As filed with the Securities and Exchange Commission on September 26, 1997
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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CLARK-SCHWEBEL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
2222
Delaware 2262 13-3883016
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
2200 South Murray Avenue
(P.O. Box 2627)
Anderson, South Carolina 29622
Telephone: (864) 224-3506
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Donald R. Burnette
2200 South Murray Avenue
(P.O. Box 2627)
Anderson, South Carolina 29622
Telephone: (864) 224-3506
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Jack M. Feder
Kirkland & Ellis
655 Fifteenth Street, N.W., Suite 1200
Washington, D.C. 20005
Telephone: (202) 879-5000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. |_|
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[cover page continued]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Debenture(1) Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Series B 12 1/2%
Senior Debentures
due 2007.............. $153,311,278(2) $1,000 principal $153,311,278 $46,458
amount
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) Includes up to $107,317,278 in aggregate principal amount of Series B 12
1/2% Senior Debentures due 2007 which may, upon the occurrence of
specified events, be issued in lieu of cash.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
CLARK-SCHWEBEL HOLDINGS, INC.
Offer to Exchange its 12 1/2% Series B Senior Debentures due 2007 for
any and all of its outstanding 12 1/2% Series A Senior Debentures due 2007
The Exchange Offer will expire at 5:00 p.m., New York City time,
on ___________, 199_, unless extended
Clark-Schwebel Holdings, Inc., a Delaware corporation ("Holdings"), 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 1/2%
Series B Senior Debentures due 2007 (the "New Debentures"), 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 1/2% Series A Senior Debentures due 2007
(the "Old Debentures"), of which $45,994,000 principal amount is outstanding on
the date hereof. The form and terms of the New Debentures are the same as the
form and term of the Old Debentures (which they replace) except that the New
Debentures 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 Debentures in certain
circumstances relating to the timing of the Exchange Offer. The Old Debentures
and the New Debentures are sometimes referred to herein collectively as the
"Debentures." The New Debentures will evidence the same debt as the Old
Debentures (which they replace) and will be issued under and be entitled to the
benefits of the Indenture (the "Indenture") dated as of August 14, 1997 between
Holdings and State Street Bank and Trust Company, as trustee, governing the
Debentures. See "The Exchange Offer" and "Description of New Debentures."
Holdings does not have any current plans to issue any significant
indebtedness to which the New Debentures would rank senior or pari passu in
right of payment.
The New Debentures will bear interest at a rate of 12 1/2% per annum,
payable semi-annually on January 15 and July 15 of each year, commencing January
15, 1998; provided however, that if on any interest payment date Holdings'
wholly owned subsidiary Clark-Schwebel, Inc. ("CSI") could not dividend or
distribute a sufficient amount of cash to Holdings under the terms of the CSI
Indenture (as defined) or the Credit Agreement (as defined) in order to make
such interest payment in cash, Holdings may make such interest payment in the
form of additional Debentures having an aggregate principal amount equal to the
amount of such interest. The New Debentures will mature on July 15, 2007. On or
after July 15, 2002, Holdings may redeem the New Debentures at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, to the date of redemption. Notwithstanding the foregoing,
at any time after January 15, 1998, Holdings may redeem all or any portion of
the principal amount of the Debentures with the net proceeds of one or more
Equity Offerings (as defined) at a redemption price equal to 106% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. Additionally, notwithstanding the
foregoing, at any time after January 15, 1998, Holdings may redeem all or any
portion of the principal amount of the Debentures at a redemption price equal to
106% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption, in the event of a Change
of Control (as defined) or a Subsidiary Change of Control (as defined). Upon a
Change of Control, Holdings will be obligated to make an offer to repurchase all
of the outstanding Debentures at a price equal to 101% of the principal amount
thereof plus accrued and
<PAGE>
unpaid interest and Liquidated Damages, if any, to the date of repurchase. See
"Description of New Debentures."
The New Debentures will be senior unsecured obligations of Holdings and
will rank pari passu in right of payment to all existing and future senior
indebtedness of Holdings and senior in right of payment to all subordinated
indebtedness of Holdings. The New Debentures will be effectively subordinated to
all existing and future secured indebtedness of Holdings, including Holdings'
guarantee of CSI's indebtedness under the Credit Agreement, to the extent of the
value of the assets securing such indebtedness, and will also be effectively
subordinated to all existing and future indebtedness of CSI and the other
subsidiaries of Holdings. As of June 28, 1997, on a pro forma basis after giving
effect to the Transactions, the aggregate principal amount of senior
indebtedness, including the Debentures and Holdings' guarantee of CSI's
indebtedness under the Credit Agreement, would have been approximately $156.0
million. The Indenture governing the Debentures permits Holdings and its
Restricted Subsidiaries (as defined) to incur additional indebtedness, subject
to certain limitations. See "Description of New Debentures."
See "Risk Factors," beginning on page __, for a discussion of certain
factors that should be considered by holders who tender their Old Debentures in
the Exchange Offer.
Holdings will accept for exchange any and all Old Debentures validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on ________,
199_, unless extended by Holdings in its sole discretion (the "Expiration
Date"). Tenders of Old Debentures 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 Debentures were issued on August 14, 1997 to the Initial
Purchaser (as defined) in exchange for and in redemption of all of Holdings'
then outstanding shares of 12.5% Senior Exchangeable Participating Preferred
Stock (the "Preferred Stock") 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 Debentures with qualified
institutional buyers and to institutional accredited investors in reliance upon
Rule 144A under the Securities Act. Accordingly, the Old Debentures 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 Debentures
are being offered hereunder in order to satisfy the obligations of Holdings
under the Registration Rights Agreement (as defined) entered into by Holdings in
connection with the original transfer of the Preferred Stock to the Initial
Purchaser. See "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 ________1997.
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<PAGE>
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, Holdings believes the
New Debentures 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 Holdings 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 Debentures are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to, and does not intend to,
participate in the distribution of such New Debentures. See "The Exchange Offer
- -- Purpose and Effect of the Exchange Offer" and "The Exchange Offer -- Resale
of the New Debentures." Each broker-dealer (a "Participating Broker-Dealer")
that receives New Debentures 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 Debentures. 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 Debentures received in exchange for Old Debentures where such Old
Debentures were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Holdings 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 Debentures not tendered and accepted in the Exchange Offer
will continue to hold such Old Debentures 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. Holdings will
pay all the expenses incurred by it incident to the Exchange Offer. See "The
Exchange Offer."
There has not previously been any public market for the Old Debentures or
the New Debentures. Holdings does not intend to list the New Debentures 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
Debentures will develop. See "Risk Factors -- Lack of Established Public Trading
Market; Absence of Trading Market for Old Debentures Not Validly Tendered."
Moreover, to the extent that Old Debentures are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Debentures could be adversely affected.
