during 1997 for the named executive officers and the value of such unexercised
options as of the end of such year. No SARs were outstanding in 1997.
43
<PAGE> 44
AGGREGATED OPTION EXERCISES FOR 1997
AND OPTION VALUES AS OF DECEMBER 31, 1997 TABLE(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AS OF DECEMBER 31, 1997(#) AS OF DECEMBER 31, 1997($)
IN EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
----------- ----------- ------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Frank H. Roland.......... 0 0 5,223/5,100 $391,725/$0
Harry L. Schickling...... 0 0 3,176/900 $238,200/$0
Steven W. Schaefer....... 0 0 4,666/0 $349,950/$0
Thomas F. Lemker......... 0 0 3,333/3,000 $249,975/$0
</TABLE>
- ---------------
(1) Represents outstanding Rollover Options (as defined) and outstanding
Incentive Options (as defined), respectively.
(2) Amounts shown are based on the estimated fair market value of the Common
Stock as of December 31, 1997 at $100 per share.
Rollover Options. At the time of the Acquisition, certain options held by
management were converted into options to acquire common stock of RBX Group (the
"Rollover Options").
Incentive Options. On October 16, 1995, the Board of Directors of RBX
Group adopted the Management Stock Option Plan (the "Management Stock Option
Plan"). The purposes of the Management Stock Option Plan are to motivate and
retain certain management employees of the Company and its subsidiaries and
attract and retain talented individuals as employees by allowing them to acquire
an ownership interest in the Company. The Management Stock Option Plan provides
for the grant of up to 40,000 stock options (the "Incentive Options"), subject
to adjustment for stock splits and similar capital changes. As of December 31,
1997, 12,600 Incentive Options were outstanding and 27,400 Incentive Options
were available for future grants.
The Chief Executive Officer administers the Management Stock Option Plan
subject to the review and approval of the Board of Directors. On October 16,
1995, awards of Incentive Options were granted to certain management employees
of the Company as determined by the Chief Executive Officer (and approved by the
Board of Directors) who administers the Management Stock Option Plan. The term
of any Incentive Option shall not exceed ten years. Options under the Management
Stock Option Plan are not intended to be "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code or any successor
provisions.
The Board of Directors selects the participants and establishes the terms
and conditions of each Incentive Option grant.
PENSION PLANS
The Company maintains a noncontributory defined benefit pension plan (the
"Plan") covering certain of the Company's employees, including the executive
officers listed in the foregoing tables. The accrued monthly benefit ordinarily
payable under the Plan is equal to 1/12 multiplied by: (i) 0.5% of the average
compensation (including merit bonuses) received by a participant during the five
consecutive calendar years of employment that would produce the highest such
average (the "Final Average Compensation") times the years of service of the
participant with the Company and certain related or predecessor employers not in
excess of 35 years ("Years of Benefit Service") plus (ii) 0.5% of the Final
Average Compensation that is in excess of the Social Security taxable wage base
times Years of Benefit Service.
The compensation covered by the Plan generally corresponds to the annual
salary and merit bonus amounts reported in the preceding summary compensation
table. For calendar years between 1994 and 1997, the total compensation that can
be considered for any purpose under the Plan (the "Pay Limit") is limited to
$150,000 and beginning in 1997, the Pay Limit is $160,000 pursuant to
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"). The Code also places certain other limitations on the annual benefits
that may be paid under the Plan. However, the benefits payable under the Plan
are not reduced for any Social Security payments that may be received by a
participant.
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<PAGE> 45
The Company has also adopted an unfunded supplemental retirement plan for
certain designated employees (the "SERP") which is designed to supplement the
benefits payable to participants under the Plan and certain other plans of the
Company. The annual benefit ordinarily payable under the SERP is equal to 50% of
the participant's Final Average Compensation (as determined under the Plan),
calculated based on a maximum compensation of $235,840 (or, if greater, the
amount of the Pay Limit then in effect), but reduced by (i) the sum of all
benefits under the Plan and any other qualified plans maintained by the Company,
(ii) the amount of monthly Social Security benefit payments received by the
participant, and (iii) the amount of any long-term disability payments to the
participant. The SERP has the effect of establishing a minimum pension level for
participating executives, regardless of participation in the Qualified Plans.
The estimated annual benefits payable under the Plan (as a straight life
annuity commencing at age 65) for employees not covered by the SERP are
illustrated below:
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE -----------------------------------------------
COMPENSATION (1) 15 20 25 30 35
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000....................... $16,682 $22,242 $27,803 $33,364 $38,924
$150,000 and above............. 20,432 27,242 34,053 40,864 47,674
</TABLE>
- ---------------
(1) Annual covered compensation is assumed to be $27,576, the 1996 value
for a participant age 65. All pay is assumed to be capped at the
401(a)(17) pay limit of $150,000 for years prior to 1997 and for
1997, the limit is $160,000, pursuant to requirements imposed by the
Code. No grandfathered benefits are included in the calculations for
past pay cap levels.
DIRECTOR COMPENSATION
Mr. Barrett receives an annual fee of $150,000 for his service as Chairman
of the Board of Directors. Mr. Schaefer receives an annual retainer of $15,000,
plus $1,000 per meeting of the Board of the Directors. All other Directors
currently do not receive a fee or an annual retainer for their services as
Directors. Each of the Directors are reimbursed for out-of-pocket expenses
incurred in connection with attending meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There is currently no compensation committee of the Board of Directors. The
principal decisions respecting compensation of executive officers are made by
the Board of Directors. Mr. Roland is a Director but does not participate in any
vote regarding his own compensation.
EMPLOYMENT AGREEMENTS
Mr. Cantlin is party to an employment arrangement which remains in effect
at least until September 1, 2000, unless terminated earlier for cause. The
arrangement provides for a base salary of $190,000 and incentive compensation
based on the Company's financial performance.
Mr. Bernlohr is party to an employment arrangement which remains in effect
at least until April 1, 2000, unless terminated earlier for cause. The
arrangement provides for an annual base salary of $150,000 and incentive
compensation based on the Company's performance.
Mr. Dobbins is party to an employment arrangement which remains in effect
at least until November 18, 1999, unless terminated earlier for cause. The
arrangement provides for an annual base salary of $150,000 and incentive
compensation based on the Company's performance.
Mr. Turner is party to an employment arrangement which remains in effect at
least until March 1, 2000, unless terminated earlier for cause. The arrangement
provides for an annual base salary of $125,100 and incentive compensation based
on the Company's performance.
SECURITY OWNERSHIP
As of December 31, 1997, RBX Group was the only holder of record of shares
of the Company's common stock, par value $.01 per share. As of December 31,
1997, there were 15 holders of record of shares of
45
<PAGE> 46
Common Stock of RBX Group. The following table sets forth certain information
regarding beneficial ownership of Common Stock as of December 31, 1997, assuming
the exercise of stock options exercisable within 60 days of such date, by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) each of the Company's directors and the named
executive officers in the Summary Compensation Table and (iii) all directors and
executive officers as a group. To the knowledge of the Company, each stockholder
has sole voting and investment power as to the shares of Common Stock shown
unless otherwise noted. Except as indicated below, the address for each such
person is c/o RBX Corporation, 5221 ValleyPark Drive, Roanoke, Virginia 24019.
<TABLE>
<CAPTION>
NAME NUMBER(1) PERCENTAGE(2)
- ---- --------- -------------
<S> <C> <C>
American Industrial Partners Capital Fund II, L.P.(3)(4).... 394,275 78.9%
American Industrial Partners Capital Fund, L.P.(3)(4)....... 100,000 20.0%
Frank H. Roland(5).......................................... 5,223 1.0%
Tom H. Barrett.............................................. 1,000 *
W. Richard Bingham(4)....................................... 494,275 98.9%
Theodore C. Rogers(4)....................................... 494,275 98.9%
Lawrence W. Ward, Jr. ...................................... 100 *
Robert J. Klein............................................. 150 *
Steven W. Schaefer(5)....................................... 4,666 *
Thomas F. Lemker(5)......................................... 3,333 *
All directors and executive officers
as a group (12 persons)(6)................................ 508,590 99.3%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person and the percentage of beneficial
ownership of that person, shares of Common Stock subject to options held by
that person that are currently exercisable or exercisable within 60 days are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person. The
persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table.
(2) Based upon 499,275 shares of Common Stock outstanding as of December 31,
1997.
(3) The address of such entity is One Maritime Plaza, Suite 2525, San Francisco,
CA 94111.
(4) Messrs. Bingham and Rogers share investment and voting power with respect to
the securities owned by AIP-CF and American Industrial Partners Capital
Fund, L.P., but each disclaims beneficial ownership of any shares of Common
Stock. The business address of Mr. Bingham is One Maritime Plaza, Suite
2525, San Francisco, CA 94111, and the business address of Mr. Rogers is 551
Fifth Avenue, Suite 3800, New York, NY 10176.
(5) Represents shares of Common Stock which are issuable upon exercise of
options within 60 days of the date hereof.
(6) Includes an aggregate of 29,436 shares of Common Stock held by directors and
past and present executive officers which are issuable upon exercise of
options exercisable within 60 days of the date hereof.
The total amount of authorized capital stock of the Company is 1,000 shares
of common stock, $0.01 par value per share, and no shares of preferred stock.
The total amount of authorized capital stock of the RBX Group is 1,000,000
shares of Common Stock, 100,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock") and 90,000 shares of non-voting series A preferred
stock, par value $0.01 per share (the "Series A Preferred Stock"). As of
December 31, 1997, 1,000 shares of the Company's Common Stock were issued and
outstanding, 499,275 shares of RBX Group's Common Stock were issued and
outstanding and 90,000 shares of RBX Group's Series A Preferred Stock were
issued and outstanding. All of the issued and outstanding shares of Series A
Preferred are held by AEA Investors, Inc. or affiliates thereof.
The issued and outstanding shares of the Company's common stock are validly
issued, fully paid and nonassessable. The holders of outstanding shares of the
Company's common stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine. The shares of the Company's common stock are
neither redeemable nor convertible, and the holders thereof have no preemptive
or subscription rights to purchase any securities of the
46
<PAGE> 47
Company. Upon liquidation, dissolution or winding up of the Company, the holders
of the Company's common stock are entitled to receive pro rata the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of any
preferred stock then outstanding. Each outstanding share of the Company's common
stock is entitled to one vote on all matters submitted to a vote of
stockholders.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition, RBX Group, AIP, certain related
investors and management investors entered into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which such persons were granted certain
registration rights and participation rights with respect of the Common Stock of
RBX Group. Pursuant to the Stockholders' Agreement, AIP has the right to elect
the majority of the directors of RBX Group.
At the close of the Acquisition, AIP was paid a fee of $2.0 million and was
reimbursed for out-of-pocket expenses in connection with the negotiation of the
acquisition agreement and for providing certain investment banking services to
the Company including the arrangement and negotiation of the terms of the
acquisition financing and for other financial advisory and management consulting
services.
Upon the closing of the Ensolite Acquisition, the Company paid a fee of
$400,000 to AIP and reimbursed AIP for its out-of-pocket expenses in connection
with the negotiation of the Ensolite Acquisition and for providing certain
investment banking services to the Company, including the arrangement and
negotiation of the terms of the related agreements and financing.
MANAGEMENT SERVICES AGREEMENT
AIP has provided, and expects to continue to provide, substantial ongoing
financial and management services to the Company utilizing the extensive
operating and financial experience of AIP's principals. AIP receives an annual
fee of $850,000 for providing general management, financial and other corporate
advisory services to the Company, payable semiannually, and is reimbursed for
out-of-pocket expenses. The fees are paid to AIP pursuant to a management
services agreement among AIP, RBX Group, the Company and the Company's
subsidiaries and are subordinated in right of payment to the Notes, the New
Credit Agreement and the Senior Subordinated Notes.
47
<PAGE> 48
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued as a separate series pursuant to the
Indenture. The terms of the New Notes include those stated in the Indenture and
those made part of the Indenture by reference to the TIA. The New Notes are
subject to all such terms, and Holders of New Notes are referred to the
Indenture and the TIA for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture,
Collateral Documents and Registration Rights Agreement are available as set
forth below under "-- Additional Information." The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions." For purposes of this summary, the term "Company" refers only to
RBX Corporation and not to any of its Subsidiaries.
As of the date of the Indenture, none of the Company's Subsidiaries were
Unrestricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100.0 million
and will mature on January 15, 2003. Interest on the Notes will accrue at the
rate of 12% per annum and will be payable semi-annually in arrears on January 15
and July 15, commencing on July 15, 1998, to Holders of record on the
immediately preceding January 1 and July 1. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest and Liquidated Damages on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments of principal, premium, interest and Liquidated
Damages with respect to Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The Notes
will be issued in denominations of $1,000 and integral multiples thereof.
RANKING AND SECURITY
The Notes will rank pari passu with all Indebtedness of the Company that is
not subordinated to the Notes, including borrowings under the New Credit
Agreement. The Notes will rank senior to any Indebtedness of the Company that is
subordinated to the Notes, including the Senior Subordinated Notes.
The Notes will be fully and unconditionally guaranteed on a joint and
several basis by each of the Subsidiary Guarantors. See "Subsidiary Guarantees."
The Subsidiary Guarantees will rank pari passu with all Indebtedness of the
Subsidiaries Guarantors that is not subordinated to such Subsidiary Guarantees,
including guarantees of borrowings under the New Credit Agreement. The
Subsidiary Guarantees will rank senior to any Indebtedness of the Subsidiary
Guarantors that is subordinated to such Subsidiary Guarantees, including the
guarantees of the Senior Subordinated Notes.
The Notes will be secured by a first priority Lien on certain collateral
described below that is owned or hereafter acquired by the Company, including by
a pledge of the stock of each of the Subsidiary Guarantors, and each of the
Subsidiary Guarantees will be secured by a first priority Lien (or, with respect
to certain properties, a second priority lien) on certain collateral described
below that is owned or hereafter acquired by each of the Subsidiary Guarantors
(collectively, the "Primary Collateral"). In addition, the Notes and the
Subsidiary Guarantees will be secured by a Lien that is junior to the Lien
securing the New Credit Agreement
48
<PAGE> 49
on assets comprising the New Credit Agreement Collateral, which consist of
substantially all of the accounts receivable, inventory and general intangibles
(to the extent related to inventory and receivables) of the Company and the
Subsidiary Guarantors and the proceeds thereof, whether now owned or hereafter
acquired (collectively, "Secondary Collateral" and, together with the Primary
Collateral, the "Collateral").
The Primary Collateral owned by the Company includes, without limitation
(whether now owned or hereafter acquired): (i) the outstanding Capital Stock of
the Company's Subsidiaries, (ii) the Company's material owned personal property,
plant, equipment, furnishings and fixtures, (iii) certain of the Company's owned
manufacturing and warehouse facilities, including additions and improvements and
the Company's leasehold interests in certain leased manufacturing facilities,
(iv) the Company's trademarks, patents and copyrights and related intellectual
property and (v) certain other assets. The Primary Collateral owned by the
Subsidiary Guarantors includes, without limitation (whether now owned or
hereafter acquired): (i) the Subsidiary Guarantors' material owned personal
property, plant, equipment, furnishings and fixtures, (ii) certain of the
Subsidiary Guarantors' owned manufacturing and warehouse facilities, including
additions and improvements and the Subsidiary Guarantors' leasehold interests in
certain leased manufacturing facilities, (iii) the Subsidiary Guarantors'
trademarks, patents and copyrights and related intellectual property and (iv)
certain other assets. The Indenture and the Collateral Documents will require
that the Company and its Subsidiaries pledge all After-Acquired Property of the
types described in this paragraph as Collateral under the Indenture and the
Collateral Documents.
The Notes will be effectively subordinated to existing and future secured
Indebtedness to the extent of any assets serving as collateral for such
Indebtedness, and each Subsidiary Guarantee likewise will be effectively
subordinated to existing and future secured Indebtedness of the respective
Subsidiary Guarantors to the extent of any assets serving as collateral for such
Indebtedness. In that regard, borrowings by the Company under the $25.0 million
New Credit Agreement, and the guarantees thereof by each of the Subsidiary
Guarantors, will be secured by a first priority Lien on the New Credit Agreement
Collateral, and the Notes and the Subsidiary Guarantees will be secured by a
Lien on such collateral that is junior to the Lien securing the New Credit
Agreement. In addition, the Indenture will permit the Company and the Subsidiary
Guarantors to create Purchase Money Liens securing Purchase Money Obligations,
and the Notes and the Subsidiary Guarantees will also be effectively
subordinated to such Purchase Money Obligations and other obligations secured by
such Purchase Money Liens to the extent of any assets serving as collateral for
such Indebtedness. See the definition of "Permitted Liens" under "-- Certain
Definitions."
Upon the occurrence and during the continuance of an Event of Default, the
Trustee will have the right to exercise on behalf of the holders of the Notes
such remedies, including remedies with respect to the Primary Collateral and,
subject to the Intercreditor Agreement, the Secondary Collateral, as are
available under the Indenture, the Collateral Documents and at law. All funds
distributed under the Collateral Documents and received by the Trustee for the
benefit of the Holders of the Notes will be distributed by the Trustee in
accordance with the provisions of the Indenture.
Under the terms of the Indenture and the Collateral Documents, the Trustee
will determine the circumstances and manner in which to dispose of the Primary
Collateral and, subject to the Intercreditor Agreement, the Secondary
Collateral, including, but not limited to, the determination of whether to
release all or any portion of such Collateral from the Liens created by the
Collateral Documents and whether to foreclose on such Collateral following an
Event of Default. The right of the Trustee to repossess and dispose of the
Collateral upon the occurrence of an Event of Default under the Indenture is, in
the case of Secondary Collateral, subject to the provisions of the Intercreditor
Agreement and, with respect to any Collateral, likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy case were to be commenced
by or against the Company or any of its Subsidiaries prior to the Trustee having
repossessed and disposed of the Collateral, and, in the case of real property
Collateral, could also be significantly impaired by restrictions under state
law. See "-- Risk Factors -- Certain Bankruptcy Limitations."
The Indenture permits the release of Collateral without the substitution of
additional Collateral under certain circumstances, including in connection with
certain Asset Sales. See "-- Possession, Use and Release of Collateral." As
described under "-- Certain Covenants -- Asset Sales," the Net Proceeds of Asset
Sales
49
<PAGE> 50
may be required to be utilized to make an Asset Sale Offer. To the extent an
Asset Sale Offer is not accepted by Holders, the unutilized Net Proceeds will,
if required by the terms of the indenture governing the Senior Subordinated
Notes, be used to make a similar repurchase offer to holders of the Senior
Subordinated Notes, and to the extent not accepted by such holders, be retained
by the Company or the applicable Subsidiary Guarantor, free and clear of the
Lien of the Indenture and the Collateral Documents. In addition, the term "Asset
Sale," as defined in the Indenture, will exclude certain sales or other
dispositions of assets. See "-- Certain Definitions." As a result, the Company
and its Subsidiaries will be permitted to sell certain assets without compliance
with the foregoing provisions. The Collateral will also be released as security
for the Notes and the Guarantees upon a legal defeasance or covenant defeasance
of the Notes (see "-- Legal Defeasance and Covenant Defeasance") and, upon the
release of any Subsidiary Guarantor as described in the last paragraph under
"-- Subsidiary Guarantees" below, the Collateral pledged by such Subsidiary
Guarantor will be released as security for its Subsidiary Guarantee.
The Company has not conducted appraisals of the Collateral in connection
with the offering (the "Offering") of the Old Notes. The consolidated book value
of the Primary Collateral as of December, 1997 was approximately $126.1 million.
The Primary Collateral includes the manufacturing facilities located in Bedford,
Virginia, Colt, Arkansas, Middlefield, Ohio and Buchanan, Virginia and a
warehouse facility in Santa Fe Springs, California, but does not include the
manufacturing facilities in Conover, North Carolina, Tallapoosa, Georgia,
Barberton, Ohio or South Holland, Illinois. In addition, the consolidated book
value of the Secondary Collateral was approximately $77.8 million as of December
31, 1997. The amount realized in respect of the Collateral in the event of a
liquidation will depend upon market and economic conditions, the availability of
buyers and similar factors. In that regard, the New Credit Agreement Collateral
(which consists of the inventory, accounts receivable and general intangibles
(to the extent related to inventory and accounts receivable) of the Company and
its existing and future Subsidiaries and the proceeds thereof) is material to
the Company and its Subsidiaries and is necessary to operate their businesses.
As a result, the Trustee and the Holders of the Notes do not have the benefit of
a first priority Lien on all the assets necessary to continue to operate the
business in the ordinary course of business. In addition, the fact that the
lenders under the New Credit Agreement have a first priority Lien on the
Secondary Collateral could have a material adverse effect on the amount that
would be realized upon a liquidation of the Collateral. Accordingly, there can
be no assurance that proceeds of any sale of the Collateral pursuant to the
Indenture and the related Collateral Documents following an Event of Default
would be sufficient to satisfy, or would not be substantially less than, amounts
due under the Notes. See "-- Risk Factors -- Certain Limitations on the
Collateral and the Subsidiary Guarantees." If the proceeds of any of the
Collateral were not sufficient to repay all amounts due on the Notes, the
holders of the Notes (to the extent not repaid from the proceeds of the sale of
the Collateral) would have only an unsecured claim against the remaining assets
of the Company and the Subsidiary Guarantors. By its nature, some or all of the
Collateral will be illiquid and may have no readily ascertainable market value.
Likewise, there can be no assurance that the Collateral will be saleable, or, if
saleable, that there will not be substantial delays in its liquidation. To the
extent that Liens, rights or easements granted to third parties encumber assets
located on property owned by the Company or the Subsidiary Guarantors, including
the New Credit Agreement Collateral, such third parties have or may exercise
rights and remedies with respect to the property subject to such Liens that
could adversely affect the value of the Collateral and the ability of the
Trustee or the holders of the Notes to realize or foreclose on Collateral.
In connection with the Offering, the Trustee, the agent ("Agent") under the
New Credit Agreement, the Company and the Subsidiary Guarantors entered into the
Intercreditor Agreement, which defines the rights between the Trustee and the
Agent with respect to the New Credit Agreement Collateral and the Secondary
Collateral. Among other things, the Intercreditor Agreement provides that the
Agent will be entitled to sell or dispose of the New Credit Agreement Collateral
without regard to the Lien of the Indenture and the Collateral Documents, except
that the Agent is required to promptly deliver to the Trustee any proceeds
remaining from such sale, transfer or other disposition of the New Credit
Agreement Collateral and Secondary Collateral after payment and satisfaction of
all Obligations under the New Credit Agreement. Moreover, the Trustee, on behalf
of itself and the holders of the Notes, will agree to release the Lien of the
Indenture and the Collateral Documents in the New Credit Agreement Collateral
and Secondary Collateral to allow any sale or
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disposition of such collateral for the benefit of the lenders under the New
Credit Agreement if such sale or disposition is made in accordance with the
provisions of the Indenture. Under the Intercreditor Agreement, the Trustee will
agree, on behalf of itself and the holders of the Notes, that without the prior
written consent of the Agent, it will not exercise any rights of enforcement
with respect to New Credit Agreement Collateral or the Secondary Collateral
until the Obligations under the New Credit Agreement have been paid and
satisfied in whole.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be fully and
unconditionally guaranteed on a joint and several basis (the "Subsidiary
Guarantees") by each of the Subsidiary Guarantors. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee, and the grant by each
Subsidiary Guarantor of Liens on the Collateral of each Subsidiary Guarantor to
secure its obligations under its Subsidiary Guarantee, will be subject to
various laws for the protection of creditors, including, without limitation,
laws governing fraudulent conveyances and transfers. To the extent that the
obligations of the Subsidiary Guarantor under its Subsidiary Guarantee, or the
Lien granted by the Subsidiary Guarantor on its Collateral, were held to be
unenforceable as a fraudulent conveyance or transfer or for other reasons, the
holders of Notes would cease to have any direct claim against the Subsidiary
Guarantor, cease to have any Lien on the assets of such Subsidiary Guarantor, or
both, as appropriate. In an attempt to avoid this result, the Subsidiary
Guarantees will provide that the obligations of each Subsidiary Guarantor
thereunder will be limited to the maximum amount as will not constitute a
fraudulent conveyance or fraudulent transfer under applicable law. Such amount
could be substantially less than the obligations on the Notes. In addition, any
limitation on the amounts payable by a Subsidiary Guarantor under the Subsidiary
Guarantee pursuant to such provision will result in a corresponding limitation
on the ability of the Trustee to realize upon the Collateral pledged by such
Subsidiary Guarantor. See, "Risk Factors -- Fraudulent Conveyance Matters."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation or other Person, whether or not affiliated with
such Subsidiary Guarantor, unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor under the Notes, the Indenture, the Registration Rights
Agreement and the Collateral Documents pursuant to a supplemental indenture and
other agreements in form and substance reasonably satisfactory to the Trustee;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Subsidiary Guarantor, or any Person formed by or
surviving any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or greater than
the Consolidated Net Worth of such Guarantor immediately preceding the
transaction; (iv) the Company would be permitted by virtue of the Company's pro
forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (v) the
Collateral owned by such Subsidiary Guarantor or surviving Person, as the case
may be, (A) shall continue to constitute Collateral under the Indenture and the
Collateral Documents, (B) shall be subject to a Lien in favor of the Trustee for
the benefit of the holders of the Notes and (C) shall not be subject to any Lien
other than Permitted Liens; and (vi) the property and assets of the Person which
is merged or consolidated with or into such Subsidiary Guarantor, to the extent
that they are property or assets of the types which would constitute Collateral
under the Collateral Documents, shall be treated as After-Acquired Property and
such Subsidiary Guarantor or the surviving Person, as the case may be, shall
take such actions as may be necessary to cause such property and assets to be
made subject to the Lien of the Collateral Documents in the manner and to the
extent required by the Indenture; provided, that the provisions of clauses (ii)
through (iv) above shall not apply to the merger of two or more Subsidiary
Guarantors with and into each other or the merger of any Subsidiary Guarantor
into the Company.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the Capital
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Stock of any Subsidiary Guarantor, in each case to a Person which is not the
Company or a Subsidiary or an Affiliate of the Company, then such Subsidiary
Guarantor (in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be released
and relieved of any obligations under its Subsidiary Guarantee, the Indenture
and the Collateral Documents; provided that (i) the Net Proceeds of such sale or
other disposition are applied in accordance with the provisions of the Indenture
described under "-- Certain Covenants -- Asset Sales" and (ii) all obligations
of such Subsidiary Guarantor under all of its guarantees of, and under all of
its pledges of assets or other Liens which secure, Indebtedness of the Company
or any of its Subsidiaries or Unrestricted Subsidiaries, shall also terminate.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after July 15,
1999 at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed after the respective dates indicated below:
<TABLE>
<CAPTION>
DATE PERCENTAGE
- ---- ----------
<S> <C>
July 15, 1999............................................. 103.0%
January 15, 2000.......................................... 104.5%
January 15, 2001.......................................... 106.0%
January 15, 2002.......................................... 107.5%
</TABLE>
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate; provided
that no Notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note will
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
CERTAIN COVENANTS
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder of Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon
to the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
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requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Offer
Period (the "Change of Control Purchase Date"), the Company will purchase all
Notes tendered in response to the Change of Control Offer. Payment for any Notes
so purchased will be made in the same manner as interest payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Notes pursuant to the Change of Control Offer.
On the Change of Control Purchase Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Purchase Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale in excess of $1.0 million unless
(i) the Company (or the Subsidiary, as the case may be) receives consideration
at the time of such Asset Sale at least equal to the fair market value, and in
the case of a lease of assets, a lease providing for rent and other conditions
which are no less favorable to the Company (or the Subsidiary, as the case may
be) in any material respect than the then prevailing market conditions
(evidenced in each case by a resolution of the Board of Directors of such entity
set forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests sold or otherwise disposed of, (ii) at least 75% (100% in the
case of lease payments) of the consideration therefor received by the Company or
such Subsidiary is in the form of cash or Cash Equivalents; provided that the
amount of (x) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet or in the notes thereto, excluding contingent
liabilities and trade payables), of the Company or any Subsidiary (other than
liabilities that are by their terms subordinated to, or pari passu with, the
Notes or any Guarantee thereof) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by the Company or any
such Subsidiary from such transferee that are promptly, but in no event more
than 30 days after receipt, converted by the Company or such Subsidiary into
cash (to the extent of the cash received), will be deemed to be cash for
purposes of this provision, (iii) subject to the Intercreditor Agreement, if
such Asset Sale involves the disposition of Collateral, the Company or such
Subsidiary has complied with the provisions described under "-- Possession, Use
and Release of Collateral," and (iv) the Company or such Subsidiary, as the case
may be, applies the Net Proceeds as provided in the following paragraph.
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<PAGE> 54
Any such Net Proceeds shall be applied within 360 days of the related Asset
Sale as follows:
(i) to the extent that such Net Proceeds are derived from property or
assets which do not constitute Primary Collateral or are not deemed
(pursuant to the provisions described below) to constitute Primary
Collateral Proceeds ("Non-Primary Collateral Proceeds"), such Non-Primary
Collateral Proceeds may, at the option of the Company, be applied to repay
Indebtedness outstanding under the New Credit Agreement; and
(ii) with respect to any Net Proceeds derived from property or assets
which constitute Primary Collateral ("Primary Collateral Proceeds") or
derived from a transaction as a result of which a Subsidiary Guarantor is
released from its Subsidiary Guarantee as provided in the last paragraph
under "-- Subsidiary Guarantees" and which (pursuant to the provisions
described below) are deemed to be Primary Collateral Proceeds, and with
respect to any Non-Primary Collateral Proceeds remaining after application
as described in subparagraph (i) above (all such Primary Collateral
Proceeds and amounts deemed to be Primary Collateral Proceeds, together
with any such remaining Non-Primary Collateral Proceeds being hereinafter
called, collectively, the "Available Amount"), such Available Amount shall,
if the Company so elects, be applied (A) to the acquisition of another
business or the acquisition of other long-term assets, in each case, in the
same or a similar line of business as the Company or any of its
Subsidiaries was engaged in on the date of the Indenture or any reasonable
extensions or expansions thereof ("Replacement Assets"); provided, that any
Replacement Assets acquired with any Primary Collateral Proceeds or amounts
deemed to constitute Primary Collateral Proceeds (1) shall be owned by the
Company or by the Subsidiary Guarantor that made the Asset Sale and shall
not be subject to any Liens except Permitted Liens (and the Company or such
Subsidiary Guarantor, as the case may be, shall execute and deliver to the
Trustee such Collateral Documents or other instruments as shall be
necessary to cause such Replacement Assets to become subject to a Lien in
favor of the Trustee, for the benefit of the holders of the Notes, securing
its obligations under the Notes or its Subsidiary Guarantee, as the case
may be, and otherwise shall comply with the provisions of the Indenture
applicable to After-Acquired Property), and (2) shall not include any New
Credit Agreement Collateral or (B) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of Net Insurance Proceeds received on account
of such loss, damage or taking.
Any portion of the Available Amount that is not used as described in
subparagraphs (i) or (ii) above within such 360 day period shall constitute
"Excess Proceeds" subject to disposition as provided below. When the aggregate
amount of Excess Proceeds exceeds $5.0 million, the Company will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds to make a similar repurchase offer to
holders of Senior Subordinated Notes, and, to the extent not accepted by such
holders, for general corporate purposes. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
Subject to the Intercreditor Agreement, all Collateral Proceeds and amounts
which, pursuant to the provisions described above, are deemed to be Collateral
Proceeds shall, pending their application in accordance with this covenant or
the release thereof in accordance with the provisions described under
"-- Possession, Use and Release of Collateral" and "-- Use of Trust Monies," be
deposited in the Collateral Account under the Indenture.
The term "Asset Sale," as defined in the Indenture, will exclude certain
sales and other dispositions of assets. See "-- Certain Definitions." As a
result, the Company and its Subsidiaries will be permitted to sell certain
assets without compliance with the foregoing covenant.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer
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<PAGE> 55
Period"). No later than five Business Days after the termination of the Asset
Sale Offer Period (the "Asset Sale Purchase Date"), the Company will purchase
the principal amount of Notes required to be purchased pursuant to this covenant
(the "Asset Sale Offer Amount") or, if less than the Asset Sale Offer Amount has
been tendered, all Notes tendered in response to the Asset Sale Offer. Payment
for any Notes so purchased will be made in the same manner as interest payments
are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Asset Sale Offer Amount has been tendered,
all Notes tendered, and will deliver to the Trustee an Officers' Certificate
stating that such Notes or portions thereof were accepted for payment by the
Company in accordance with the terms of this covenant. The Company, the
Depositary or the Paying Agent, as the case may be, will promptly (but in any
case not later than five days after the Asset Sale Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Company for purchase, and the
Company will promptly issue a new Note, and the Trustee, upon delivery of an
Officers' Certificate from the Company, will authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted will be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the Asset Sale Purchase
Date.