The New Debentures will be available initially in book-entry form and
Holdings expects that the New Debentures issued pursuant to this Exchange Offer
will be issued in the form of a Global Debenture (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 Debentures 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 Debentures, New
Debentures in certificated form will be issued in exchange for the Global
Debentures only under the limited circumstances set forth in the Indenture. See
"Description of New Debentures -- Book-Entry, Delivery and Form."
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<PAGE>
AVAILABLE INFORMATION
Holdings has 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
Debentures being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For further
information with respect to Holdings and 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.
Kevlar(R) and Teflon(R) are registered trademarks of E.I. du Pont de Nemours and
Company ("DuPont"). Spectra(R) is a registered trademark of AlliedSignal, Inc.
("AlliedSignal").
The fiscal year for each of Holdings, CSI and Fort Mill A Inc., the predecessor
holder of all of the CSI's capital stock ("Fort Mill"), ends on the Saturday
closest to December 31. The fiscal years 1992, 1993, 1994, 1995 and 1996 ended
on January 2, 1993, January 1, 1994, December 31, 1994, December 30, 1995, and
December 28, 1996, respectively. The results of operations for the year ended
December 28, 1996 represent the combined results of the predecessor company, for
the period of December 31, 1995 through April 17, 1996, and the successor
company for the period of April 18, 1996 through December 28, 1996. The fiscal
quarters for each of Holdings, CSI and Fort Mill are thirteen weeks and are
measured from the fiscal year end of the applicable year. Accordingly, the
second quarter for Holdings ended on June 29, 1996 and June 28, 1997 for 1996
and 1997, respectively. The results of operations for the six months ended June
29, 1996 represents the combined results of the predecessor company for the
period of December 31, 1995 through April 17, 1996, and the successor Company
for the period of April 18, 1996 through June 29, 1996.
Disclosure Regarding Forward-Looking Statements
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" AND "THE TRANSACTIONS--ACQUISITIONS" AND LOCATED ELSEWHERE HEREIN
REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS
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<PAGE>
PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-
LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
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<PAGE>
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 and notes thereto, included elsewhere in this
Prospectus. Financial Statements presented herein reflect the consolidated
financial statements of Fort Mill. Fort Mill's sole asset was, and Holdings'
sole asset is, all of the capital stock of CSI. References in this Prospectus to
the "Company" shall, except where the context otherwise requires, refer to
Clark-Schwebel Holdings, Inc. and its wholly owned subsidiary CSI. Market data
used throughout this Prospectus were obtained from internal Company surveys and
industry publications. Industry publications generally indicate that the
information contained therein has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guaranteed. The Company has not independently verified such 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 "CSI" are to Clark-Schwebel, Inc. for periods prior to the Acquisition (as
defined) and to Clark-S Acquisition Corporation which, through a series of
mergers, was merged into Clark-Schwebel, Inc., for periods following the
Acquisition.
THE COMPANY
The Company believes it has been a leading manufacturer and marketer of
industrial fabrics, including electronics fiber glass fabrics, composite
materials fiber glass fabric and high performance fabrics since its founding in
1960. The Company believes it is the largest producer of fiber glass fabrics for
use in the growing electronics industry, with an estimated 50% market share in
the United States. Fiber glass fabrics are a critical component used in the
production of printed circuit boards, which are integral to virtually all
advanced electronic products, including computers, telecommunications equipment,
advanced cable television equipment, network servers, televisions, automotive
equipment and home appliances. The Company's fiber glass fabrics are also used
in composite materials to strengthen, insulate and enhance the dimensional
stability of hundreds of products in a variety of markets, such as aerospace,
coating and laminating, marine and tooling, building insulation and sports
equipment. The Company is also a leading manufacturer of Kevlar(R), Spectra(R)
and quartz fabrics. High performance fabrics composed of Kevlar(R), the most
widely used aramid fiber, are used primarily in ballistic protection products,
such as vests and helmets worn by state, local and private police forces and the
military, and in composite materials for aerospace applications.
The Company continues to capitalize on its leading positions in the fiber
glass and high performance fabrics businesses and, as a result, has achieved
significant increases in net sales and profitability. From 1993 to 1996, the
Company's net sales, EBITDA (as defined), operating income and net income grew
at compounded annual growth rates of 10.5%, 30.6%, 52.6% and 94.8%,
respectively. During the same period, the Company's EBITDA margin increased from
11.6% to 19.2% primarily as a result of the growth in sales and management's
initiatives to control the Company's fixed manufacturing and operating costs and
to improve manufacturing productivity. In 1996, the Company's net sales, EBITDA,
operating income and net income were $220.9 million, $42.3 million, $32.1
million and $16.7 million, respectively.
The Company's principal executive offices are located at 2200 South Murray
Avenue, Anderson, South Carolina 29622, and its telephone number is (864)
224-3506.
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<PAGE>
Electronics Fiber Glass Fabric
The Company believes it is a leading producer of electronics fiber glass
fabric in the United States. The Company sells fiber glass fabric to
manufacturers of high pressure laminates ("HPL") who, in turn, convert fiber
glass fabric into rigid and thin core laminates that are sold to manufacturers
of single-sided, double-sided and multilayered printed circuit boards. Printed
circuit boards require a highly engineered substrate material on which to mount
and interconnect semiconductor chips, passive electronic devices and other
electronic components. Due to its low cost, high strength, dimensional
stability, temperature resistance and electrical insulating properties, fiber
glass fabric has proven to be the most effective substrate material used in the
manufacture of printed circuit boards. In addition, the Company believes that
currently there is no cost-effective substitute material which can satisfy the
stringent quality and performance specifications required of fiber glass fabric
for HPLs in printed circuit boards. Electronics fiber glass fabric represented
57.6%, 58.9% and 62.9% of the Company's net sales in 1994, 1995 and 1996,
respectively.
The Company continues to capitalize on the growth in demand for printed
circuit boards resulting from (i) the development of increasingly complex
electronics products, including personal computers, cellular phones, pagers and
portable computing devices, and (ii) the increasing electronic content of
products in which such use has been historically absent or limited, such as
automobiles, home appliances and medical equipment.
Composite Materials Fiber Glass Fabric
Fiber glass fabrics are also used in composite materials for the
aerospace, coating and laminating, marine and tooling, building insulation and
sports equipment markets. Composite materials fiber glass fabric is used in
various applications which require combinations of fiber glass' inherent
properties, including light weight, strength, temperature and flame resistance,
moisture and chemical resistance, and durability. The Company's customers
produce composite materials by impregnating fiber glass fabric with
thermosetting epoxy and phenolic resin systems. Applications of composite
material fiber glass fabric include aircraft components, such as interior
paneling systems and passenger overhead storage compartments. Fiber glass
fabrics are also used in a wide range of other industrial applications, such as
Teflon(R) coated conveyor belts, window shades, movie screens, electrical
insulation products, marine construction materials, automotive tooling and
roofing materials. Composite materials fiber glass fabric represented 23.9%,
18.5% and 21.3% of the Company's net sales in 1994, 1995 and 1996, respectively.