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company or any direct or indirect parent
of the Company or other Affiliate or Subsidiary of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the
Company that is a Subsidiary Guarantor); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is contractually subordinated to the Notes, except at final
maturity, other than through the purchase or acquisition by the Company of
Indebtedness through the issuance in exchange therefor of Equity Interests
(other than Disqualified Stock); or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (ii),
(iii), (iv) and (v) of the next succeeding paragraph), is less than the sum
of (i) $5.0 million, plus (ii) 50% of the Consolidated Net Income of the
Company for the period (taken as
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<PAGE> 56
one accounting period) from January 1, 1998 to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (iii) to the extent not included in the amount described in
clause (ii) above, 100% of the aggregate net cash proceeds received after
the date of the Indenture by the Company from the issue or sale of, or from
additional capital contributions in respect of, Equity Interests of the
Company or of debt securities of the Company or any Subsidiary Guarantor
that have been converted into, or canceled in exchange for, Equity
Interests of the Company or of any direct or indirect parent of the Company
(other than Equity Interests (or convertible debt securities) sold to a
Subsidiary or an Unrestricted Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iv) 100% of any dividends received by the
Company or a Wholly Owned Subsidiary that is a Subsidiary Guarantor after
the date of the Indenture from an Unrestricted Subsidiary of the Company,
plus (v) 100% of the cash proceeds realized upon the sale of any
Unrestricted Subsidiary (less the amount of any reserve established for
purchase price adjustments and less the maximum amount of any
indemnification or similar contingent obligation for the benefit of the
purchaser, any of its Affiliates or any other third party in such sale, in
each case as adjusted for any permanent reduction in any such amount on or
after the date of such sale, other than by virtue of a payment made to such
Person) following the date of the Indenture, plus (vi) to the extent that
any Restricted Investment that was made after the date of the Indenture is
sold for cash or otherwise liquidated or repaid for cash, the amount of
cash proceeds received with respect to such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) if no Default or Event of Default has occurred and is continuing
(and has not been waived) or will occur as a consequence thereof, the payment by
the Company of a management fee to AIP or its designee in an amount not to
exceed $850,000 in any year (payable semi-annually 45 days after each interest
payment date with respect to the Senior Subordinated Notes) plus an additional
amount in such year (not to exceed $850,000) to the extent such management fee
was not payable by reason of this clause (ii) in any prior fiscal year, and the
reimbursement by the Company of AIP's or its designee's reasonable out-of-pocket
expenses; provided, however, that no such fees may be paid, and no such expenses
may be reimbursed, unless the obligation of the Company to pay such management
fee has been subordinated to the payment of all Obligations with respect to the
Notes (and any Subsidiary Guarantee thereof) in the same manner and to the same
degree that the Senior Subordinated Notes are subordinated to the Obligations
with respect to the Notes (and any Subsidiary Guarantees); (iii) the making of
any Restricted Investment in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of, or
from substantially concurrent additional capital contributions in respect of,
Equity Interests of the Company (other than Disqualified Stock); provided, that
any net cash proceeds that are utilized for any such Restricted Investment, and
any Net Income resulting therefrom, will be excluded from clauses (c)(ii) and
(c)(iii) of the preceding paragraph; (iv) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of the Company or any direct or
indirect parent of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of, or
from substantially concurrent additional capital contributions in respect of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, will be excluded from clauses (c)(ii) and (c)(iii) of the preceding
paragraph; (v) the defeasance, redemption or repurchase of pari passu or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of, or from substantially concurrent
additional capital contributions in respect of, Equity Interests of the Company
(other than Disqualified Stock); provided, that any net cash proceeds that are
utilized for any such defeasance, redemption or repurchase, and any Net Income
resulting therefrom, will be excluded from clauses (c)(ii) and (c)(iii) of the
preceding paragraph; (vi) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company or any direct or indirect parent of the Company held by any member
of the Company's (or any of its Subsidiaries')
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<PAGE> 57
management pursuant to any management agreement, stock option agreement or plan
or stockholders agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests will not exceed $1.0
million in any fiscal year or $5.0 million in the aggregate (net of the cash
proceeds received by the Company from subsequent reissuances of such Equity
Interests to new members of management), and no Default or Event of Default will
have occurred and be continuing immediately after such transaction; (vii) the
acquisition by a Receivables Subsidiary in connection with a Qualified
Receivables Transaction of Equity Interests of a trust or other Person
established by such Receivables Subsidiary to effect such Qualified Receivables
Transaction; (viii) the repurchase of Senior Subordinated Notes in connection
with an "Asset Sale Offer" (as defined in the indenture for the Senior
Subordinated Notes) after first satisfying any requirement to make and
consummate an Asset Sale Offer to the holders of the Notes under the Indenture
as provided in "-- Certain Covenants -- Asset Sales;" and (vi) the repurchase of
Senior Subordinated Notes in connection with a "Change of Control Offer" (as
defined in the indenture for the Senior Subordinated Notes) after first
satisfying any requirement to make and consummate a Change of Control Offer to
the holders of the Notes under the Indenture as provided in "-- Certain
Covenants -- Change of Control."
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by the Company and its
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation, (y) the fair
market value of such Investments at the time of such designation and (z) the
original fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company will deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries and Unrestricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Indebtedness) and the Company will
not issue any Disqualified Stock and will not permit any of its Subsidiaries and
Unrestricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock and the Company's
Subsidiaries that are Subsidiary Guarantors may incur Indebtedness and issue
preferred stock if: (i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2 to 1, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period; and (ii) no Default or Event of Default
will have occurred and be continuing or would occur as a consequence thereof;
provided, that no Guarantee may be incurred pursuant to this paragraph unless
the guaranteed Indebtedness is incurred by the Company or a Subsidiary pursuant
to this paragraph.
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The foregoing provisions will not apply to:
(i) the incurrence by the Company of Senior Revolving Debt and
reimbursement obligations in respect of letters of credit (and Guarantees
thereof by Subsidiaries that are Subsidiary Guarantors) in an aggregate
principal amount at any time outstanding (with letters of credit
obligations being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries that are Subsidiary
Guarantors with respect thereto) not to exceed an amount equal to $25.0
million;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness, including the Senior Subordinated Notes;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and by the Subsidiaries of Indebtedness represented by the Subsidiary
Guarantees;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (i) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary will be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries that
are Subsidiary Guarantors of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the Indenture to be
incurred;
(viii) the incurrence by the Company or any of its Subsidiaries that
are Subsidiary Guarantors of Indebtedness (in addition to Indebtedness
permitted by any other clause of this paragraph) in an aggregate principal
amount at any time outstanding not to exceed the sum of $5.0 million;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be
deemed to constitute an incurrence of Indebtedness by a Subsidiary of the
Company;
(x) Indebtedness incurred by the Company or any of its Subsidiaries
that is a Subsidiary Guarantor arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees of letters of credit, surety bonds or performance bonds
securing the performance of the Company or any of its Subsidiaries incurred
by any Person acquiring all or a portion of such business, assets of a
Subsidiary of the Company for the purpose of financing such acquisition, in
a principal amount not to exceed 25% of the gross proceeds (with proceeds
other than cash or Cash Equivalents being valued at the fair market value
thereof as determined by the Board of Directors of the Company in good
faith) actually received by the Company or any of its Subsidiaries in
connection with such disposition; and
(xi) the incurrence by a Receivables Subsidiary of Indebtedness in an
amount not to exceed $25.0 million in a Qualified Receivables Transaction
that is without recourse to the Company or to any Subsidiary of the Company
or their assets (other than such Receivables Subsidiary and its assets),
and is not guaranteed by any such Person.
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Notwithstanding any other provision of this covenant, a Guarantee of
Indebtedness permitted by the terms of the Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the New Credit Agreement as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the New
Credit Agreement as in effect on the date of the Indenture, (c) the Indenture
and the Notes, (d) applicable law, (e) any instrument governing Acquired
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Acquired Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that the Consolidated
EBITDA of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (f) by reason of
customary nonassignment provisions in leases and licenses entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) agreements relating to the financing of the
acquisition of real or tangible personal property acquired after the date of the
Indenture, provided, that such encumbrance or restriction relates only to the
property which is acquired and in the case of any encumbrance or restriction
that constitutes a Lien, such Lien constitutes a Purchase Money Lien, (i)
Indebtedness or other contractual requirements of a Receivables Subsidiary in
connection with a Qualified Receivables Transaction, provided that such
restrictions apply only to such Receivables Subsidiary, (j) any restriction or
encumbrance contained in contracts for sale of assets permitted by the Indenture
in respect of the assets being sold pursuant to such contract, (k) Senior
Revolving Debt permitted to be incurred under the Indenture and incurred after
the date of the Indenture, provided, that such encumbrances or restrictions in
such Indebtedness are no more onerous than the restrictions contained in the New
Credit Agreement on the date of the Indenture, (l) Non-Recourse Debt of
Unrestricted Subsidiaries incurred under clause (ix) of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" or (m) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from,
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or enter into or make any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction entered into after the date of the
Indenture involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Company or such Subsidiary of such
Affiliate Transaction from a financial point of view issued by an investment
banking firm of national standing; provided that the following will not be
deemed to be Affiliate Transactions: (w) the provision of administrative or
management services by the Company or any of its officers to any of its
Subsidiaries in the ordinary course of business consistent with past practice,
(x) any employment agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (y) transactions between or among
the Company and/or its Wholly Owned Subsidiaries or transactions between a
Receivables Subsidiary and any Person in which the Receivables Subsidiary has an
Investment and (z) transactions permitted by the covenant entitled
"-- Restricted Payments."
Maintenance of Adjusted EBITDA
Commencing with the fiscal quarter ending December 31, 1998, not later than
45 days following the end of each of the Company's fiscal quarters (or 90 days
following the end of the Company's fiscal year), the Company shall deliver to
the Trustee an Officers' Certificate determining that the Company's aggregate
Adjusted EBITDA for the four-quarter period ending such quarter was not less
than $18.0 million.
Additional Subsidiary Guarantees
The Indenture provides that all Subsidiaries of the Company (other than a
Receivables Subsidiary) substantially all of whose assets are located in the
United States or that conduct substantially all of their business in the United
States will be Subsidiary Guarantors. In addition, the Indenture provides that
the Company will not, and will not permit any of the Subsidiary Guarantors to,
make any Investment in any Subsidiary that is not a Subsidiary Guarantor unless
either (i) such Investment is permitted by the covenant entitled "-- Restricted
Payments", or (ii) such Subsidiary executes a Subsidiary Guarantee and delivers
an Opinion of Counsel in accordance with the provisions of the Indenture.
Impairment of Security Interests
The Indenture provides that neither Company nor any of its Subsidiaries
will take or omit to take any action which action or omission could reasonably
be expected to have the result of adversely affecting or impairing the Lien in
favor of the Trustee for the benefit of the holders of the Notes in the
Collateral.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
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Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Trustee and
all Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case within the time periods
specified in the Commission's rules and regulations. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any Notes remain outstanding, they will furnish to the
Trustee, Holders and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company will not, in a single transaction
or series of related transactions, consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made (such surviving corporation or transferee
Person, the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity assumes all the obligations of the Company under the Notes,
the Indenture and the Collateral Documents pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) the Surviving Entity
causes such amendments, supplements or other instruments to be filed and
recorded in such jurisdictions as may be required by applicable law to preserve
and protect the Lien of the Collateral Documents on the Collateral owned by or
transferred to the Surviving Entity, together with such financing statements as
may be required to perfect any security interests in such Collateral which may
be perfected by the filing of a financing statement under the Uniform Commercial
Code of the relevant states; (iv) the Collateral owned by or transferred to the
Surviving Entity shall (1) continue to constitute Collateral under the Indenture
and the Collateral Documents, (2) shall be subject to the Lien in favor of the
Trustee for the benefit of the holders of the Notes and (3) shall not be subject
to any Lien other than Permitted Liens; (v) the property and assets of the
Person which is merged or consolidated with or into the Surviving Entity, to the
extent that they are property or assets of the types which would constitute
Collateral under the Collateral Documents, shall be treated as After-Acquired
Property and the Surviving Entity shall take such action as may be necessary to
cause such property and assets to be made subject to the Lien of the Collateral
Documents in the manner and to the extent required in the Indenture; (vi)
immediately after such transaction no Default or Event of Default exists; (vii)
the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been made
(A) will have Consolidated Net Worth immediately after the transaction equal to
or greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock"; and (viii) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
addressed to the Trustee, each stating that such consolidation, merger, sale,
assignment, transfer, lease,
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conveyance or disposition and such supplemental indenture, if any, comply with
this Indenture and that such supplemental indenture is enforceable.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Subsidiaries to comply with the provisions described under
the captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments"
or "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (iv) failure
by the Company or any of its Subsidiaries for 60 days after notice to comply
with any of its other agreements in the Indenture, the Notes, the Subsidiary
Guarantees or the Collateral Documents; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Significant Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) default by the Company or any of its
Subsidiaries in the performance of the Collateral Documents which adversely
affects the enforceability or the validity of the Trustee's Lien on the
Collateral or which adversely affects the condition or value of the Collateral
in any material respect, repudiation or disaffirmation by the Company or any
such Subsidiary of its obligations under the Collateral Documents or the
determination in a judicial proceeding that the Collateral Documents are
unenforceable or invalid against the Company or any of its Subsidiaries for any
reason; (viii) except as permitted by the Indenture, any Subsidiary Guarantee
will be held in any judicial proceeding to be unenforceable or invalid or will
cease for any reason to be in full force and effect or any Subsidiary Guarantor,
or any person acting on behalf of any Subsidiary Guarantor, will deny or
disaffirm its obligations under its Subsidiary Guarantee; and (ix) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. In addition to acceleration of the Notes, if
an Event of Default occurs and is continuing, the Trustee will have the right,
subject, in the case of Secondary Collateral, to the Intercreditor Agreement, to
exercise remedies with respect to the Collateral, such as foreclosure, as are
available under the Indenture, the Collateral Documents and at law. Holders of
the Notes may not enforce the Indenture or the Notes or exercise remedies with
respect to the Collateral except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, the Notes, the Subsidiary Guarantees and the Collateral
Documents, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
POSSESSION, USE AND RELEASE OF COLLATERAL
Subject to and in accordance with the provisions of the Collateral
Documents and the Indenture, so long as the Trustee has not exercised its rights
with respect to the Collateral upon the occurrence and continuance of an Event
of Default, the Company and the Subsidiary Guarantors will have the right to
remain in possession and retain exclusive control of the Collateral, to operate
the Collateral, to alter or repair the Collateral and to collect, invest and
dispose of any income thereon, subject, in the case of the Secondary Collateral,
to the provisions of the Intercreditor Agreement and the New Credit Agreement.
Release of Primary Collateral. Upon compliance by the Company with the
conditions set forth below, the Trustee will release the Released Collateral (as
defined) from the Lien of the relevant Collateral Document. The Company and the
Subsidiary Guarantors, as the case may be, will have the right to obtain a
release of items of Primary Collateral (the "Released Collateral") upon
compliance with the condition that the Company deliver to the Trustee the
following:
(a) A notice from the Company requesting the release of Released
Collateral, (i) specifically describing the proposed Released Collateral,
(ii) specifying the fair market value of such Released Collateral on a date
within 60 days of such notice (the "Valuation Date"), (iii) stating that
the consideration to be received in respect of the Released Collateral is
at least equal to the fair market value of the Released Collateral, (iv)
stating that the release of such Released Collateral will not impair the
value of the remaining Collateral or interfere with the Trustee's ability
to realize such value and will not impair the maintenance and operation of
the remaining Collateral, (v) confirming the sale of, or an agreement to
sell, such Released Collateral in a bona fide sale to a person that is not
an Affiliate to the Company or, in the event that such sale is to a person
that is an Affiliate, confirming that such sale is made in compliance with
the provisions set forth in "-- Certain Covenants -- Affiliate
Transactions," (vi) certifying that if the sale of such Released Collateral
constitutes an Asset Sale, such Asset Sale complies with the terms and
conditions of the Indenture with respect thereto, including, without
limitation, the provisions set forth in "-- Certain Covenants -- Asset
Sales", and (vii) in the event there is to be a substitution of property
for the Released Collateral subject to the Asset Sale, specifying the
property intended to be substituted for the Released Collateral to be
disposed of;
(b) An officers' certificate of the Company stating that (i) such sale
covers only the Released Collateral (or other property which is not Primary
Collateral), (ii) all Primary Collateral Proceeds (including amounts deemed
to be Primary Collateral Proceeds) from the sale of any of the Released
Collateral will be deposited in the Collateral Account, and if the sale of
such Released Collateral constitutes an Asset Sale, all Net Proceeds from
the sale of any of the Released Collateral (and any other property which is
not Primary Collateral) will be applied pursuant to the provision of the
Indenture in respect of Asset Sales, (iii) there is no Default or Event of
Default in effect or continuing on the date thereof or the Valuation Date,
(iv) the release of the Primary Collateral will not result in a Default or
Event of Default under the Indenture, and (v) all conditions precedent in
the Indenture relating to the release in question have been complied with;
and
(c) All documentation required by the TIA, if any, prior to the
release of the Released Collateral by the Trustee and, in the event that
there is to be a substitution of property for the Released Collateral
subject to the Asset Sale, all documentation necessary to effect the
substitution of such new Collateral and to subject such new Collateral to
the Lien of the relevant Collateral Documents.
The Indenture provides that the Company also shall be entitled, subject to
compliance with the conditions set forth therein, to obtain the release of
Collateral which has been taken by eminent domain, condemnation or in similar
circumstances.
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The Indenture provides that the Company shall be entitled to obtain a full
release of all of the Collateral following legal defeasance or covenant
defeasance of the Indenture as described above under "-- Legal Defeasance and
Covenant Defeasance."
The Indenture provides that, upon the release of any Subsidiary Guarantor
from its obligations under the Indenture and its Subsidiary Guarantee as
described in the last paragraph under "-- Guarantees," such Subsidiary Guarantor
shall be entitled to obtain the release of all of its Collateral.
Release of Secondary Collateral. The release of the Secondary Collateral
will be governed by the terms of the New Credit Agreement and the Intercreditor
Agreement. See "Description of New Credit Agreement."
Disposition of Collateral Without Release. Notwithstanding the provisions
of "-- Release of Collateral" above, so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the Company and
the Subsidiary Guarantors may, among other things, without any release or
consent by the Trustee, conduct ordinary course activities with respect to
Collateral, including selling or otherwise disposing of, in any transaction or
series of related transactions, any property subject to the Lien of the
Collateral Documents which has become worn out or obsolete and which either has
an aggregate fair market value of $100,000 or less, or which is replaced by
property of substantially equivalent or greater value which becomes subject to
the Lien of the Collateral Documents as After-Acquired Property; abandoning,
terminating, canceling, releasing or making alterations in or substitutions of
any leases or contracts subject to the Lien of the Indenture or any of the
Collateral Documents; surrendering or modifying any franchise, license or permit
subject to the Lien of the Indenture or any of the Collateral Documents which it
may own or under which it may be operating; altering, repairing, replacing,
changing the location or position of and adding to its structures, machinery,
systems, equipment, fixtures and appurtences; demolishing, dismantling, tearing
down, scrapping or abandoning any Collateral if, in the good faith opinion of
the Board of Directors of the Company, such demolition, dismantling, tearing
down, scrapping or abandonment is in the best interest of the Company; granting
a nonexclusive license of any intellectual property; and abandoning intellectual
property which has become obsolete and not used in the business.
USE OF TRUST MONIES
All Trust Monies (including, without limitation, all Primary Collateral
Proceeds, all Non-Primary Collateral Proceeds that become part of the Available
Amount under the covenant entitled "-- Asset Sales" and Net Insurance Proceeds
required to be deposited with the Trustee) shall be held by the Trustee as a
part of the Primary Collateral securing the Notes and, so long as no Event of
Default shall have occurred and be continuing, may either (i) be released as
contemplated by "-- Certain Covenants -- Asset Sales" if such Trust Monies
represent Primary Collateral Proceeds in respect of an Asset Sale or (ii) at the
direction of the Company be applied by the Trustee from time to time to the
payment of the principal of, premium, if any, and interest on any Notes at
maturity or upon redemption or retirement, or to the purchase of Notes upon
tender or in the open market or otherwise, in each case in compliance with the
Indenture. The Company may also withdraw Trust Monies constituting Net Insurance
Proceeds to repair or replace the relevant Collateral, subject to certain
conditions set forth in the Indenture.
The Trustee shall be entitled to apply any Trust Monies to cure any Event
of Default. Trust Monies deposited with the Trustee shall be invested in Cash
Equivalents pursuant to the direction of the Company and, so long as no Default
or Event of Default shall have occurred and be continuing, the Company shall be
entitled to any interest or dividends accrued, earned or paid on such Cash
Equivalents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Subsidiary Guarantors, as such, will have any liability for any
obligations of the Company under the Notes, the Subsidiary Guarantees, the
Indenture, the Registration Rights Agreement or the Collateral Documents or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
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the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations will not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company will have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company will have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default will have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes, the Subsidiary Guarantees, the Registration Rights Agreement or the
Collateral Documents may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture, the Notes, the Subsidiary
Guarantees, the Registration Rights Agreement or the Collateral Documents may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver of the Indenture, Notes, Subsidiary Guarantees or Collateral
Documents, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
the covenants described above under the captions "-- Change of Control" or
"-- Asset Sales"), (iii) reduce the rate of or change the time for payment of
interest on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture,
Notes, Subsidiary Guarantees or Collateral Documents relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes, (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the covenants
described above under the caption "-- Repurchase at the Option of Holders") or
(viii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes,
the Subsidiary Guarantees, the Registration Rights Agreement or the Collateral
Documents to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation or sale of all or substantially all of the
Company's assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the TIA.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
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The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default will
occur (which will not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder will have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture, the
Registration Rights Agreement and the Collateral Documents without charge by
writing to RBX Corporation, 5221 ValleyPark Drive, Roanoke, Virginia 24019,
Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes will initially be
issued in the form of one Global Note (the "Global Note"). The Global Note will
be deposited on the date of the closing of the Exchange Offer with, or on behalf
of, The Depository Trust Company (the "Depositary") and registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Note and (ii) ownership of the New Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be affected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer New Notes evidenced by the
Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the New Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any New Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names New Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving
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such payments. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of New Notes. The Company believes, however, that is currently
the policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Exchange of Book-Entry Notes for Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in certificated form, then, upon surrender by the Global Note Holder of
its Global Note, New Notes in certificated form will be issued to each person
that the Global Note Holder and the Depositary identify as being the beneficial
owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Depositary in identifying the beneficial owners of New Notes and the Company and
the Trustee may conclusively rely on, and will be protected in relying on,
instructions from the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the New Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. Secondary
trading in long-term notes and debentures of corporate issuers is generally
settled in clearing-house or next-day funds. In contrast, the New Notes
represented by the Global Note are expected to be eligible to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the certificated New Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Adjusted EBITDA" means, with respect to the Company and its Subsidiaries
for any period, the sum of, without duplication, (i) the Consolidated EBITDA for
such period, plus (ii) all management fees paid or accrued to AIP or its
designee, but only to the extent that the obligation of the Company to pay such
management fee has been subordinated to the payment of all Obligations with
respect to the Notes (and any Subsidiary Guarantee thereof) in the same manner
and to the same degree that the Senior Subordinated Notes are subordinated to
the Obligations with respect to the Notes (and any Subsidiary Guarantees), plus
(iii) 100% of the aggregate net cash proceeds received after the first day of
such period and on or before the applicable date of delivery of the Officers'
Certificate set forth in the covenant entitled "Maintenance of Adjusted EBITDA"
from the issue or sale of, or from additional capital contributions in respect
of, Equity
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Interests of the Company (other than Equity Interests sold to a Subsidiary or an
Unrestricted Subsidiary of the Company and other than Disqualified Stock).
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control. Notwithstanding the foregoing, (a) the limited partners of
AIP Capital Funds will not be deemed to be Affiliates of AIP Capital Funds or
AIP solely by reason of their investment in AIP Capital Funds and (b) no Person
(other than the Company or any Subsidiary of the Company) in whom a Receivables
Subsidiary makes an Investment in connection with a Qualified Receivables
Transaction will be deemed to be an Affiliate of the Company or any of its
Subsidiaries solely by reason of such Investment.
"After-Acquired Property" means assets or property acquired after the date
of the Indenture as such term is defined in the Indenture.
"AIP" means American Industrial Partners, a Delaware general partnership.
"AIP Capital Funds" means American Industrial Partners Capital Fund, L.P.,
a Delaware limited partnership, and American Industrial Partners Capital Fund
II, L.P., a Delaware limited partnership.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
that does not constitute a Restricted Payment or an Investment by such Person of
any of its non-cash assets (including, without limitation, by way of a sale and
leaseback and including the issuance, sale or other transfer of any of the
capital stock of any Subsidiary of such Person) other than to the Company or to
any of its Wholly Owned Subsidiaries that is a Subsidiary Guarantor (including
the receipt of proceeds of insurance paid on account of the loss of or damage to
any asset and awards of compensation for any asset taken by condemnation,
eminent domain or similar proceeding, and including the receipt of proceeds of
business interruption insurance); and (ii) the issuance of Equity Interests in
any Subsidiaries or the sale of any Equity Interests in any Subsidiaries, in
each case, in one or a series of related transactions, provided, that
notwithstanding the foregoing, the term "Asset Sale" will not include: (a) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company, as permitted pursuant to the covenant entitled
"Merger, Consolidation or Sale of Assets"; (b) the sale or lease of equipment,
inventory, accounts receivable or other assets in the ordinary course of
business consistent with past practice and to the extent that such sales or
leases are not part of the a sale of the business in which such equipment was
used or in which such inventory or accounts receivable arose; (c) a transfer of
assets by the Company to a Wholly Owned Subsidiary that is a Subsidiary
Guarantor or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary that is a Subsidiary Guarantor or by a Wholly Owned Subsidiary
that is not a Subsidiary Guarantor to another Wholly Owned Subsidiary that is
not a Subsidiary Guarantor; (d) an issuance of Equity Interests by a Wholly
Owned Subsidiary to the Company or to another Wholly Owned Subsidiary that is a
Subsidiary Guarantor, or by a Wholly Owned Subsidiary that is not a Subsidiary
Guarantor to another Wholly Owned Subsidiary that is not a Subsidiary Guarantor;
(e) the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind; (f) the grant in the
ordinary course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property; (g) sales of
accounts receivable and related assets of the type specified in the definition
of "Qualified Receivables Transaction" to a Receivables Subsidiary for the fair
market value thereof, including cash in an amount at least equal to 75% of the
book value thereof as determined in accordance with GAAP, provided that such
sales shall not exceed the lesser of $25.0 million or the outstanding balance
under the New Credit Agreement, and provided further that the entire proceeds of
any such sale are used to repay outstanding indebtedness under the New Credit
Agreement and permanently reduce commitments thereunder; (h) Permitted
Investments; or (i) transfers of accounts receivable and related assets of the
type specified in the definition of "Qualified Receivables Transaction" (or a
fractional undivided interest therein) by a
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Receivables Subsidiary in a Qualified Receivables Transaction. For the purposes
of clause (g), notes received in exchange for the transfer of accounts
receivable and related assets will be deemed cash if the Receivables Subsidiary
or other payor is required to repay said notes as soon as practicable from
available cash collections less amounts required to be established as reserves
pursuant to contractual agreements with entities that are not Affiliates of the
Company entered into as part of a Qualified Receivables Transaction.
"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100.0
million or (ii) any bank whose short-term commercial paper rating from S&P is at
least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than twelve months from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Lender
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-2 (or the equivalent thereof) or
better by S&P or P-2 (or the equivalent thereof) or better by Moody's and
maturing within twelve months of the date of acquisition, (d) repurchase
agreements with a bank or trust company or recognized securities dealer having
capital and surplus in excess of $100.0 million for direct obligations issued by
or fully guaranteed by the United States of America in which the Company will
have a perfected first priority security interest (subject to no other Liens)
and having, on the date of purchase thereof, a fair market value of at least
100% of the amount of repurchase obligations, and (e) interests in money market
mutual funds which invest solely in assets or securities of the type described
in subparagraphs (a), (b), (c) or (d) hereof.
"Change of Control" means such time as (i) prior to the initial public
offering by the Company or any direct or indirect parent of the Company of its
common stock (other than a public offering pursuant to a registration statement
on Form S-8), AIP Capital Funds and its Affiliates (collectively, the "Initial
Investors") cease to be, directly or indirectly, the beneficial owners, in the
aggregate, of at least 51% of the voting power of the voting common stock of the
Company or (ii) after the initial public offering by the Company or any direct
or indirect parent of the Company of its common stock (other than a public
offering pursuant to a registration statement on Form S-8), (A) any Schedule
13D, Form 13F or Schedule 13G under the Exchange Act, or any amendment to such
Schedule or Form, is received by the Company which indicates that, or the
Company otherwise becomes aware that, a "person" or "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the Exchange Act) has become, directly or
indirectly, the "beneficial owner," by way of merger, consolidation or
otherwise, of 35% or more of the voting power of the voting capital stock of the
Company and (B) such person or group has become, directly or indirectly, the
beneficial owner of a greater percentage of the voting capital stock of the
Company than beneficially owned by the Initial Investors, or (iii) the sale,
lease or transfer of all or substantially all of the assets of the Company to
any person or group (other than a Subsidiary Guarantor or the Initial Investors
or their Related Parties (as defined)), or (iv) during any period of two
consecutive calendar years, individuals who at the beginning of such period
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constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors of the Company, as the case may be, then in office.
"Related Party" with respect to any Initial Investor means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse, or immediate family
member (in the case of any individual) of such Initial Investor or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Initial Investor and/or such other
persons referred to in the immediately preceding clause (A).
"Collateral Account" means the collateral account established pursuant to
the Indenture.
"Collateral Documents" mean, collectively, the Mortgages and Deeds of
Trust, the Company Pledge Agreement, the Company Security Agreement, the Company
Trademark Security Agreement, the Company Copyright Security Agreement, the
Company Patent Security Agreement, the Subsidiaries' Pledge Agreement, the
Subsidiaries' Security Agreement, the Subsidiaries' Trademark Security
Agreement, the Subsidiaries' Copyright Security Agreement, the Subsidiaries'
Patent Security Agreement, the Intercreditor Agreement and all other pledges,
agreements, instruments, financing statements, filing or other documents that
evidence, set forth or limit the Lien in favor of the Trustee in the Collateral.
"Company Copyright Security Agreement" means the Copyright Security
Agreement substantially in the form attached as an exhibit to the Indenture.
"Company Patent Security Agreement" means the Patent Security Agreement
substantially in the form attached as an exhibit to the Indenture.
"Company Pledge Agreement" means the Pledge Agreement substantially in the
form attached as an exhibit to the Indenture.
"Company Security Agreement" means the Security Agreement substantially in
the form attached as an exhibit to the Indenture.
"Company Trademark Security Agreement" means the Trademark Security
Agreement substantially in the form attached as an exhibit to the Indenture.
"Consolidated EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other non-cash charges of the Company and its Subsidiaries
required to be reflected as expenses on the books and records of the Company,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact of
foreign currency translations. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other non-cash charges of, a Subsidiary of a Person will be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting will be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof that is a
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Subsidiary Guarantor, (ii) the Net Income of any Subsidiary will be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition will be excluded, (iv) the
cumulative effect of a change in accounting principles will be excluded, (v) the
Net Income of, or any dividends or other distributions from, any Unrestricted
Subsidiary, to the extent otherwise included, will be excluded, whether or not
distributed to the Company or one of its Subsidiaries, and (vi) all other
extraordinary gains and extraordinary losses will be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the date of the Indenture in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in the Indenture as the
Depositary with respect to the Notes, until a successor will have been appointed
and become such Depositary pursuant to the applicable provision of the
Indenture, and, thereafter, "Depositary" will mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
of (i) Equity Interests (other than Disqualified Stock) of the Company or (ii)
Equity Interests (other than Disqualified Stock) of the Company's parent or
indirect parent corporation to the extent that the cash proceeds therefrom are
contributed to the equity capital of the Company or are used to purchase Equity
Interests (other than Disqualified Stock) of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement to exchange Series B Notes for Series A
Notes.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or
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accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), and (ii) the consolidated interest
expense of such Person and its Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such Guarantee
or Lien is called upon), and (iv) the product of (a) all cash dividend payments
(and non-cash dividend payments in the case of a Person that is a Subsidiary) on
any series of preferred stock of such Person payable to a party other than the
Company or a Wholly Owned Subsidiary, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues preferred stock subsequent to the commencement of the
four-quarter reference period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio will be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date will be deemed to have occurred on the first day
of the four-quarter reference period, and (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, will be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, will be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or
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letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
"Intercreditor Agreement" means the Intercreditor Agreement, dated the date
of the Indenture, between the Trustee and The Chase Manhattan Bank, as agent for
the lenders under to the New Credit Agreement, as amended from time to time.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company or any direct or indirect parent of the Company will not be deemed to be
an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or Hartford, Connecticut or at a place of
payment are authorized by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest will accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Moody's" means Moody's Investor Services.
"Mortgages and Deed of Trust" means the Mortgages and Deeds of Trust
substantially in the form attached as an exhibit to the Indenture.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Insurance Proceeds" means the insurance proceeds (excluding liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it) paid as a result of damage to, or the loss, destruction or
condemnation of, all or any portion of the Collateral, less collection costs.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale
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(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than the Notes,
the Subsidiary Guarantees or Indebtedness under the New Credit Agreement)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Agreement" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among the Company, The Chase Manhattan Bank, as
agent, and the lenders parties thereto, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced,
restated or refinanced from time to time.
"New Credit Agreement Collateral" means all of the inventory, accounts
receivable and general intangibles (to the extent related to inventory and
accounts receivable) of the Company and its existing and future subsidiaries and
all proceeds thereof.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; and (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Subsidiaries.