The Company's fiber glass fabrics can be found on major airframe programs
at The Boeing Company, McDonnell Douglas Corporation and Airbus Industries. The
Company expects increases in commercial aircraft build rates over the next
several years. The growing global economy and governmental regulations forcing
the removal of older, louder, less fuel efficient aircraft are expected to drive
demand for new aircraft.
High Performance Fabrics
The Company believes it is a leading producer of high performance fabrics
used primarily to make ballistic protection products, such as vests and helmets
worn by state, local and private police forces and the military and to reinforce
composite materials for aircraft applications. The Company's high performance
fabrics possess physical properties such as durability, low weight and high
tensile strength. The Company's line of high performance products are
manufactured by arranging and finishing aramid and other materials, such as
Kevlar(R), Spectra(R) and quartz. Wide ranges of fiber types and construction
patterns provide broad design potential, allowing the Company to manufacture
high performance fabrics to meet stringent customer standards. For instance, the
Company manufactures Kevlar(R) fabric, the most widely used aramid fabric,
according to ballistic design parameters determined by performance criteria of
the end product. The Company sells ballistic protection fabrics designed to
capture high mass, relatively low velocity bullets as well as
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<PAGE>
ballistic protection fabrics designed to capture low mass, high velocity
fragments. High performance fabrics represented 18.5%, 22.6% and 15.8% of the
Company's net sales in 1994, 1995, and 1996, respectively.
Business Strategy
The Company's business strategy is to increase sales and profitability by
capitalizing on its leading position in the fiber glass fabrics industry and the
expected increased demand for printed circuit boards. The Company believes that
its long-standing customer and supplier relationships, manufacturing and
technical expertise, and commitment to providing consistent, high quality
products will enable the Company to maintain its leading position in the
industry.
THE TRANSACTIONS
The "Transactions" refer collectively to the redemption of the Preferred
Stock, the issuance of the Old Debentures, the repayment of the Term Loan under
the Credit Agreement and the related Credit Agreement Amendment (as defined) and
the repayment of the Management Loans. See "The Transactions -- Subsequent
Events."
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<PAGE>
THE INITIAL OFFERING
Old Debentures The Old Debentures were issued by Holdings
on August 14, 1997 (the "Issue Date") to
Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchaser") in
exchange for and in redemption of all of
Holdings' then outstanding shares of 12.5%
Senior Exchangeable Participating Preferred
Stock (the "Preferred Stock"). The Initial
Purchaser originally acquired the Preferred
Stock from Vestar/CS Holding pursuant to a
Purchase Agreement dated July 14, 1997, and
upon issuance of the Old Debentures in
redemption of the Preferred Stock, sold the
Old Debentures to qualified institutional
buyers pursuant to Rule 144A under the
Securities Act and to institutional
accredited investors.
Registration Rights Agreement Pursuant to the Purchase Agreement,
Holdings and the Initial Purchaser entered
into a Registration Rights Agreement dated
July 14, 1997 (the "Registration Rights
Agreement"), which grants the holders of
the Old Debentures certain exchange and
registration rights. The Exchange Offer is
intended to satisfy such exchange rights
which terminate upon the consummation of
the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered $45,994,000 aggregate principal amount of
12 1/2% Series B Senior Debentures due 2007
(the "New Debentures").
The Exchange Offer $1,000 principal amount of the New
Debentures in exchange for each $1,000
principal amount of Old Debentures. As of
the date hereof, $45,994,000 aggregate
principal amount of Old Debentures are
outstanding. Holdings will issue the New
Debentures 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, Holdings
believes that New Debentures issued
pursuant to the Exchange Offer in exchange
for Old Debentures may be offered for
resale, resold and otherwise transferred by
any holder thereof (other than any such
holder which is an "affiliate" of Holdings
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 Debentures 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 Debentures.
Any Participating Broker-Dealer that
acquired Old Debentures 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 Debentures
for its
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<PAGE>
own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Debentures. 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 Debentures
received in exchange for Old Debentures
where such Old Debentures were acquired by
such Participating Broker-Dealer as a
result of market-making activities or other
trading activities.
Holdings 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 Debentures 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
___________, 199_ 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
Debentures and the Old Debentures Each New Debenture will bear interest from
its issuance date. Holders of Old
Debentures that are accepted for exchange
will receive, in cash, accrued interest
thereon to, but not including, the issuance
date of the New Debentures. Such interest
will be paid with the first interest
payment on the New Debentures. Interest on
the Old Debentures accepted for exchange
will cease to accrue upon issuance of the
New Debentures.
Conditions to the Exchange Offer The Exchange Offer is subject to certain
customary conditions, which may be waived
by Holdings. See "The Exchange Offer --
Conditions."
Procedures for Tendering
Old Debentures Each holder of Old Debentures 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
- 10 -
<PAGE>
(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
Debentures 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 Holdings that, among other things, the
New Debentures acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Debentures, 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 Debentures, (ii)
is engaging or intends to engage in the
distribution of such New Debentures or
(iii) is an "affiliate," as defined under
Rule 405 of the Securities Act, of
Holdings. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Debentures Following the consummation of the Exchange
Offer, holders of Old Debentures eligible
to participate but who do not tender their
Old Debentures will not have any further
exchange rights and such Old Debentures
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old
Debentures could be adversely affected.
Consequences of Failure to
Exchange The Old Debentures that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such
Debentures may be resold only (i) to
Holdings, (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 Debentures (other
than any such holder which is an
"affiliate" of Holdings 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 Debentures to Holdings
for use therein, Holdings has agreed to
register the Old Debentures 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. Holdings 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 Debentures held by
any such holders.
- 11 -
<PAGE>
Special Procedures for Beneficial
Owners Any beneficial owner whose Old Debentures
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 Debentures, either make
appropriate arrangements to register
ownership of the Old Debentures 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. Holdings 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 Debentures who wish to
tender their Old Debentures and whose Old
Debentures are not immediately available or
who cannot deliver their Old Debentures,
the Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent (or
comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Old Debentures 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.
Acceptance of Debentures and
Deliver of New Debentures Holdings will accept for exchange any and
all Old Debentures which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The New Debentures 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 EXCHANGE DEBENTURES
General The form and terms of the New Debentures
are the same as the form and terms of the
Old Debentures (which they replace) except
- 12 -
<PAGE>
that (i) the New Debentures bear a Series B
designation, (ii) the New Debentures have
been registered under the Securities Act
and, therefore, will not bear legends
restricting the transfer thereof, and (iii)
the holders of New Debentures 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 Debentures 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 Debentures will evidence the same
debt as the Old Debentures and will be
entitled to the benefits of the Indenture.
See "Description of New Debentures." The
Old Debentures and the New Debentures are
referred to herein collectively as the
"Debentures."
Securities Offered $45,994,000 aggregate principal amount of
12 1/2% Series B Senior Debentures due
2007.
Maturity Date July 15, 2007.
Interest Payment Dates January 15 and July 15 of each year,
commencing January 15, 1998; provided
however, that if on any interest payment
date Holdings' wholly owned subsidiary
Clark-Schwebel, Inc. ("CSI") could not
dividend or distribute a sufficient amount
of cash to Holdings under the terms of the
CSI Indenture or the Credit Agreement (as
defined) in order to make such interest
payment in cash, Holdings may make such
interest payment in the form of additional
Debentures having an aggregate principal
amount equal to the amount of such
interest.
Option Redemption On or after July 15, 2002, Holdings may
redeem the New Debentures, at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages (as defined), if any, to the date
of redemption. Notwithstanding the
foregoing, at any time after January 15,
1998, Holdings may redeem all or any
portion of the outstanding principal amount
of the Debentures with the net proceeds of
one or more Equity Offerings at a
redemption price equal to 106% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of redemption.
Additionally, notwithstanding the
foregoing, at any time after January 15,
1998, Holdings may redeem all or any
portion of the principal amount of the
Debentures at a redemption price equal to
106% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption,
in the event of a Change of Control (as
defined) or a Subsidiary Change of Control
(as defined). See "Description of New
Debentures -- Optional Redemption."
Mandatory Redemption None.
- 13 -
<PAGE>
Change of Control Upon a Change of Control, Holdings will be
obligated to make an offer to repurchase
all of the outstanding Debentures at a
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the date
of repurchase. See "Description of New
Debentures -- Change of Control."
Ranking The New Debentures will be senior unsecured
obligations of Holdings and will rank pari
passu in right of payment to all existing
and future senior indebtedness of Holdings
and senior in right of payment to all
subordinated indebtedness of Holdings. The
New Debentures will be effectively
subordinated to all existing and future
secured indebtedness of Holdings, including
indebtedness pursuant to Holdings'
guarantee of CSI's indebtedness under the
Credit Agreement, to the extent of the
value of the assets securing such
indebtedness, and will also be effectively
subordinated to all existing and future
indebtedness of CSI and the other
subsidiaries of Holdings. See "Description
of New Debentures."
Certain Covenants The Indenture contains certain covenants
which, among other things, limits the
ability of Holdings and its Restricted
Subsidiaries to: (i) incur additional
indebtedness and issue preferred stock;
(ii) repay certain other indebtedness;
(iii) pay dividends or make certain other
distributions; (iv) repurchase equity
interests; (v) consummate certain asset
values; (vi) enter into certain
transactions with affiliates; (vii) enter
into sale and lease-back transactions;
(viii) incur liens; (ix) merge or
consolidate with any other person; or (x)
sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially
all of the assets of Holdings. In addition,
under certain circumstances, Holdings will
be required to make an offer to repurchase
the Debentures at a price equal to the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of repurchase, with the
proceeds of certain Asset Sales (as
defined). See "Description of New
Debentures -- Certain Covenants." In
addition, Holdings' interests in certain
joint ventures are not subject to the
covenants of the Indenture or the Credit
Agreement. See "The Business - Joint
Ventures."
RISK FACTORS
See "Risk Factors" for a discussion of certain material factors that
should be considered in connection with the Exchange Offer.
- 14 -
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(Dollars in millions)
Set forth below are summary historical financial data of Fort Mill, the
predecessor company, derived from the historical consolidated financial
statements for the fiscal years ended 1992 through 1995. Fort Mill's sole asset
was all of the capital stock of CSI. Fort Mill had no operations and held no
investments other than its investment in CSI. The selected historical financial
data were derived from the historical balance sheets for 1994 and 1995 and the
historical income statements for 1993, 1994 and 1995. The historical balance
sheets for 1995 and the historical income statements for 1994 and 1995 were
audited by Deloitte & Touche LLP. The selected historical consolidated balance
sheet data for 1992 and 1993 and the income statement data for 1992 were derived
from unaudited historical financial statements of Fort Mill. The 1996 selected
historical and other financial data represents the results of operations of Fort
Mill, the predecessor company, through April 17, 1996, and Holdings, the
successor company, for the period of April 18, 1996 through December 28, 1996.
Holdings' sole asset is all of the common stock of CSI, its operating company.
The 1996 selected historical financial data were derived from the 1996
consolidated financial statements which were audited by Arthur Andersen, LLP.
Also set forth below are selected historical and other financial data for the
first six months of 1996 and 1997. These results are unaudited, but include all
normal recurring adjustments necessary for a fair presentation of the financial
data for such periods. This analysis compares the results of operations of the
successor Company, for the six months ended June 28, 1997 to the six months
ended June 29, 1996. The results of operations for the six months ended June 29,
1996 represents the combined results of the predecessor company, for the period
of December 31, 1995 through April 17, 1996, and the successor Company for the
period of April 18, 1996 through June 29, 1996, in order to establish
comparative periods. The following summary pro forma financial data represents
those of Holdings. The pro forma income statement data for 1996 and for the
first six months of 1997 give effect to the Transactions as if they had occurred
on December 31, 1995. The pro forma balance sheet data give effect to the
Transactions as if they had occurred on June 28, 1997. The pro forma financial
data do not purport to be indicative of Holdings' financial position or results
of operations had the Transactions been completed as of the date or for the
periods presented, nor do such data purport to project Holdings' financial
position or results of operations at any future date or for any future period.