"Note Custodian" means the Trustee, as custodian with respect to the Global
Notes, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is a Subsidiary Guarantor and that
is engaged in the same or a similar line of business as the Company and its
Subsidiaries were engaged in on the date of the Indenture and reasonable
extensions or expansions thereof; (b) any Investment by the Company or a Wholly
Owned Subsidiary of the Company in a Receivables Subsidiary or any Investment by
a Receivables Subsidiary in any other Person in connection with a Qualified
Receivables Transaction; provided, that the foregoing Investment is in the form
of a note that the Receivables Subsidiary or other Person is required to repay
as soon as practicable from available cash collections less amounts required to
be established as reserves pursuant to contractual agreements with entities that
are not Affiliates of the Company entered into as part of a Qualified
Receivables Transaction; (c) any Investments in Cash Equivalents; (d)
Investments by the Company or any Subsidiary of the Company in a Person if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company that is engaged in the same or a similar line of business as the
Company and its Subsidiaries were engaged in on the date of the Indenture and
reasonable extensions or expansions thereof or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Subsidiary of the Company that is a Subsidiary Guarantor and that is engaged in
the same or a similar line of business as the Company and its Subsidiaries were
engaged in on the date of the Indenture and reasonable extensions or expansions
thereof; (e) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
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compliance with the covenant entitled "Asset Sales"; (f) Investments outstanding
as of the date of the Indenture; (g) Investments in the form of promissory notes
of members of the Company's management in consideration of the purchase by such
members of Equity Interests (other than Disqualified Stock) in the Company; (h)
Investments which constitute Existing Indebtedness of the Company of any of its
Subsidiaries; and (i) other Investments in any Person that do not exceed $10.0
million at any time outstanding.
"Permitted Liens" means (i) Liens securing obligations under the Indenture,
the Notes, the Subsidiary Guarantees and the Collateral Documents; (ii) Liens
securing Senior Revolving Debt in an aggregate principal amount at any time
outstanding not to exceed amounts permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock"; (iii) Liens in
favor of the Company or any Subsidiary Guarantor; (iv) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company in accordance with the provisions of
the Indenture; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company; (v)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such acquisition; (vi) Liens to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vii)
Liens existing on the date of the Indenture; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as will be required in conformity with GAAP will have been made therefor; (ix)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other
similar Liens arising in the ordinary course of business which are not overdue
for a period of more than 60 days or which are being contested in good faith by
appropriate proceedings diligently conducted; (x) Liens of landlords or of
mortgagees of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable; (xi) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; (xii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (xiii)
easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material
respect with the business of the Company or any of its Subsidiaries; (xiv)
Purchase Money Liens (including extensions and renewals thereof); (xv) Liens
securing reimbursement obligations with respect to letters of credit which
encumber only documents and other property relating to such letters of credit
and the products and proceeds thereof; (xvi) judgment and attachment Liens not
giving rise to an Event of Default; (xvii) Liens encumbering deposits made to
secure obligations arising from statutory, regulatory, contractual or warranty
requirements; (xviii) Liens arising out of consignment or similar arrangements
for the sale of goods; (xix) any interest or title of a lessor in property
subject to any Capital Lease Obligation or operating lease; (xx) Liens arising
from filing Uniform Commercial Code financing statements regarding leases; (xxi)
Liens on assets of Subsidiaries with respect to Acquired Indebtedness; and
(xxii) Liens on assets of a Receivables Subsidiary incurred in connection with a
Qualified Receivables Transaction.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, other Indebtedness
of the Company or any of its Subsidiaries; provided that: (i) the principal
amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted
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Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof (including
any subdivision or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business).
"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under the Indenture
and incurred solely to finance the purchase, or the cost of construction or
improvement, of such asset or property; provided, however, that such Lien
encumbers only such asset or property and is granted within 180 days of such
acquisition.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such Person or any of its Subsidiaries in
an amount that is not more than 100% of the cost, or fair market value, as
appropriate, of such property, and incurred within 180 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (i) a Receivables Subsidiary (in the case of a transfer by
the Company or any of its Subsidiaries) and (ii) any other Person (in the case
of a transfer by a Receivables Subsidiary), or may grant a security interest in,
any accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of the Company
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise) of which (i) is
guaranteed by the Company or any Subsidiary of the Company (excluding guarantees
of Obligations (other than the principal of, and interest on, Indebtedness)
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction), (ii) is recourse to or obligates the Company or any Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or (iii) subjects any
property or asset of the Company or any Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to the Company or such Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable and (c) with which neither the
Company nor any Subsidiary of the Company has any obligation to maintain or
preserve such Subsidiary's financial condition or cause such Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company will be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the
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Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of the Indenture, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Revolving Debt" means the Indebtedness outstanding under the New
Credit Agreement as such agreement may be restated, further amended,
supplemented or otherwise modified or replaced, in whole or in part, from time
to time hereafter, together with any refunding or replacement of such
Indebtedness.
"Senior Subordinated Notes" means the 11 1/4% Senior Subordinated Notes due
2005 of the Company.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof). Unrestricted Subsidiaries will not
be included in the definition of Subsidiary for any purposes of the Indenture
(except, as the context may otherwise require, for purposes of the definition of
"Unrestricted Subsidiary.")
"Subsidiary Guarantors" means each of (i) Rubatex Corporation, a Delaware
corporation, Groendyk Manufacturing Company, Inc., a Delaware corporation,
Universal Rubber Corporation, a Delaware corporation, Universal Polymer & Rubber
Inc., a Delaware corporation, Waltex Corporation, a Delaware corporation,
Hoover-Hanes Custom Mixing Corp., a Delaware corporation, Midwest Rubber Custom
Mixing Corp., a Delaware corporation, and OleTex Inc., a Delaware corporation,
and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
"Subsidiaries' Copyright Security Agreement" means the Copyright Security
Agreement substantially in the form attached as an exhibit to the Indenture.
"Subsidiaries' Patent Security Agreement" means the Patent Security
Agreement substantially in the form attached as an exhibit to the Indenture.
"Subsidiaries' Pledge Agreement" means the Pledge Agreement substantially
in the form attached as an exhibit to the Indenture.
"Subsidiaries' Security Agreement" means the Security Agreement
substantially in the form attached as an exhibit to the Indenture.
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"Subsidiaries' Trademark Security Agreement" means the Trademark Security
Agreement substantially in the form attached as an exhibit to the Indenture.
"S&P" means Standard & Poor's Financial Information Services.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which the Indenture is qualified under
the TIA.
"Trust Monies" means all cash and Cash Equivalents received by the Trustee
(i) upon the release of Primary Collateral from the Lien of the Indenture or the
Collateral Documents, including all Primary Collateral Proceeds (and amounts
deemed, pursuant to the Indenture, to constitute Primary Collateral Proceeds)
and all moneys received in respect of the principal of all purchase money,
governmental and other obligations; (ii) as Net Insurance Proceeds (subject to
the Intercreditor Agreement); (iii) pursuant to the Collateral Documents; (iv)
as proceeds of any sale or other disposition of all or any part of the Primary
Collateral by or on behalf of the Trustee or any collection, recovery, receipt,
appropriation or other realization of or from all or any part of the Primary
Collateral pursuant to the Indenture or any of the Collateral Documents or
otherwise; (v) which constitute Primary Collateral Proceeds or are deemed
pursuant to the Indenture to constitute Primary Collateral Proceeds from any
transaction which results in a Subsidiary Guarantor being released from its
Subsidiary Guarantee pursuant to the Indenture; or (vi) for application as
provided in the relevant provisions of the Indenture or any Collateral Document
or which disposition is not otherwise specifically provided for in the Indenture
or in any Collateral Document; provided, however, that Trust Monies shall in no
event include any property deposited with the Trustee for any redemption, legal
defeasance or covenant defeasance of Notes, for the satisfaction and discharge
of the Indenture or to pay the purchase price of Notes pursuant to a Change of
Control Offer.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company; (c) is
a Person with respect to which neither the Company nor any of its Subsidiaries
has any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (d)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Subsidiaries. Any such
designation by the Board of Directors will be evidenced to the Trustee by filing
with the Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
entitled "-- Restricted Payments" hereof. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed
to be incurred by a Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" hereof,
the Company will be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Subsidiary; provided that such designation will be deemed to be an incurrence of
Indebtedness by a Subsidiary of the Company of any outstanding Indebtedness of
such Unrestricted Subsidiary and such designation will only be permitted if (i)
such Indebtedness is permitted under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" hereof, and (ii) no Default or
Event of Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest
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one-twelfth) that will elapse between such date and the making of such payment,
by (ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) will at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries will not be included in the definition of Wholly Owned Subsidiary
for any purposes of the Indenture (except, as the context may otherwise require,
for purposes of the definition of "Unrestricted Subsidiary.")
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DESCRIPTION OF NEW CREDIT AGREEMENT
General. On December 11, 1997, the Company entered into the New Credit
Agreement with The Chase Manhattan Bank, as agent (the "Agent"), and other
lending institutions party thereto (the "Banks"), which agreement provides for a
$25 million revolving credit facility (the "Revolving Credit Facility"), subject
to a borrowing base formula. The Revolving Credit Facility includes a sublimit
of $5 million for standby and commercial letters of credit to be issued by The
Chase Manhattan Bank (or in certain instances, another Bank) (each of the Banks
will have a pro rata participation in each letter of credit). This information
relating to the New Credit Agreement is qualified in its entirety by reference
to the complete text of the documents entered into in connection therewith. The
following is a description of the general terms of the New Credit Agreement.
Security. Indebtedness of the Company under the New Credit Agreement is
guaranteed by the Company's existing and future subsidiaries and is secured by a
first priority security interest in all of the accounts receivable, inventory
and general intangibles (to the extent related to accounts receivable and
inventory) and proceeds of the foregoing (including cash, which will be required
to be maintained in a lockbox account) of the Company and each of its existing
and future subsidiaries (the "New Credit Agreement Collateral").
Interest. Indebtedness under the Revolving Credit Facility bears interest
at a rate based (at the Company's option) upon (i) the rate (the "ABR Rate")
that is the highest of (a) the rate publicly announced by The Chase Manhattan
Bank as its prime rate, (b) the secondary market rate for three-month
certificates of deposit plus 1% and (c) the federal funds rate plus 0.5%, plus,
in each case, 1.5%, or (ii) the Eurodollar Rate (as defined in the New Credit
Agreement) for one, two, three or six months, plus 2.5%. Interest will be
payable (i) for loans bearing interest at the ABR Rate, quarterly in arrears,
and (ii) for loans bearing interest at the Eurodollar Rate, on the last day of
the relevant interest period (in any event, no less frequently than every three
months). Overdue amounts bear interest at 2% over the rate otherwise applicable.
Availability. The Revolving Credit Facility matures on the fifth
anniversary of the Closing Date. Loans made pursuant to the Revolving Credit
Facility may be borrowed, repaid and reborrowed from time to time, subject to
borrowing base limitations and the satisfaction of certain conditions on the
date of any such borrowing, until the fifth anniversary of the Closing Date. The
borrowing base at any time is comprised of the sum of a percentage of the
Company's eligible accounts receivable and a percentage of the Company's
eligible inventory at such time.
Fees. The Company is required to pay to the Banks an aggregate commitment
fee equal to 0.5% per annum, payable in arrears on a quarterly basis, on the
average daily committed undrawn amount of the Revolving Credit Facility during
the preceding quarter. The Company also is required to pay to the Banks letter
of credit fees equal to 2.5% per annum of the face amount of outstanding letters
of credit plus a fronting fee to the issuing Bank of 0.375% per annum of the
face amount of such letters of credit, payable quarterly in arrears. The Agent
and the Banks shall receive such other fees as have been separately agreed upon
with the Agent.
Conditions to Extensions of Credit. The obligation of the Banks to make
loans or extend letters of credit is subject to the satisfaction of certain
customary conditions including, but not limited to, the absence of a default or
event of default under the New Credit Agreement, all representations and
warranties under the New Credit Agreement being true and correct in all material
respects and the absence of a material adverse change.
Covenants. The New Credit Agreement requires the Company to meet certain
financial tests, including maintenance of a consolidated interest expense
coverage ratio and leverage ratio and maximum amounts of capital expenditures.
The New Credit Agreement also contains covenants which, among other things,
limit the incurrence of additional indebtedness, the nature of the business of
the Company and its subsidiaries, creation of subsidiaries, investments, asset
dispositions, ownership of subsidiaries, dividends, transactions with
affiliates, acquisitions, mergers and consolidations, prepayments of other
indebtedness (which may include optional prepayment of the Notes), liens and
encumbrances and other matters customarily restricted in such agreements. The
New Credit Agreement contains additional covenants which require the Company to
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maintain its properties and those of its subsidiaries (including corporate
franchises), together with insurance thereon, to provide certain information to
the Agent, including financial statements, notices and reports and permit
inspections of the books and records of the Company and its subsidiaries, to
comply with applicable laws, including environmental laws and ERISA, to pay
taxes and contractual obligations and to use the proceeds of the loans solely
for certain specified purposes.
Events of Default. The New Credit Agreement contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults to certain other indebtedness, bankruptcy,
ERISA, actual or asserted invalidity of any loan documents and change of control
of the Company.
Indemnification. Under the New Credit Agreement, the Company will
indemnify the Agent, the Banks, and related persons from and against any and all
losses, liabilities, claims, damages or expenses (including, without
limitations, fees and disbursements of counsel) that may be incurred by or
asserted against any such indemnified party in connection with any
investigation, litigation or other proceeding relating to the entering into
and/or performance of the New Credit Agreement or related documents, provided
that the Company is not liable for any such losses, liabilities, claims, damages
or expenses resulting from such indemnified party's own gross negligence or
willful misconduct (or any of their respective directors, officers, employees,
affiliates and agents). In addition, the New Credit Agreement contains customary
provisions protecting the Banks in the event of unavailability of funding,
illegality, capital adequacy requirements, increased costs, withholding taxes
and funding losses.
DESCRIPTION OF SENIOR SUBORDINATED NOTES
General. The Senior Subordinated Notes were issued pursuant to an
indenture dated as of October 15, 1995 (the "Senior Subordinated Indenture")
between the Company and United States Trust Company of New York, as trustee (the
"Senior Subordinated Trustee"). The terms of the Senior Subordinated Notes
include those stated in the Senior Subordinated Indenture and those made part of
the Senior Subordinated Indenture by reference to the TIA.
Principal, Maturity and Interest. The aggregate principal amount
outstanding of the Senior Subordinated Notes is $100 million and the Senior
Subordinated Notes mature on October 15, 2005. Interest on the Senior
Subordinated Notes accrues at the rate of 11 1/4% per annum and is payable
semi-annually in arrears on each April 15 and October 15.
Subordination. The Senior Subordinated Notes are subordinated in right of
payment, as set forth in the Senior Subordinated Indenture, to the prior payment
in full in cash of certain senior indebtedness, whether outstanding on the date
of the Senior Subordinated Indenture or thereafter incurred (including
indebtedness under the Notes and the New Credit Agreement). The Company also may
not make any payment upon or in respect of the Senior Subordinated Notes if (i)
a default in the payment of the principal of, premium, if any, or interest on
certain senior indebtedness (including indebtedness under the Notes and the New
Credit Agreement) occurs and is continuing beyond any applicable grace period or
(ii) any other default occurs and is continuing with respect to certain senior
indebtedness (including indebtedness under the Notes and the New Credit
Agreement) that permits holders of such senior indebtedness as to which such
default relates to accelerate its maturity and the Senior Subordinated Trustee
receives a notice of such default from the Company or the representative of the
holders of such senior indebtedness.
Subsidiary Guarantees. The Company's payment obligations under the Senior
Subordinated Notes is guaranteed on a senior subordinated basis by all of the
Company's subsidiaries. The guarantees of the Senior Subordinated Notes are
subordinated, to the same extent that the Senior Subordinated Notes are
subordinated to certain senior indebtedness (including indebtedness under the
Notes and the New Credit Agreement), to the prior payment in full in cash of
such senior indebtedness.
Optional Redemption. The Senior Subordinated Notes are not redeemable at
the Company's option prior to October 15, 2000. Thereafter, the Senior
Subordinated Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at the
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redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on October 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000........................................................ 105.625%
2001........................................................ 103.750%
2002........................................................ 101.875%
2003 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, until October 15, 1998, the Company may (but
will not have the obligation to) redeem up to 33 1/3% of the original aggregate
principal amount of the Senior Subordinated Notes at a redemption price of
110 1/4% of the principal amount thereof, in each case plus accrued and unpaid
interest thereon to the redemption date, with the net proceeds of certain equity
offerings; provided that at least $66.67 million in aggregate principal amount
of Notes remain outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption will occur within 60 days of the
date of the closing of such equity offering.
Mandatory Redemption. The Company is not required to make mandatory
redemption or sinking fund payments with respect to the Senior Subordinated
Notes.
Repurchase at the Option of Holders. The holders of the Senior
Subordinated Notes may cause the Company to repurchase the Senior Subordinated
Notes upon the occurrence of (i) a Change of Control (as defined in the Senior
Subordinated Indenture) and (ii) certain asset sales.
Certain Covenants. The Senior Subordinated Indenture contains covenants
which, among other things, (a) limit the ability of the Company and its
subsidiaries to incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, create certain liens, enter into transactions with
affiliates or enter into certain mergers and consolidations and (b) obligate the
Company to furnish to the holders of Senior Subordinated Notes certain financial
statements whether or not required by the Exchange Act. In addition, under
certain circumstances, the Company will be required to offer to purchase the
Senior Subordinated Notes at a price equal to the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, with the proceeds of certain asset sales.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on December 11, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase Agreement, the Company entered into the Registration Rights Agreement
with the Initial Purchasers (the "Registration Rights Agreement") pursuant to
which the Company agreed, for the benefit of the holders of the Old Notes to,
among other things, (i) file the Exchange Offer Registration Statement within
135 days after the date of original issue of the Old Notes with the Commission
with respect to the Exchange Offer for the New Notes, and (ii) cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 180 days after the date of original issuance of the Old
Notes. The Company will keep the Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date on which
notice of the Exchange Offer is mailed to the holders of the Old Notes. For each
Old Note surrendered to the Company pursuant to the Exchange Offer, the holder
of such Old Note will receive a New Note having a principal amount equal to that
of the surrendered Old Note. Interest on each New Note will accrue from the date
of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes would in general be
freely tradeable after the Exchange Offer without further
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registration under the Securities Act. However, any purchaser of Old Notes who
is an "affiliate" of the Company or who intends to participate in the Exchange
Offer for the purpose of distributing the New Notes (i) will not be able to rely
on the interpretation of the staff of the Commission, (ii) will not be able to
tender its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement or understanding with the Company or any "affiliate" of the
Company (within the meaning of Rule 405 under the Securities Act) to distribute
the New Notes to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. For a description of the procedures for such resales
by Participating Broker-Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated or if
any holder of the Old Notes (other than an "affiliate" of the Company or an
Initial Purchasers) is not eligible to participate in the Exchange Offer, the
Company will (a) file the Shelf Registration Statement covering resales of the
Old Notes, (b) use its reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) use its
reasonable best efforts to keep effective the Shelf Registration Statement until
the earlier of three years after its effective date and such time as all of the
applicable Old Notes have been sold thereunder. The Company will, in the event
of the filing of the Shelf Registration Statement, provide to each applicable
holder of the Old Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A holder of Old Notes that sells
such Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of the Old Notes will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and to benefit from the provisions set forth
in the following paragraph.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 135
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 180 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration
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Statement was declared effective by the Commission (the "Exchange Offer
Effectiveness Date"), New Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Company will cause to be filed the Shelf
Registration Statement with the Commission on or prior to 30 days after such
filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 60 days after such obligation arises.
If (a) the Company fails to file any of the Registration Statements required by
the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Company fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the period specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above, a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Old Notes, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Old Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Old Notes. All accrued Liquidated
Damages will be paid by the Company on each Damages Payment Date to the Global
Notes Holder by wire transfer of immediately available funds or by federal funds
check and to Holders of Certificated Securities by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the New Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will
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terminate when the Exchange Offer is terminated. The New Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the
Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal
will be mailed initially to the holders of record of the Old Notes as of the
close of business on June 9, 1998.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. the Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
July 10, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of
Old Notes that are accepted for exchange will receive accrued interest thereon
to, but not including, the date of issuance of the New Notes. Such interest will
be paid with the first interest payment on the New Notes on July 15, 1998 in the
manner provided in the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes. Interest on the
New Notes is payable semi-annually on each January 15 and July 15, commencing on
July 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required signature guarantee, or
(in the case of a book-entry transfer), an Agent's Message in lieu of the Letter
of Transmittal, and any other required documents, must be received by the
Exchange Agent at the
86
<PAGE> 87
address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City
time, on the Expiration Date, either (a) certificates for tendered Old Notes
must be received by the Exchange Agent at such address or (b) such Old Notes
must be transferred pursuant to the procedures for book-entry transfer described
below (and a confirmation of such tender received by the Exchange Agent,
including an Agent's Message if the tendering holder has not delivered a Letter
of Transmittal).
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Old Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Exchange Agent, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Old Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) the account
of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
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<PAGE> 88
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee, or (in the case of a
book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal,
and all other required documents must in each case be transmitted to and
received or confirmed by the Exchange Agent at its address set forth below on or
prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Notes to the Exchange Agent in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
the Company' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to waive such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the
88
<PAGE> 89
Book-Entry Transfer Facility), and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries, or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
89
<PAGE> 90
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
The Exchange Agent for the Exchange Offer is:
<TABLE>
<S> <C>
To: State Street Bank and Trust Company (the "Exchange Agent")
By Mail: By Overnight Courier or Hand Delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust, 4th Floor
P.O. Box 778 Two International Place
Boston, MA 02102-0078 Boston, MA 02110
By Facsimile Transmission:
(for Eligible Institutions only)
State Street Bank and Trust Company
(617) 664-5290
Attention: Corporate Trust Group
For Information or Confirmation by Telephone:
(617) 664-5587
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Officer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company' accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption
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<PAGE> 91
thereof or otherwise), (ii) so long as the Old Notes are eligible for resale
pursuant to Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of the New Notes, will be allowed to resell the New Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires New Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating BrokerDealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement with the Company (within the meaning of Rule 405 under the
Securities Act or understanding with the Company or any "affiliate" of the
Securities Act) to distribute the New Notes to be received in the Exchange Offer
and (iii) will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought. Legislative, judicial
or administrative changes or
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<PAGE> 92
interpretations may be forthcoming that could alter or modify the statements and
conditions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. the Company recommends that each holder consult such holder's
own tax advisor as to the particular tax consequences of exchanging such
holder's Old Notes for New Notes, including the applicability and effect of any
state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker-Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such New Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes will be passed upon for the
Company by Kirkland & Ellis, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1997, and for the two and one-half month
period ended December 31, 1995, and the consolidated financial statements of the
Predecessor for the nine and one-half month period ended October 16, 1995,
included in this Prospectus and the Exchange Offer Registration Statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and elsewhere in the Exchange Offer Registration
Statement, and are included in reliance upon the report of such firm upon their
authority as experts in accounting and auditing.
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<PAGE> 93
RBX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Cash Flows..................... F-5
Consolidated Statements of Changes in Stockholder's
Equity................................................. F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets..................... F-20
Condensed Consolidated Statements of Operations........... F-21
Condensed Consolidated Statements of Cash Flows........... F-22
Notes to Condensed Consolidated Financial Statements...... F-23
</TABLE>
F-1
<PAGE> 94
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
RBX Corporation
Roanoke, Virginia
We have audited the accompanying consolidated balance sheets of RBX
Corporation and subsidiaries (the Company) as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for the two and one-half month period ended December 31, 1995 and the
years ended December 31, 1996 and 1997. We have also audited the consolidated
statements of operations and cash flows of RBX Investors Inc. and subsidiaries
(the Predecessor) for the nine and one-half month period ended October 16, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of RBX Corporation and its
subsidiaries as of December 31, 1996 and 1997 and the results of their
operations and their cash flows for the two and one-half month period ended
December 31, 1995 and the years ended December 31, 1996 and 1997, respectively,
in conformity with generally accepted accounting principles. Further, in our
opinion, the Predecessor financial statements for the nine and one-half month
period ended October 16, 1995 present fairly, in all material respects, the
results of operations and cash flows of the Predecessor and its subsidiaries in
conformity with generally accepted accounting principles.
As more fully described in Notes 1 and 2 to the consolidated financial
statements, the Company acquired the Predecessor as of October 16, 1995 in a
business combination accounted for as a purchase. The financial statements of
the Predecessor are not directly comparable to those of the Company due to the
accounting for the acquisition.
DELOITTE & TOUCHE LLP
Richmond, Virginia
March 17, 1998
F-2
<PAGE> 95
RBX CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 3,293 $ 166
Accounts receivable, less allowance for doubtful accounts of
$1,337 and $1,505, respectively........................... 33,740 38,030
Inventories................................................. 38,635 39,810
Deferred income taxes....................................... 1,112 --
Prepaid and other current assets............................ 2,130 1,184
-------- --------
Total current assets................................. 78,910 79,190
Property, plant and equipment, net.......................... 91,068 97,374
Deferred income taxes....................................... 11,096 --
Intangibles and other assets, net........................... 99,626 99,357
-------- --------
Total assets......................................... $280,700 $275,921
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................ $ 12,867 $ 17,215
Accrued liabilities......................................... 17,342 15,766
Current portion of postretirement benefit obligation........ 2,302 2,137
Current portion of long-term debt........................... 1,728 350
-------- --------
Total current liabilities............................ 34,239 35,468
Long-term debt.............................................. 183,164 205,687
Postretirement benefit obligation........................... 32,032 32,910
Pension benefit obligation.................................. 9,228 9,416
Other liabilities........................................... 1,724 1,704
Commitments and contingencies (Note 11)..................... -- --
Stockholder's equity:
Common stock, $0.01 par value, 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in-capital................................ 58,690 58,103
Accumulated deficit....................................... (38,377) (67,367)
-------- --------
Total stockholder's equity........................... 20,313 (9,264)
-------- --------
Total liabilities and stockholder's equity........... $280,700 $275,921
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 96
RBX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 16, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................................... $220,321 $51,646 $275,715 $281,662
Cost of goods sold............................ 180,677 46,911 238,365 243,383
-------- ------- -------- --------
Gross profit.................................. 39,644 4,735 37,350 38,279
Selling, general and administrative costs..... 21,112 5,193 30,474 28,265
Management fees............................... 418 180 995 986
Loss on impairment of long-lived assets....... -- -- 26,498 --
Unusual item.................................. 620 -- -- --
Amortization of goodwill and other
intangibles................................. 565 733 3,943 3,332
Other expense (income)........................ 51 (68) 66 193
-------- ------- -------- --------
Operating income (loss)....................... 16,878 (1,303) (24,626) 5,503
Interest expense, including amortization of
deferred financing fees..................... 6,878 3,867 18,685 20,285
-------- ------- -------- --------
Income (loss) before income taxes............. 10,000 (5,170) (43,311) (14,782)
Income tax expense (benefit).................. 3,979 (1,849) (8,255) 12,422
-------- ------- -------- --------
Income (loss) before extraordinary item....... 6,021 (3,321) (35,056) (27,204)
Extraordinary item: loss on extinguishment of
debt, net of income tax effects of $0....... -- -- -- 1,786
-------- ------- -------- --------
Net income (loss)............................. $ 6,021 $(3,321) $(35,056) $(28,990)
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 97
RBX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 16, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................. $ 6,021 $ (3,321) $(35,056) $ (28,990)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Loss of impairment of long-lived
assets................................. -- -- 26,498 --
Extraordinary item: loss on
extinguishment of debt................. -- -- -- 1,786
Depreciation............................. 5,820 1,310 7,124 8,370
Amortization............................. 1,671 3,593 4,965 4,278
Provision for deferred income taxes...... 274 (667) (7,668) 12,208
Loss (gain) on disposal of equipment..... (17) -- 66 193
Increase (decrease) in cash from changes
in assets and liabilities net of effect
of business acquisition:
Accounts receivable................. (3,909) 3,186 8,196 (4,290)
Inventories......................... (3,380) 136 5,431 (1,175)
Prepaid and other current assets.... (408) (999) (864) 953
Other assets........................ -- -- -- 50
Accounts payable.................... 4,041 (4,315) (1,913) 4,348
Accrued liabilities................. (2,117) 2,859 2,236 (1,010)
Other liabilities................... 444 3 122 881
------- --------- -------- ---------
Net cash provided by (used in) operating
activities.................................. 8,440 1,785 9,137 (2,398)
------- --------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures.......................... (6,323) (823) (11,818) (15,582)
Acquisitions, net of cash acquired............ (1,069) (199,015) (22,042) (1,423)
Proceeds from disposals of property, plant and
equipment................................... 101 -- 31 307
------- --------- -------- ---------
Net cash used in investing activities......... (7,291) (199,838) (33,829) (16,698)
------- --------- -------- ---------
FINANCING ACTIVITIES:
Contributions to capital...................... -- 40,000 10,030 --
Dividends to RBX Group........................ -- -- (235) (587)
Proceeds from borrowings...................... 4,000 170,000 27,000 135,250
Principal payments on long-term debt.......... (5,916) (136) (13,853) (116,855)
Payments of financing fees.................... -- (5,988) (780) (1,839)
------- --------- -------- ---------
Net cash provided by (used in) financing
activities.................................. (1,916) 203,876 22,162 15,969
------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (767) 5,823 (2,530) (3,127)
Cash and cash equivalents:
Beginning of period...................... 767 -- 5,823 3,293
------- --------- -------- ---------
End of Period............................ $ -- $ 5,823 $ 3,293 $ 166
======= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 98
RBX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE TWO AND ONE-HALF MONTH PERIOD ENDED DECEMBER 31, 1995
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Initial capitalization............................ $ -- $43,895 $ -- $43,895
Net loss.......................................... -- -- (3,321) (3,321)
------- ------- -------- -------
Balances at December 31, 1995..................... -- 43,895 (3,321) 40,574
Capital contribution.............................. -- 15,030 -- 15,030
Dividend to RBX Group............................. -- (235) -- (235)
Net loss.......................................... -- -- (35,056) (35,056)
------- ------- -------- -------
Balances at December 31, 1996..................... -- 58,690 (38,377) 20,313
Dividends to RBX Group............................ -- (587) -- (587)
Net loss.......................................... -- -- (28,990) (28,990)
------- ------- -------- -------
Balances at December 31, 1997..................... $ -- $58,103 $(67,367) $(9,264)
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 99
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
RBX Corporation and its wholly owned subsidiaries (the "Company"). RBX
Corporation's subsidiaries, Rubatex Corporation, OleTex, Inc., Groendyk Mfg.
Co., Inc., Universal Polymer & Rubber, Inc., Midwest Rubber Custom Mixing Corp.,
and Hoover-Hanes Rubber Custom Mixing Corp., operate manufacturing facilities
which are located in the southeastern United States, Ohio, and Illinois. The
Company is a wholly owned subsidiary of RBX Group, Inc., ("RBX Group") a
non-operating holding company. Effective October 16, 1995, RBX Investors Inc.
(the "Predecessor") was acquired by the Company. The consolidated financial
statements and note disclosures prior to the date of the Acquisition (as
defined, see Note 2) are not comparable due to the accounting for the
Acquisition.
The Company follows the same accounting policies as the Predecessor.
PRINCIPLES OF CONSOLIDATION AND BUSINESS
The Company manufactures rubber and plastics products which are used in a
wide range of applications including athletic equipment, sports medicine wraps,
neoprene wetsuits, hardware center products, other consumer products, automotive
components, insulation for refrigeration and air conditioning systems, and other
industrial products.
The accounts of RBX Corporation and its subsidiaries are included in the
consolidated financial statements after elimination of significant intercompany
transactions and profits and losses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. The
carrying amount of cash equivalents approximates fair value because of the short
maturity of those investments.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost net of accumulated
depreciation. Depreciation of plant and equipment is provided by the
straight-line method over the estimated useful lives of the related assets,
ranging from 20-40 years for buildings and improvements and 3-14 years for
machinery and equipment.
INTANGIBLES AND OTHER ASSETS
Goodwill -- Goodwill, which represents the excess of cost over fair value
of net assets acquired, is amortized on a straight line-basis over 40 years.
Customer Lists -- Customer lists are amortized using the straight-line
method over 18-25 years.
Deferred Financing Costs -- Deferred financing costs are amortized using
the effective interest method over the life of the related debt.
F-7
<PAGE> 100
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company generally uses quoted market prices to determine the fair value
of its indebtedness. If quoted market prices are not available, management
estimates fair value based on the present value of estimated future cash flows
using a discount rate commensurate with the risks involved. The carrying amounts
of other assets and liabilities qualifying as financial instruments approximate
fair value.
REVENUE
Revenue is recognized when products are shipped to customers. Sales returns
and allowances are treated as a reduction to sales and are provided based on
historical experience and current estimates.
RESEARCH AND DEVELOPMENT
Research and development expenditures, which are expensed as incurred, were
approximately $2,695 and $706 for the nine and one-half months ended October 16,
1995 and the two and one-half months ended December 31, 1995, respectively, and
$3,469 and $3,686 for the years ended December 31, 1996 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax liabilities and assets are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities by applying enacted statutory tax rates applicable to future years
in which the differences are expected to reverse.
BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are not concentrated in any specific geographic
region or any specific industry. No single customer accounted for a significant
amount of the Company's sales, and there were no significant accounts receivable
from a single customer. The Company reviews a customer's credit history before
extending credit. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
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
disclosure of contingent assets and liabilities at the dates of the balance
sheets and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
The Company assesses impairment of long-lived assets such as property,
plant and equipment and goodwill whenever changes or events indicate that the
carrying value may not be recoverable. Such long-lived assets are written down
to fair value if the sum of the expected future undiscounted cash flows is less
than the carrying amount (See Note 15).
RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
F-8
<PAGE> 101
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
On October 16, 1995, pursuant to a plan of merger, the Company acquired the
Predecessor for approximately $201.6 million plus direct expenses of
approximately $3.8 million (the "Acquisition"). The purchase cost was composed
of $94.1 million in cash, $3.9 million in Preferred Stock of RBX Group (having
an aggregate liquidation value of $9.0 million) and assumption of $95.5 million
in debt and $8.1 million in unpaid seller expenses.