The information contained in this table should be read in conjunction with
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Statements" and the Financial Statements and accompanying notes thereto included
elsewhere in this Prospectus.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------------------------
1996 1996
(3.5 months) (8.5 months)
1992(2) 1993 1994 1995 (Predecessor) (Successor)
(Historical) (Historical) (Historical) (Historical) (Historical) (Historical)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales................ $158.8 $163.7 $189.4 $231.3 $68.9 $152.0
Gross profit............. 19.9 24.5 28.7 39.3 13.9 33.4
Selling, general and
administrative expenses 16.3 15.5 14.4 17.8 4.8 10.4
Idle equipment write-
off (1)................ --- --- 1.8 --- --- ---
Operating income......... 3.6 9.0 12.5 21.6 9.1 23.0
Interest expense......... 0.5 0.4 0.4 0.4 0.1 10.1
Income (loss) from equity
investees, net......... (5.4) (3.4) 1.2 2.6 1.2 2.6
Income from continuing
operations............. (3.8) 1.6 8.3 15.3 6.6 10.1
Accrued dividends on
preferred
stock.................. --- --- --- --- --- 3.1
Income from continuing
operations applicable
to common shares....... (3.8) 1.6 8.3 15.3 6.6 7.0
Other Data:
EBITDA(3)................ $13.0 $19.0 $22.5 $32.7 $12.7 $29.6
EBITDA, as adjusted (3) 13.0 19.0 24.3 34.1 12.7 29.6
Depreciation and
amortization........... 9.4 10.0 10.0 11.1 3.5 7.3
Capital expenditures..... 4.3 8.8 11.5 8.4 1.6 2.0
Gross profit as a percentage
of net sales........... 12.5% 15.0% 15.1% 17.0% 20.2% 22.0%
EBITDA, as a percentage of
gross sales............ 8.2% 11.6% 11.9% 14.1% 18.4% 19.5%
EBITDA, as adjusted as a
percentage of gross sales 8.2% 11.6% 12.8% 14.7% 18.4% 19.5%
Net cash provided by (used
in) (4):
Operating Activities... (1.4) 17.3 16.2 18.0 8.0 41.1
Investing Activities... (4.3) (8.7) 7.6 (8.4) (1.6) (194.9)
Financing Activities... 5.7 (8.7) (23.8) (9.1) (6.5) 157.4
Ratio of earnings to fixed
charges................ 4.3x 15.0x 23.2x 45.7x 47.5x 2.0x
Other Pro Forma Data:
Cash interest expense (5) --- --- --- --- --- ---
Ratio of EBITDA to cash
interest expense....... --- --- --- --- --- ---
Ratio of EBITDA, as
adjusted to cash
interest expense....... --- --- --- --- --- ---
Ratio of net debt to
EBITDA (6)............. --- --- --- --- --- ---
Ratio of net debt to
EBITDA, as adjusted (6) --- --- --- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
-------------------------- -------------------------------------------------------------------
Combined 1996 1996 Combined
1996 (3.5 months) (2.5 months) 1996
(12 months) 1996 (Predecessor) (Successor) (6 months) 1997 1997
(Historical) (Historical) (Historical) (Historical) (Historical) (Historical) (Pro Forma)
------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales................ $220.9 $220.9 $68.9 $47.3 $116.2 $123.3 123.3
Gross profit............. 47.3 47.3 13.9 9.6 23.5 27.4 27.4
Selling, general and
administrative expenses 15.2 15.2 4.8 3.0 7.8 7.7 7.7
Idle equipment write-
off (1)................ --- --- --- --- --- --- ---
Operating income......... 32.1 32.1 9.1 6.6 15.7 19.7 19.7
Interest expense......... 10.2 16.5 0.1 3.2 3.3 6.4 9.8
Income (loss) from equity
investees, net......... 3.8 3.8 1.2 1.0 2.2 1.6 1.6
Income from continuing
operations............. 16.7 12.9 6.6 2.9 9.5 9.4 7.3
Accrued dividends on
preferred
stock.................. 3.1 --- --- 0.9 0.9 2.4 ---
Income from continuing
operations applicable
to common shares....... 13.6 12.9 6.6 2.0 8.6 7.0 7.3
Other Data:
EBITDA(3)................ $42.3 $42.3 $12.7 $8.5 $21.2 $24.3 $24.3
EBITDA, as adjusted (3) 42.3 42.3 12.7 8.5 21.2 24.3 24.3
Depreciation and
amortization........... 10.8 10.8 3.5 2.0 5.5 4.6 4.6
Capital expenditures..... 3.6 3.6 1.6 0.4 2.0 3.5 3.5
Gross profit as a percentage
of net sales........... 21.4% 21.4% 20.2% 20.3% 20.3% 22.3% 22.3%
EBITDA, as a percentage of
gross sales............ 19.1% 19.1% 18.4% 18.0% 18.2% 19.7% 19.7%
EBITDA, as adjusted as a
percentage of gross sales 19.1% 19.1% 18.4% 18.0% 18.2% 19.7% 19.7%
Net cash provided by (used
in) (4):
Operating Activities... 49.1 N/A 8.0 21.5 29.5 14.6 N/A
Investing Activities... (196.5) N/A (1.6) (193.3) (194.9) (2.0) N/A
Financing Activities... 150.9 N/A (6.5) 174.9 168.4 (2.3) N/A
Ratio of earnings to fixed
charges................ 2.5x 2.5x 47.5x 1.9x 3.7x 2.4x 2.3x
Other Pro Forma Data:
Cash interest expense (5) --- $15.4 --- --- --- --- $8.9
Ratio of EBITDA to cash
interest expense....... --- 2.7x --- --- --- --- 2.7x
Ratio of EBITDA, as
adjusted to cash
interest expense....... --- 2.7x --- --- --- --- 2.7x
Ratio of net debt to
EBITDA (6)............. --- 4.1x --- --- --- --- 3.5x
Ratio of net debt to
EBITDA, as adjusted (6) --- 4.1x --- --- --- --- 3.5x
</TABLE>
- 16 -
<PAGE>
June 28, 1997
--------------------
Actual Pro Forma
------ ---------
Balance Sheet Data:
Working Capital...................................... 33.2 17.7
Total assets......................................... 250.1 235.8
Total long-term debt (including current portion)..... 121.2 156.0
Total stockholders' equity........................... 54.6 9.5
- -----------------------
(1) During 1994, the Company recorded a $1.8 million charge against operating
income related to the write-off of certain idle manufacturing equipment.
(2) In 1992, CSI's European operations were conducted through two wholly owned
subsidiaries (the "European Subsidiaries"). On March 25, 1993, CSI
contributed its two European Subsidiaries and $8.8 million in cash to
CS-Interglas AG, in consideration for a DM20 million convertible
subordinated note and a minority equity interest in CS-Interglas AG. At
the end of 1996, the DM20.0 million convertible note had a carrying value
of $13.0 million. The value assigned to CSI's minority interest at the
time of the Acquisition was $14.1 million. Beginning in 1993, CSI
accounted for this investment using the equity method of accounting. In
order to show comparable financial data, the results of the European
Subsidiaries for 1992 have been restated using the equity method of
accounting. The financial results of Fort Mill on a consolidated basis for
1992 are reflected below (in millions).
Fiscal Year
1992
----
Income Statement Data:
Net Sales...................................................... $200.5
Operating loss................................................. (4.3)
Net loss....................................................... (4.0)
====
(3) EBITDA is defined herein as operating income plus depreciation and
amortization. EBITDA, as adjusted, is defined herein as operating income
plus depreciation, amortization, the write-off of certain idle equipment
($1.8 million in 1994) and the provision for a customer bad debt ($1.4
million in 1995) related to a receivable retained by Springs Industries.
EBITDA and EBITDA, as adjusted, do not include any income (loss) from
equity investees, net. EBITDA is not a defined term under generally
accepted accounting principles ("GAAP") and should not be construed as an
alternative to operating income, net income or cash flows from operating
activities as determined by GAAP and should not be construed as an
indication of the Company's operating performance or as a measure of
liquidity. EBITDA and EBITDA, as adjusted, do not represent available or
discretionary funds of the Company.
(4) This cash flow information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(5) Pro forma cash interest expense represents total interest expense less
amortization of deferred financing costs of $0.6 million for fiscal year
1996 and $0.4 million for the first six months of 1997.