The Acquisition was accounted for using the purchase method of accounting,
whereby the excess of the purchase cost over the recorded book value of net
assets acquired was allocated to the fair value of tangible and identifiable
intangible assets acquired and liabilities assumed based on independent
valuations and other studies. The purchase cost was allocated as follows:
<TABLE>
<S> <C>
Inventory................................................... $ 45,171
Working capital, excluding inventory........................ 13,867
Property, plant and equipment............................... 81,320
Identifiable intangible assets.............................. 40,191
Goodwill.................................................... 67,667
Other assets................................................ 518
Other liabilities........................................... (43,313)
--------
$205,421
========
</TABLE>
The Acquisition was financed through an equity contribution from RBX Group
of approximately $43.9 million in cash and in-kind payments in exchange for all
of the outstanding shares of the Company's common stock, the sale of $100
million in 11 1/4% Senior Subordinated Notes, and proceeds of approximately
$61.3 million from borrowings under the old credit agreement (see note 7). In
addition, certain options to purchase the common stock of the Predecessor that
were held by continuing management employees prior to the time of the
Acquisition, were converted into options to acquire the common stock of RBX
Group. The rollover of such options does not represent a change in the basis of
underlying assets or liabilities in the Acquisition, since RBX Group's basis in
the options was equal to the predecessor option holder's basis of zero.
The unaudited consolidated results of operations on a pro forma basis as
though the Acquisition had taken place at the beginning of the period presented
are as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Net sales................................................... $271,967
Net loss.................................................... (4,895)
</TABLE>
The unaudited pro forma financial information is presented for
informational purposes only and does not purport to represent what the Company's
results of operations would have been if the Acquisition had taken place as of
the dates indicated, or what such results will be for any future period.
On June 10, 1996, Rubatex Corporation, a wholly owned subsidiary of the
Company, acquired certain assets and assumed certain liabilities of the
Ensolite(R) division of Uniroyal Technology Corporation ("Uniroyal") for an
aggregate purchase price of $28.5 million including direct expenses (the
"Ensolite Acquisition"). Ensolite is a manufacturer of certain types of
closed-cell foam. The Company obtained the funds necessary to consummate this
transaction from the proceeds of Term Notes of $10.0 million, an equity
contribution by RBX Group of $15.0 million, and from operating cash flows. The
equity contribution was derived from a $10.0 million cash contribution to RBX
Group by American Industrial Partners Capital Fund, L.P. and from a subordinated
unsecured note of $5.0 million issued by RBX Group to Uniroyal (the "Group
Note"), bearing interest at 11.75% per annum. Interest payments are funded by
the Company.
F-9
<PAGE> 102
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
The Ensolite Acquisition was accounted for using the purchase method of
accounting. The purchase cost was allocated as follows:
<TABLE>
<S> <C>
Inventory................................................... $ 1,842
Working capital, excluding inventory........................ 2,845
Property, plant and equipment............................... 5,299
Goodwill.................................................... 9,217
Identifiable intangible assets.............................. 9,262
-------
$28,465
=======
</TABLE>
The unaudited consolidated results of operations on a pro forma basis as
though the Ensolite Acquisition had taken place at the beginning of the periods
presented are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net sales................................................... $296,003 $287,501
Net loss.................................................... (5,529) (35,474)
</TABLE>
3. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Raw materials............................................... $12,661 $15,593
Work-in-process............................................. 4,347 4,154
Finished goods.............................................. 21,627 20,063
------- -------
$38,635 $39,810
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 2,568 $ 2,470
Buildings and improvements.................................. 24,060 26,745
Machinery and equipment..................................... 64,175 79,415
Construction-in-progress.................................... 8,677 5,373
------- --------
99,480 114,003
Less: accumulated depreciation.............................. 8,412 16,629
------- --------
$91,068 $ 97,374
======= ========
</TABLE>
F-10
<PAGE> 103
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLES AND OTHER ASSETS
Major components of intangibles and other assets are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Goodwill.................................................... $ 56,861 $ 58,125
Customer lists.............................................. 36,050 36,050
Deferred financing fees..................................... 6,736 8,415
Other....................................................... 5,728 5,671
-------- --------
105,375 108,261
Less: accumulated amortization.............................. 5,749 8,904
-------- --------
$ 99,626 $ 99,357
======== ========
</TABLE>
6. ACCRUED LIABILITIES
Major components of accrued liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Interest.................................................... $ 3,597 $ 3,085
Personnel related costs other than vacation................. 6,481 5,615
Vacation.................................................... 3,449 3,599
Other....................................................... 3,815 3,467
------- -------
$17,342 $15,766
======= =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt of the Company is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Senior secured notes........................................ $ -- $100,000
Senior subordinated notes................................... 100,000 100,000
Term notes.................................................. 76,000 --
New revolving credit facility............................... -- 5,000
Old revolving credit facility............................... 7,500 --
Other obligations........................................... 1,392 1,037
-------- --------
184,892 206,037
Less current portion........................................ 1,728 350
-------- --------
$183,164 $205,687
======== ========
</TABLE>
Senior Secured Notes -- On December 11, 1997, RBX Corporation sold $100
million in 12.00% Senior Secured Notes (the "Secured Notes") due January 15,
2003, pursuant to Rule 144A under the Securities Act of 1933. The Secured Notes
are collateralized by (i) a first priority lien on a substantial portion of the
owned and leased manufacturing facilities and on substantially all of the
equipment and general intangibles, including trademarks and patents, (ii) a
second priority lien on inventory, receivables and general intangibles (to the
extent related to inventory and receivables) and (iii) a first priority lien on
all of the capital stock of RBX Corporation's existing and future subsidiaries.
Interest is payable semi-annually on January 15 and July 15 of each year,
commencing July 15, 1998. The Secured Notes may be redeemed on or after July 15,
1999 at a
F-11
<PAGE> 104
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
redemption premium. The proceeds from the issuance of the Senior Secured Notes
were used to repay the Term Notes and the outstanding indebtedness under the Old
Revolving Credit Facility and pay issuance costs.
Pursuant to a Registration Rights Agreement (the "Agreement"), the Company
expects to exchange the Secured Notes for a new issue of debt securities of RBX
Corporation (the "New Secured Notes") registered under the Securities Act of
1933. The terms of the New Secured Notes will be substantially identical to
those of the Secured Notes. Failure to satisfy the registration obligations
under the Registration Rights Agreement may result in the payment of liquidated
damages (as defined in the Agreement) to the holders of the notes under certain
circumstances.
Senior Subordinated Notes -- On October 16, 1995, RBX Corporation sold $100
million in 11.25% Senior Subordinated Notes (the "Subordinated Notes") due
October 15, 2005, pursuant to Rule 144A under the Securities Act of 1933. The
Subordinated Notes are general unsecured obligations subordinated in right of
payment to all other senior indebtedness of the Company. Interest is payable
semi-annually on April 15 and October 15 of each year, commencing in 1996. The
Subordinated Notes may be redeemed after October 14, 2000 at a redemption
premium. Under certain circumstances as defined in the Indenture, RBX
Corporation may redeem, at a premium, up to one-third of the Subordinated Notes
prior to October 15, 1998.
The Company exchanged the Subordinated Notes for a new issue of debt
securities of RBX Corporation (the "New Subordinated Notes") registered under
the Securities Act of 1933. The terms of the New Subordinated Notes are
substantially identical to those of the Subordinated Notes.
RBX Corporation is a holding company with no assets or operations other
than its investments in its subsidiaries. All of RBX Corporation's subsidiaries
are wholly owned and have guaranteed the Senior Secured Notes and the Senior
Subordinated Notes on a full, unconditional, and joint and several basis.
Management has determined that separate financial statements of the guarantor
subsidiaries would not be material to an investor. Accordingly, separate
financial statements of the guarantor subsidiaries have not been presented.
Term Notes and Old Revolving Credit Facility -- In connection with the
Acquisition, the Company entered into a $100 million senior secured credit
facility consisting of $70 million in term notes (the "Term Notes") and a $30
million revolving credit facility (the "Old Revolving Credit Facility"). The
Company borrowed $70 million under the Term Notes to provide a portion of the
funds necessary to consummate the Acquisition. Further, in connection with the
Ensolite Acquisition, the Company borrowed an additional $10.0 million. At the
Company's option, the interest rates related to the Term Notes and borrowings
under the Old Revolving Credit Facility were prime rate plus 1.375% to 2% or
LIBOR plus 2.375% to 3%. The interest rate in effect at December 31, 1996 was
8.3%. The Company's indebtedness under the Term Notes and Old Revolving Credit
Facility was repaid from the proceeds of the Senior Secured Notes and an
extraordinary loss on extinguishment of debt of $1,786 was recognized.
New Revolving Credit Facility -- On December 11, 1997, the Company entered
into a new credit agreement (the "New Credit Agreement") which provides for a
$25 million revolving credit facility (the "New Revolving Credit Facility")
subject to a borrowing base formula. As of December 31, 1997, $2.2 million of
the New Revolving Credit Facility is reserved for an irrevocable standby letter
of credit in connection with the Company's casualty insurance program. The
Company's indebtedness under the New Credit Agreement is guaranteed by RBX
Corporation and its existing and future subsidiaries and is collateralized by a
first priority interest in all accounts receivable, inventory, and general
intangibles (to the extent related to accounts receivable and inventory).
Indebtedness under the New Revolving Credit Facility will, at the Company's
option, bear interest at (i) the higher of (a) the lenders prime rate, (b) the
secondary market for three month certificates of deposit plus 1% and (c) the
federal funds rate plus 0.5%, plus in each case, 1.5% or (ii) the Eurodollar
Rate (as defined) plus 2.5%. As of December 31, 1997, the interest rate in
effect was 10.0%. The
F-12
<PAGE> 105
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
New Revolving Credit Facility matures in December, 2002. At December 31, 1997,
the Company had available unused borrowing capacity of $17.8 million under the
New Revolving Credit Facility.
Covenants and Restrictions -- The Company's indebtedness contains certain
restrictions which, among other things, restrict its ability to incur additional
indebtedness, issue preferred stock, incur liens, pay dividends, make certain
other restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of its assets. In addition, the Company's indebtedness contains certain
financial covenants including maintenance of a consolidated interest expense
coverage ratio, a leverage ratio, and maintenance of a minimum level of earnings
before interest, taxes, depreciation and amortization. The financial covenants
to which the Company is subject which are contained in the New Credit Agreement
become more restrictive during 1998. The Company was in compliance with all
terms of its indebtedness at December 31, 1997.
As of December 31, 1997, the fair value of the Company's indebtedness was
approximately $197,000.
Required principal repayment of long-term debt is as follows:
<TABLE>
<S> <C>
1998...................................................... $ 350
1999...................................................... 354
2000...................................................... 274
2001...................................................... 31
2002...................................................... 5,028
Thereafter................................................ 200,000
</TABLE>
8. INCOME TAXES
The Company files a consolidated income tax return with its parent, RBX
Group and its tax provision is determined on a separate return basis.
Significant components of income taxes are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current:
Federal.................... $3,118 $ -- $ (544) $ --
State...................... 590 (15) (43) 214
------ ------- ------- -------
3,708 (15) (587) 214
------ ------- ------- -------
Deferred:
Federal.................... 314 (1,778) (6,336) 10,820
State...................... (43) (56) (1,332) 1,388
------ ------- ------- -------
271 (1,834) (7,668) 12,208
------ ------- ------- -------
$3,979 $(1,849) $(8,255) $12,422
====== ======= ======= =======
</TABLE>
F-13
<PAGE> 106
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Temporary differences giving rise to significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation............................... $ 9,019 $ 11,156
Accumulated amortization............................... 12,178 11,801
------- --------
21,197 22,957
------- --------
Deferred tax assets:
Employee benefits...................................... 13,734 14,018
Net operating loss carryforwards....................... 10,176 15,463
Alternative minimum tax credit......................... 3,580 6,529
Pension benefits....................................... 3,702 3,768
Other.................................................. 2,213 1,993
------- --------
33,405 41,771
Valuation allowance......................................... -- (18,814)
------- --------
33,405 22,957
------- --------
Deferred income taxes, net.................................. $12,208 $ --
======= ========
</TABLE>
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that temporary differences and carryforwards
are expected to be available to reduce taxable income. During the fourth quarter
of 1997, the Company reevaluated its deferred tax asset to determine the need
for a valuation allowance given the Company's revised expectations with respect
to future taxable income due primarily to the increased levels of interest
associated with the additional indebtedness incurred in 1997 as well as the
expiration dates of the Company's net operating loss carryforwards. As a result
of the foregoing, a valuation allowance of $18.8 million was recorded in the
fourth quarter of 1997. The Company periodically reviews this valuation
allowances and makes required adjustments as appropriate.
The reconciliation of income taxes computed at the Federal statutory tax
rate to actual income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Federal statutory rate............... 34.0% (34.0)% (34.0)% (34.0)%
Effect of:
Change in valuation allowance... -- -- -- 105.2
Loss on impairment of long-lived
assets........................ -- -- 14.7 --
State taxes, net of federal
benefit....................... 3.3 (3.3) (2.1) 0.9
Amortization of goodwill........ 1.1 1.9 1.3 2.5
Other........................... 1.4 (0.4) 1.0 0.4
---- ----- ----- -----
39.8% (35.8)% (19.1)% 75.0 %
==== ===== ===== =====
</TABLE>
F-14
<PAGE> 107
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
The Company has net operating loss carryforwards of approximately $37.4
million for federal income tax purposes. Such carryforwards expire in 2011
($17.3 million) and 2012 ($20.1 million). The Company also has approximately
$6.5 million of alternative minimum tax credits which can be carried forward
indefinitely.
9. PENSION PLANS
The Company has defined benefit plans covering certain eligible hourly
employees which provide pension benefits that are based on a formula which
considers length of service. Certain salaried employees also participate in the
Company's defined benefit pension plans. Benefits are based upon length of
service and earnings during years of service. Pension costs for hourly and
salaried plans (the "Plans") are funded to the extent permitted by the Internal
Revenue Code.
Net pension costs include the following components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MOS. YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service cost......................... $ 832 $ 261 $ 1,257 $ 1,257
Interest cost........................ 2,220 591 2,866 3,066
Actual return on plan assets......... (1,934) (509) (2,888) (5,682)
Amortization and deferrals, net...... 236 -- 284 2,686
------- ----- ------- -------
$ 1,354 $ 343 $ 1,519 $ 1,327
======= ===== ======= =======
</TABLE>
Significant assumptions used in determining net pension costs and funded
status information are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MOS. YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average discount rate....... 8.50% 7.50% 7.75% 7.25%
Weighted average rate of increase in
compensation levels................ 4.50% 4.50% 4.75% 4.25%
Expected long-term rate of return on
assets............................. 8.50% 8.50% 8.66% 9.50%
</TABLE>
F-15
<PAGE> 108
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSION PLANS -- (CONTINUED)
The following table sets forth the funded status of the Plans:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Vested benefits............................................. $35,027 $39,803
Nonvested benefits.......................................... 2,289 2,715
------- -------
Accumulated benefit obligation.............................. 37,316 42,518
Effect of projected future compensation..................... 2,466 2,168
------- -------
Projected benefit obligation................................ 39,782 44,686
Plan assets at fair value................................... 32,847 36,944
------- -------
Projected benefit obligation in excess of plan assets....... (6,935) (7,742)
Unrecognized prior service cost............................. 485 452
Unrecognized net gain....................................... (2,778) (2,126)
------- -------
Net pension obligation recognized in the balance sheet...... $(9,228) $(9,416)
======= =======
</TABLE>
Certain of the Company's hourly and salaried employees participate in
defined contribution plans to which they contribute each month and which may be
matched in part by the Company in accordance with plan provisions and terms
established in various collective bargaining agreements. Company contributions
related to these plans were approximately $721 and $177 for the nine and
one-half months ended October 16, 1995 and the two and one-half months ended
December 31, 1995, respectively, and $903 and $1,024 for the years ended
December 31, 1996 and 1997, respectively.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance benefits for certain
eligible active and retired employees, and accrues the estimated costs for such
benefits during the years that the employees have rendered their services to the
Company.
The postretirement health and life benefits are fully paid by the Company
after certain minimum deductibles have been met. The obligation is unfunded. The
Company's annual health obligation is capped at $4 per employee under age 65 and
$2 per employee age 65 and over.