- 17 -
<PAGE>
(6) Net debt represents total debt plus accrued interest less cash and was
calculated based on pro forma net debt of $172.8 million and $158.4
million as of December 28, 1996 and June 28, 1997, respectively. EBITDA
for the latest twelve months ended June 28, 1997 of $45.4 million was used
for the purpose of this calculation. The ratio of net debt to EBITDA is a
key ratio used by the financial community to evaluate an entity's ability
to service its debt.
- 18 -
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before tendering
Old Debentures in exchange for the New Debentures. The risk factors set forth
below are generally applicable to the Old Debentures as well as the New
Debentures.
Significant Leverage
The Company is highly leveraged and has indebtedness that is substantial
in relation to stockholders' equity. As of June 28, 1997, on a pro forma basis
after giving effect to the Transactions, the Company would have had an aggregate
of $156.0 million of outstanding indebtedness and stockholders' equity of $9.5
million. In addition, subject to the restrictions in the Credit Agreement, the
CSI Indenture and the Indenture, the Company and its subsidiaries may incur
additional indebtedness. For the six months ended June 28, 1997, on a pro forma
basis, after giving effect to the Transactions as if they had occurred on
December 29, 1996, the Company's ratio of earnings to fixed charges would have
been 2.3x.
The Company's high degree of leverage could have important consequences to
holders of the New Debentures, including, but not limited to, the following: (i)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (ii) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (iii) certain of the Company's borrowings will be at
variable rates of interest, which will expose the Company to the risk of higher
interest rates; (iv) the indebtedness outstanding under the Credit Agreement is
secured by substantially all of the assets of the Company and matures prior to
the maturity of the New Debentures; (v) the indebtedness outstanding under the
Senior Notes is secured by guarantees of Holdings and the subsidiaries of CSI
and matures prior to the maturity of the New Debentures; (vi) the Company may be
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (vii) the Company's degree of
leverage may hinder its ability to adjust rapidly to changing market conditions
and could make it more vulnerable in the event of a downturn in general economic
conditions or its business.
Holdings' ability to pay principal and interest on the New Debentures and
to satisfy its other obligations will depend on the financial and operating
performance of CSI and its subsidiaries, which in turn are subject to prevailing
economic conditions and to certain financial, business and other factors beyond
its control. Holdings anticipates that CSI's operating cash flow will be
sufficient to meet its operating expenses, to provide funds for distribution to
Holdings to allow Holdings to service the Debentures and to satisfy its other
obligations. However, if CSI cannot generate sufficient cash flow from
operations to meet its obligations, then the Company may be forced to take
actions such as 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 remedies could be effected on
satisfactory terms, if at all. In addition, even if CSI is able to generate
sufficient cash flow from operations to meet its obligations, there is no
assurance that such cash flow will be sufficient to permit distributions to
Holdings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Structural Subordination
The Indenture permits the Company to incur certain indebtedness, including
indebtedness under the Credit Agreement, which is secured by a lien on
substantially all of the assets of CSI, and indebtedness under the Senior Notes,
which has been guaranteed by Holdings and the subsidiaries of CSI. The New
Debentures are unsecured and will be effectively subordinated to all
indebtedness incurred by CSI (including the
- 19 -
<PAGE>
indebtedness under the Credit Agreement and the Senior Notes). Accordingly, if
an event of default occurs under the Credit Agreement, the lenders thereto will
have a prior right to the assets of the Company and may foreclose upon such
collateral to the exclusion of the holders of the New Debentures. In addition,
once the indebtedness under the Credit Agreement has been repaid, the holders of
the Senior Notes, upon an event of default under the CSI Indenture, will have
the right to be repaid from the assets of the Company to the exclusion of the
holders of the New Debentures. Thus, upon such events, such assets would first
be used to repay in full amounts outstanding under the Credit Agreement and,
thereafter, the Senior Notes and any other holder of unsecured indebtedness of
CSI, resulting in all or a portion of the Company's assets being unavailable to
satisfy the claims of the holders of New Debentures.
Restrictions Imposed by Terms of the Company's Indebtedness
The Indenture contains covenants which, among other things, restrict the
ability of the Company and its subsidiaries, and the CSI Indenture restricts the
ability of CSI and its subsidiaries, to incur additional indebtedness, repay
certain other indebtedness, pay dividends, or make certain other distributions,
repay certain indebtedness, consummate certain asset sales, enter into certain
transactions with affiliates, enter into sale and leaseback transactions, incur
liens, incur additional indebtedness, merge or consolidate with any other person
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. See "Description of New
Debentures -- Certain Covenants." In addition, the Credit Agreement contains
other and more restrictive covenants and also requires the Company to maintain
specified financial ratios and satisfy certain financial condition tests. See
"Description of Certain Indebtedness."
The Company's ability to comply with the covenants contained in the
Indenture, the CSI Indenture and the Credit Agreement may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the Indentures and/or the Credit Agreement which would permit
the secured lenders, the holders of the Senior Notes or the holders of the
Debentures, as the case may be, to declare all amounts borrowed thereunder to be
due and payable, together with accrued and unpaid interest, and the commitments
of the secured lenders to make further extensions of credit under the Credit
Agreement could be terminated. If the Company were unable to repay its
indebtedness to its secured lenders, the secured lenders could proceed against
any or all the collateral securing such indebtedness, which collateral consists
of the capital stock and substantially all of the assets of CSI.
Dependence on Electronics Industry/Cyclicality
The Company's business is dependent on manufacturers of electronic
laminates who in turn are dependent upon printed circuit board fabricators who
supply electronic equipment manufacturers. The electronics industry is cyclical
and has experienced recurring downturns. A future downturn could reduce demand
for, and prices of, materials used in electronics, including those manufactured
by the Company. Over the past four years, the electronics industry has
experienced significant growth, but there can be no assurance that such growth
will continue. A significant downturn or change in any particular market segment
of the electronics industry could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Concentration of Customers
In 1996, sales to two of the Company's customers, Allied-Signal Laminate
System and Park Electrochemical, each accounted for more than 10% of the
Company's net sales, and sales to the Company's top ten customers accounted for
approximately 70% of net sales. As customers seek to establish closer
relationships with their suppliers, the Company expects its customer base to
continue to be concentrated. If,
- 20 -
<PAGE>
for any reason, any of its key customers were to purchase significantly less of
the Company's products in the future, such decreased level of purchases could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Customers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Technological Change
Rapid technological advances in the electronics industry have demanded
increased performance from suppliers of components and raw materials. These
advances have placed increasingly rigorous demands on the weight, thickness and
consistency of fiber glass products produced by the Company. Technological
change in the printed circuit board industry is rapid and continuous and will
continue to require increased technological and manufacturing capability and
expertise. Advances in semiconductor technology could further reduce the surface
area of printed circuit boards and possibly demand for the Company's products.
There can be no assurance that the Company will be able to maintain its current
technological position.
The Company could face increased competition if cost-effective
alternatives to fiber glass fabrics were developed for the electronics industry.