The following table sets forth the Company's postretirement benefits other
than pensions:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $16,892 $19,429
Active................................................. 13,003 11,585
------- -------
Accumulated postretirement benefit obligation............... 29,895 31,014
Unrecognized net gain....................................... 4,439 4,033
------- -------
Accrued postretirement benefit cost......................... 34,334 35,047
Less current portion........................................ 2,302 2,137
------- -------
$32,032 $32,910
======= =======
</TABLE>
F-16
<PAGE> 109
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- (CONTINUED)
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MOS. YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service costs........................ $ 409 $131 $ 632 $ 479
Interest costs....................... 1,972 509 2,400 2,128
Net amortization..................... (664) -- (58) (268)
------ ---- ------ ------
$1,717 $640 $2,974 $2,339
====== ==== ====== ======
</TABLE>
For measurement purposes, a 7% annual rate of increase of covered health
care benefits was assumed for 1997. The rate was assumed to decline gradually to
5% by 1999. The health care cost trend rate assumption has a significant effect
on the amounts reported. If the assumed health care cost trend rate was
increased by one percentage point the accumulated postretirement benefit
obligation would increase by $2,180 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost would
increase by $245.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation were 7.50%, 7.75%, and 7.25% in 1995, 1996,
and 1997, respectively.
11. CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in various suits and claims
in the normal course of business. In the opinion of management, after
consultation with counsel, the ultimate liabilities and losses, if any, that may
result from such suits and claims will not have a material effect on the
financial position, and results of operations or liquidity of the Company.
The Company is subject to federal, state and local environmental laws which
regulate air and water emissions and discharges; the generation, storage,
treatment, transportation and disposal of solid and hazardous waste; and, the
release of hazardous substances, pollutants and contaminants into the
environment. In addition, in some circumstances, the Company is responsible for
the environmental condition of the property prior to transfer or sale to the
Company. The Company is involved in various environmental remediation activities
resulting from past operations, including designation as a potentially
responsible party, with others, at various EPA designated Superfund sites. In
developing its estimate of environmental remediation costs, the Company
considers, among other things, currently available technological solutions,
alternative cleanup methods and risk-based assessments of the contamination, and
estimates developed by independent environmental consultants. The Company does
not maintain insurance coverage for environmental matters and does not
anticipate recoveries from other potentially responsible third parties.
Amounts have been recorded which, in management's best estimate, will be
sufficient to satisfy anticipated costs of known remediation requirements. At
December 31, 1997, approximately $2.1 million for estimated environmental
remediation costs was accrued of which $1.0 million relates to estimated costs
to remove underground storage tanks; substantially all of this amount is
included in long-term liabilities. Expenditures relating to costs currently
accrued are expected to be made over the next 5 to 10 years. As a result of
factors such as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites, estimated costs for future environmental
compliance and remediation are necessarily imprecise, and it is not possible to
predict the amount or timing of future costs of environmental remediation
requirements which may subsequently be determined. Based upon information
presently available, such future costs are not expected to
F-17
<PAGE> 110
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CONTINGENT LIABILITIES -- (CONTINUED)
have a material adverse effect on the Company's competitive or financial
position or its ongoing results of operations. However, such costs could be
material to results of operations in a future period.
12. COMMITMENTS
The Company is obligated under lease agreements, principally relating to
the rental of warehouse facilities and transportation equipment. Future minimum
rental payments required under operating leases for the years ended December 31,
are as follows:
<TABLE>
<S> <C>
1998........................................................ $2,696
1999........................................................ 2,193
2000........................................................ 1,735
2001........................................................ 1,222
2002........................................................ 702
Thereafter.................................................. 2,808
</TABLE>
Rental expense for all operating leases was approximately $2,098 and $549
for the nine and one-half months ended October 16, 1995, and the two and
one-half months ended December 31, 1995, respectively, and $2,826 and $3,187 for
the years ended December 31, 1996 and 1997.
13. UNUSUAL ITEM
The Predecessor agreed to settle for $620 a claim by a prior owner over
responsibility for insurance claims for incidents occurring prior to the date of
the purchase of the Predecessor in 1990.
14. RELATED-PARTY TRANSACTIONS
The Company receives substantial ongoing financial and management services
from American Industrial Partners (AIP), an affiliate of the majority owners of
the Company's stockholder. Management and consulting fees to AIP were $180 for
the two and one-half month period ended December 31, 1995 and $850 each year for
1996 and 1997, plus reimbursement for out-of-pocket expenses. In 1995, the
Company paid a fee of $2,000 to AIP and reimbursed out-of-pocket expenses for
investment banking services provided by AIP in connection with the Acquisition.
Additionally, in 1996, the Company paid a fee of $400 to AIP and reimbursed
out-of-pocket expenses for investment banking services provided by AIP in
connection with the Ensolite Acquisition.
The Company paid a member of the Board of Directors a fee of $150 each year
in 1996 and 1997.
The majority owner of the Predecessor provided management consulting
services to the Predecessor for management fees of $418 for the nine and
one-half months ended October 16, 1995, plus reimbursement for out-of-pocket
expenses.
15. FOURTH-QUARTER ADJUSTMENTS
1997 Fourth-Quarter Adjustments -- During the fourth quarter of 1997, the
Company recorded a valuation allowance of $18.8 million against its deferred tax
assets (See Note 8).
1996 Fourth-Quarter Adjustments -- In connection with the decline in
profitability experienced at Rubatex's Bedford Virginia plant, management
reassessed the carrying value of the long-lived assets related to the Bedford
operations and determined that there was an impairment; accordingly, a loss on
impairment of $26,498 was recorded in the fourth quarter of 1996 based on the
excess of the carrying value of the Bedford long-lived assets over its
discounted expected future cash flows.
F-18
<PAGE> 111
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FOURTH-QUARTER ADJUSTMENTS -- (CONTINUED)
The loss on impairment of long-lived assets is comprised of the following:
<TABLE>
<S> <C>
Goodwill.................................................... $18,760
Customer lists.............................................. 6,898
Workforce................................................... 774
Property, plant and equipment............................... 66
-------
$26,498
=======
</TABLE>
The Company also recorded additional fourth-quarter charges of $8.7
million. Such charges included $4.9 million related to obsolescence,
book-to-physical and other inventory adjustments, $2.5 million for liabilities
incurred in connection with severance and other personnel related costs, and
$1.3 million in the aggregate for certain other items.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Payments for interest and income taxes are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------
9 1/2 MONTHS 2 1/2 MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
OCT. 16, 1995 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest............................. $6,686 $192 $18,138 $19,850
Income taxes......................... 3,189 149 875 194
</TABLE>
In connection with the issuance of the Senior Secured Notes, the Company
received proceeds of $97,250, which were net of underwriting discounts of
$2,750.
The Company acquired assets, assumed liabilities and made cash payments in
connection with the Acquisition and the Ensolite Acquisition as follows:
<TABLE>
<CAPTION>
ACQUISITION OF ENSOLITE
THE COMPANY ACQUISITION
-------------- -----------
<S> <C> <C>
Fair value of assets acquired............................... $279,215 $ 29,359
Liabilities assumed......................................... (76,305) (894)
Noncash capital contribution................................ (3,895) (5,000)
-------- --------
Cash payments.......................................... $199,015 $ 23,465
======== ========
</TABLE>
17. ACCOUNTS RECEIVABLE
Activity in the accounts receivable allowance for doubtful accounts for the
years ended December 31, 1995, 1996 and 1997 was as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END
YEAR EXPENSES DEDUCTIONS(a) OF YEAR
------------ ---------- ------------- -------
<S> <C> <C> <C> <C>
December 31, 1997......................... $1,337 $645 $ 477 $1,505
December 31, 1996......................... 1,678 531 872 1,337
December 31, 1995(b)...................... 2,436 417 1,175 1,678
</TABLE>
--------------------
(a) Accounts charged off, net of recoveries of accounts previously charged
off.
(b) 1995 amounts have been combined for the Company and the Predecessor.
F-19
<PAGE> 112
RBX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 166 $ 247
Accounts receivable, less allowance for doubtful accounts of
$1,505 and $1,622, respectively........................... 38,030 40,917
Inventories................................................. 39,810 42,407
Prepaid and other current assets............................ 1,184 1,320
-------- --------
Total current assets................................. 79,190 84,891
Property, plant and equipment, net.......................... 97,374 96,641
Intangibles and other assets, net........................... 99,357 98,205
-------- --------
Total assets......................................... 275,921 279,737
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................ 17,215 22,201
Accrued liabilities......................................... 15,766 20,180
Current portion of postretirement benefit obligation........ 2,137 2,137
Current portion of long-term debt........................... 350 357
-------- --------
Total current liabilities............................ 35,468 44,875
Long-term debt.............................................. 205,687 206,599
Postretirement benefit obligation........................... 32,910 33,169
Pension benefit obligation.................................. 9,416 9,457
Other liabilities........................................... 1,704 1,704
Commitments and contingencies............................... -- --
Stockholder's equity:
Common stock, $0.01 par value, 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in-capital................................ 58,103 58,103
Accumulated deficit....................................... (67,367) (74,170)
-------- --------
Total stockholder's equity........................... (9,264) (16,067)
-------- --------
Total liabilities and stockholder's equity........... $275,921 $279,737
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 113
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
Net sales................................................... $71,822 $72,441
Cost of goods sold.......................................... 59,837 64,252
------- -------
Gross profit................................................ 11,985 8,189
Selling, general and administrative costs................... 7,213 7,563
Management fees............................................. 251 251
Amortization of goodwill and other intangibles.............. 830 833
Other expense............................................... -- 26
------- -------
Operating income (loss)..................................... 3,691 (484)
Interest expense, including amortization of deferred
financing fees............................................ 4,834 6,319
------- -------
Loss before income taxes.................................... (1,143) (6,803)
Income tax benefit.......................................... (201) --
------- -------
Net loss.................................................... $ (942) $(6,803)
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 114
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (942) $(6,803)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 2,073 2,459
Amortization........................................... 1,057 1,152
Provision for deferred income taxes.................... (257) --
Loss on disposal of equipment.......................... -- 26
Increase (decrease) in cash from changes in assets and
liabilities net of effect of business acquisition:
Accounts receivable............................... (7,268) (2,887)
Inventories....................................... (766) (2,597)
Prepaid and other current assets.................. 227 (136)
Other assets...................................... (320) --
Accounts payable.................................. 3,943 4,986
Accrued liabilities............................... 3,351 4,414
Other liabilities................................. 162 300
------- -------
Net cash provided by operating activities................... 1,260 914
------- -------
INVESTING ACTIVITIES:
Capital expenditures........................................ (5,144) (1,757)
Acquisitions, net of cash acquired.......................... (821) --
Proceeds from disposals of property, plant and equipment.... -- 5
------- -------
Net cash used in investing activities....................... (5,965) (1,752)
------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings.................................... 5,000 1,000
Principal payments on long-term debt........................ (3,588) (81)
------- -------
Net cash provided by financing activities................... 1,412 919
------- -------
Net increase (decrease) in cash and cash equivalents........ (3,293) 81
Cash and cash equivalents:
Beginning of period.................................... 3,293 166
------- -------
End of period.......................................... $ -- $ 247
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE> 115
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of RBX Corporation and its wholly owned subsidiaries (the "Company").
The Company's subsidiaries, Rubatex Corporation, OleTex, Inc., Groendyk Mfg Co.,
Inc., Universal Polymer & Rubber, Inc., Midwest Rubber Custom Mixing Corp., and
Hoover-Hanes Rubber Custom Mixing Corp., operate manufacturing facilities which
are located in the southeastern United States, Ohio and Illinois.
The interim financial data as of and for the three months ended March 31,
1998 are unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In management's
opinion, all adjustments (consisting of adjustments of a normal recurring
nature) necessary for a fair presentation have been included. The year-end
balance sheet information was derived from audited financial statements, but
excludes certain disclosures included in the Company's annual report on Form
10-K.
These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto as well as
the other information included in the Company's annual report on Form 10-K for
the year ended December 31, 1997. The results of operations and cash flows for
the interim periods presented are not necessarily indicative of the results for
the full year or any other interim period.
2. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Raw Materials.............................................. $15,593 $17,369
Work-in-process............................................ 4,154 5,086
Finished goods............................................. 20,063 19,952
$39,810 $42,407
</TABLE>
3. LONG-TERM DEBT
RBX Corporation is a holding company with no assets or operations other
than its investments in its subsidiaries. All of RBX Corporation's subsidiaries
are wholly owned and have guaranteed the Senior Secured Notes and the Senior
Subordinated Notes on a full, unconditional, and joint and several basis.
Indebtedness under the Company's revolving credit facility is guaranteed by RBX
Corporation and its existing and future subsidiaries and is collateralized by a
first-priority lien in all accounts receivable, inventory, and general
intangibles (to the extent related to accounts receivable and inventory).
Separate financial statements of the guarantor subsidiaries have not been
presented as management has determined that such separate financial statements
would not be material to an investor.
The Company's indebtedness contains certain restrictions which, among other
things, restrict its ability to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of its assets. In addition, the
Company's indebtedness contains certain financial covenants including
maintenance of a consolidated interest expense coverage ratio, a leverage ratio,
and maintenance of a minimum level of
F-23
<PAGE> 116
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
earnings before interest, taxes, depreciation and amortization. The Company was
in compliance with all terms of its indebtedness at March 31, 1998. However, due
to more restrictive covenant requirements in future quarters and based on the
levels of Adjusted EBITDA generated from current operations, it is probable that
the Company will not satisfy its covenant requirements at June 30, 1998. The
Company is negotiating with its present lenders to obtain relief from future
covenant restrictions. There can be no assurance that any such amendment will be
successful or, if entered into, what the related terms and conditions would be.
As of March 31, 1998, the Company had available unused borrowing capacity
of $16.8 million under the revolving credit facility.
4. CONTINGENCIES
(a) The Company is highly leveraged. At March 31, 1998, the Company's
indebtedness was $207.0 million and its stockholder's equity was a deficit of
$16.1 million. The Company has experienced continued operating losses at
Rubatex's Conover, North Carolina plant, due to ongoing difficulties associated
with the relocation of Ensolite production from Mishawaka, Indiana. These
operating losses have had a negative impact on the Company's results of
operations and liquidity.
Management has undertaken steps which it believes will address the problems
at Conover, including aggressive implementation of proactive maintenance and
monitoring programs to ensure the continuous operation of the machinery and
equipment as well as programs intended to appropriately control the
manufacturing process with a significant focus on reducing scrap.
Additionally, management is continually monitoring its use of working
capital, taking cost reduction measures where practical and carefully
scrutinizing the timing of capital expenditures to ensure the availability of
sufficient working capital to meet its ongoing needs.
If improvements in Conover's operating performance do not materialize in a
timely manner, the Company may be required to take additional measures to ensure
the availability of sufficient cash to sustain operations. Such measures may
include, among other things, reducing or delaying capital expenditures, selling
assets, restructuring its indebtedness, or seeking additional equity capital.
There is no assurance that any of these measures can be effected on satisfactory
terms, if at all.
(b) The Company and its subsidiaries are involved in various suits and
claims in the normal course of business. In the opinion of management, after
consultation with counsel, the ultimate liabilities and losses, if any, that may
result from such suits and claims are not expected to have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
(c) The Company is subject to federal, state and local environmental laws
which regulate air and water emissions and discharges; the generation, storage,
treatment, transportation and disposal of solid and hazardous waste; and the
release of hazardous substances, pollutants and contaminants into the
environment. In addition, the Company is responsible for the environmental
clean-up of certain property for contamination which occurred prior to the
Company's ownership. The Company is involved in various environmental
remediation activities resulting from past operations, including designation as
a potentially responsible party, with others, at various EPA designated
Superfund sites. In developing its estimate of environmental remediation costs,
the Company considers, among other things, currently available technological
solutions, alternative cleanup methods, risk-based assessments of the
contamination, and estimates developed by independent environmental consultants.
The Company does not maintain insurance coverage for environmental matters.
Reserves have been recorded which, in management's estimate, will be
sufficient to satisfy anticipated costs of known remediation requirements. As a
result of factors such as the continuing evolution of
F-24
<PAGE> 117
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONTINGENCIES -- (CONTINUED)
environmental laws and regulatory requirements, the availability and application
of technology, and the identification of presently unknown RBX remediation
sites, estimated costs for future environmental compliance and remediation are
necessarily imprecise, and it is not possible to predict the amount or timing of
future costs of environmental remediation requirements which may subsequently be
determined. Based upon information presently available, such future costs are
not expected to have a material adverse effect on the Company's competitive or
financial position or its ongoing results of operations. However, such costs
could be material to results of operations in a future period.
F-25
<PAGE> 118
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 4
Risk Factors........................... 15
Use of Proceeds........................ 21
Capitalization......................... 22
Selected Historical Financial Data..... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 25
Business............................... 32
Management............................. 41
Security Ownership..................... 45
Certain Relationships and
Transactions......................... 47
Description of New Notes............... 48
Description of New Credit Agreement.... 81
Description of Senior Subordinated
Notes................................ 82
The Exchange Offer..................... 83
Certain Federal Income Tax
Consequences......................... 91
Plan of Distribution................... 92
Legal Matters.......................... 92
Experts................................ 92
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
$100,000,000
LOGO (R)
RBX CORPORATION
12% SERIES B SENIOR SECURED NOTES DUE 2003
------------------------
PROSPECTUS
------------------------
JUNE 5, 1998
======================================================