Currently, only lower-end electronics, which use a paper based laminate system
for printed circuit boards, and very high-end electronics, which use a variety
of very expensive materials for printed circuit boards, use non-fiber glass
fabrics. However, the development and introduction of cost-competitive
alternatives could have a material adverse impact on the Company's business,
financial condition and results of operations.
Competition
The Company believes that competition in its markets is primarily based on
long-term relationships with customers and suppliers, quality, technical
support, price and reliability. The Company's primary competitors are BGF
Industries, Inc. in the fiber glass fabrics market and Hexcel Corporation in the
high performance fabrics market. Some of the Company's competitors may have
greater financial and other resources than the Company.
Availability of Raw Materials
Fiber glass yarn is the principal raw material used in the production of
fiber glass fabric. There are two major suppliers of fiber glass yarn in the
United States, and substitutes are not readily available. The Company purchases
most of its aramid yarn from one supplier. Any disruption in the ability or
willingness of the Company's suppliers to deliver fiber glass or aramid yarns to
the Company could have a material adverse effect on the Company's business,
financial condition and results of operations. In the fourth quarter of 1994,
shortages of fiber glass yarn occurred, and in the first quarter of 1995
suppliers of fiber glass yarn reduced shipments, limiting its supply to the
Company and other purchasers of fiber glass yarn. This shortage, which continued
through mid-1996, limited the ability of the Company to expand production of
fiber glass fabrics. In addition, due in part to fiber glass yarn shortages, the
price of fiber glass yarn increased in 1996 at a higher than historical rate.
During the latter part of 1996, fiber glass yarn supply became sufficient to
meet the Company's requirements. The supply of fiber glass yarn has remained
adequate in 1997 and should be adequate for the foreseeable future. While the
Company generally has been able to pass through increases in the cost of fiber
glass yarn, the inability of the Company to do so in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Environmental Matters
The Company's facilities are subject to a broad range of federal, state,
local and foreign environmental laws and requirements, including those governing
discharges to the air and water, the handling
- 21 -
<PAGE>
and disposal of solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and offsite disposal locations. The Company has made, and will
continue to make, expenditures to comply with such laws and requirements. The
Company believes, based upon information currently available to management, that
it will not require material capital expenditures to maintain compliance with
environmental requirements during this or the following fiscal year or in the
foreseeable future. However, future events, such as changes in existing laws and
regulations or the discovery of contamination at sites owned or operated by the
Company, may give rise to additional compliance or remediation costs which could
have a material adverse effect on the Company's financial condition or results
of operations. Moreover, the nature of the Company's business exposes it to some
risk of claims with respect to environmental matters, and there can be no
assurance that material costs or liabilities will not be incurred in connection
with any such claims. See "Business -- Environmental Matters."
Control by Principal Stockholder
Vestar/CS Holding holds 82% of the fully diluted common stock of Holdings.
Vestar, through its interests in Vestar/CS Holding and certain agreements,
controls Holdings and, through its control of Holdings, has the power to elect a
majority of the Company's directors, appoint new management and approve any
action requiring the approval of the holders of Holdings' common stock,
including adopting certain amendments to Holdings' certificate of incorporation.
See "Management -- Directors and Executive Officers of the Registrant" and
"Security Ownership" and "Certain Relationships and Related Transactions."
Dependence on Key Personnel
The Company's success is dependent upon certain key management personnel.
There is competition for qualified employees among companies in the electronic
materials industry, and the loss of certain of the Company's employees or an
inability to continue to attract and motivate highly skilled employees could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Purchase of Debentures Upon a Change of Control
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Debentures at 101% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of repurchase.
The source of funds for any such repurchase 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. A Change
of Control will likely trigger an event of default under the Credit Agreement
which would permit the lenders thereto to accelerate the debt under the Credit
Agreement. In addition, upon the occurrence of substantially all of the events
that would constitute a Change of Control for purposes of the Indenture, CSI is
required to offer to repurchase all outstanding Senior Notes pursuant to the CSI
Indenture. 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 Debentures and to repay debt under the Credit Agreement and the Senior Notes.
See "Description of New Debentures -- Repurchase at the Option of Holders" and
"Description of Certain Indebtedness."
Fraudulent Conveyance Considerations
In connection with the Transactions, Holdings incurred substantial
indebtedness under the Debentures. If under relevant federal and state
fraudulent conveyance statutes in a bankruptcy, reorganization or rehabilitation
case or similar proceeding or a lawsuit by or on behalf of unpaid creditors of
Holdings, a court were to find that, at the time the Debentures were issued, (i)
Holdings issued the Debentures, with the intent of hindering, delaying or
defrauding current or future creditors or (ii)(a) Holdings received less than
reasonably equivalent value or fair consideration for issuing the Debentures and
(B) Holdings (1) was
- 22 -
<PAGE>
insolvent or was insolvent by reason of the Transactions, (2) was engaged, or
about to engage, in a business or transaction for which its assets constituted
unreasonably small capital, (3) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under such fraudulent conveyance
statutes) or (4) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either case, after final
judgment, the judgment is unsatisfied), such court could avoid or subordinate
the Debentures to presently existing and future indebtedness of Holdings and
take other action detrimental to the holders of the Debentures including, under
certain circumstances, invalidating the Debentures.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the federal or local law that is being applied in any
such proceeding. Generally, however, Holdings would be considered insolvent if,
at the time it incurs the indebtedness constituting the Debentures, either (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities (including the
probably liability on contingent liabilities) as they become absolute and
matured or (ii) it is incurring debts beyond its ability to pay as such debts as
they mature.
Holdings' Board of Directors and management believe that at the time of
its issuance of the Debentures Holdings (i)(a) was or will be neither insolvent
nor rendered insolvent thereby, (b) had or will have sufficient capital to
operate their respective businesses effectively and (C) was or will be incurring
debts within its ability to pay as the same mature or become due and (ii) had or
will have sufficient resources to satisfy any probable money judgment against it
in any pending action. In reaching the foregoing conclusions, the Company has
relied upon its analyses of internal cash flow projections and estimated values
of assets and liabilities of the Company. There can be no assurance, however,
that such analyses will prove to be correct or that a court passing on such
questions would reach the same conclusions.
Lack of Established Public Trading Market; Absence of Trading Market for Old
Debentures Not Validly Tendered
The Old Debentures were issued to, and Holdings 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 Debentures. The Old
Debentures 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 Debentures by holders who are entitled to participate in this Exchange
Offer. The holders of Old Debentures (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 Holdings is required to file a Shelf
Registration Statement with respect to such Old Debentures. The New Debentures
will constitute a new issue of securities with no established trading market.
Holdings does not intend to list the New Debentures on any national securities
exchange or seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchaser advised
Holdings that it currently intends to make a market in the New Debentures, but
it is 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 Debentures or as to the liquidity of the trading market
for the New Debentures. If a trading market does not develop or is not
maintained, holders of the New Debentures may experience difficulty in reselling
the New Debentures or may be unable to sell them at all. If a market for the New
Debentures develops, any such market may be discontinued at any time.
If a public trading market develops for the New Debentures, 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
- 23 -
<PAGE>
similar securities and other factors, including the financial condition of the
Company, the New Debentures may trade at a discount from their principal amount.
Issuance of the New Debentures in exchange for the Old Debentures pursuant
to the Exchange Offer will be made only after a timely receipt by Holdings of
such Old Debentures, 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 Debentures desiring to tender such Old
Debentures in exchange for New Debentures should allow sufficient time to ensure
timely delivery. Holdings is under no duty to give notification of defects or
irregularities with respect to the tenders of Old Debentures for exchange. Old
Debentures 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 Debentures who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
New Debentures 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 Debentures for its own account in exchange
for Old Debentures, where such Old Debentures 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 Debentures. See "Plan of Distribution." To the
extent that Old Debentures are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Debentures could
be adversely affected. See "The Exchange Offer."
- 24 -
<PAGE>
THE TRANSACTIONS
The Acquisition
Holdings, its wholly owned subsidiary, Clark-S Acquisition Corporation
("Clark-S Acquisition"), and Clark-S Acquisition's wholly owned subsidiary, CS
Finance Corporation of Delaware, were all incorporated in Delaware by Vestar
Equity Partners, L.P. ("Vestar") in 1996 to effect the acquisition (the
"Acquisition") of Fort Mill A Inc. ("Fort Mill") and Clark-Schwebel, Inc., Fort
Mill's wholly owned subsidiary. Pursuant to an Agreement and Plan of Merger,
dated February 24, 1996, as amended (the "Merger Agreement"), among Vestar/CS
Holding Company, L.L.C. ("Vestar/CS Holding"), Clark-S Acquisition, Springs
Industries, Inc. ("Springs Industries") and Fort Mill, Clark-S Acquisition
purchased all of the issued and outstanding capital stock of Fort Mill from
Springs Industries. Concurrently with the consummation of the Acquisition,
Clark-S Acquisition merged into Fort Mill, with Fort Mill as the surviving
corporation, and CS Finance Corporation of Delaware merged into Clark-Schwebel,
Inc. with Clark-Schwebel, Inc. as the surviving corporation. On the day
following the closing of the Acquisition, Fort Mill merged (the "Merger") into
Clark-Schwebel, Inc., and immediately following such Merger, Holdings' primary
asset was and continues to be the capital stock of Clark-Schwebel, Inc.
Clark-Schwebel, Inc. was incorporated as a Delaware corporation in 1994.
The consideration for the Acquisition was $192.9 million in cash. In order
to finance the Acquisition, including the payment of related fees and expenses:
(i) Vestar/CS Holding and certain key members of management and their lineal
descendants (the "Management Investors") made an equity contribution of $45.0
million in exchange for all of the capital stock of Holdings (including without
limitation the Preferred Stock); (ii) Clark-S Acquisition consummated an
offering of $110.0 million in Senior Notes (the "Senior Notes") which are
governed by an Indenture dated as of April 17, 1996 (the "CSI Indenture"); and
(iii) Clark-S Acquisition entered into a Credit Agreement (as amended through
the date of this Prospectus, the "Credit Agreement") originally providing for a
term loan (the "Term Loan") of $15.0 million and a revolving credit facility
(the "Revolving Credit Facility") of $55.0 million. Holdings guaranteed the
indebtedness under the Senior Notes and the Credit Agreement. As a result of
these transactions, the obligations of Clark-S Acquisition with respect to the
Senior Notes and the Credit Agreement were assumed by the Company. On August 5,
1996, the Company consummated the exchange of $110 million principal amount of
Senior Notes registered under the Securities Act of 1933, as amended, for the
$110 million principal amount of Senior Notes issued in connection with the
Acquisition.
Subsequent Events
On July 14, 1997, Holdings amended the terms of its outstanding Preferred
Stock by amending and restating its certificate of incorporation (the
"Certificate") to allow Holdings to redeem such Preferred Stock using one of the
following alternatives: (i) on or after August 14, 1997 for 12.5% Series A
Senior Debentures due 2007 of Holdings and up to $5 million in cash (on the
terms and subject to the conditions set forth in the Certificate); (ii) on or
after August 14, 1997 but prior to July 15, 2002 for cash in an amount equal to
112.5% of the sum of the liquidation value of the Preferred Stock and all
accumulated dividends thereon; (iii) after July 15, 2002 for cash in an amount
equal to a percentage of the sum of the liquidation value of the Preferred Stock
and all accumulated dividends thereon (106.25% for redemptions in the year
beginning on July 15, 2002; 104.167% for redemptions in the year beginning on
July 15, 2003; 102.083% for redemptions in the year beginning on July 15, 2004;
and 100% for redemptions in the year beginning on July 15, 2005 and thereafter);
and (iv) upon the consummation of a change of control transaction or a public or
private equity offering for cash in an amount equal to 106% of the liquidation
value of the Preferred Stock and all accumulated dividends thereon. All accrued
but unpaid dividends on the Preferred Stock to the date of redemption and
certain consideration (either cash, Old Debentures and/or shares of Holdings'
Common Stock) for the participation feature of the Preferred Stock would be
payable on the date of any such redemption.
- 25 -
<PAGE>
Additionally, on July 14, 1997, the Company prepaid all of its outstanding
indebtedness under the Term Loan and amended the Credit Agreement to allow,
among other things, the Company subject to certain conditions, to pay cash
dividends on the Preferred Stock, pay up to $5 million in cash and issue the Old
Debentures in a redemption of the Preferred Stock, and make semi-annual interest
payments in cash on the Senior Debentures. The Revolving Credit Facility under
the Credit Agreement was also amended on July 14, 1997 (the "Credit Agreement
Amendment") to increase the aggregate amount of commitments thereunder to $65
million.
Vestar/CS-Holding sold the Preferred Stock on July 14, 1997 to the Initial
Purchaser and simultaneously purchased 10% of the outstanding Holdings Common
Stock from the Management Investors on a pro rata basis. Upon the consummation
of that transaction, all of the Management Loans were repaid in full.
On August 14, 1997, Holdings issued the Old Debentures to the Initial
Purchaser and paid $5 million in cash to the Initial Purchaser in exchange for
and redemption of the Preferred Stock. As used in this Prospectus, the
"Transactions" refer to the transactions described under this caption
"--Subsequent Events."
Other Matters
The following chart depicts the present organizational structure and fully
diluted common stock ownership of Holdings and CSI.
[GRAPHIC OMITTED]
- 26 -
<PAGE>
Sources and Uses of Funds
The estimated sources and uses of funds in connection with the redemption
of the Preferred Stock are set forth below (in millions):
Sources of funds:
Old Debentures.......................................... $46.0
Available cash.......................................... 5.5
-------
Total sources................................ $51.5
=======
Uses of funds:
Redeem Preferred Stock at par........................... $35.0
Redeem Participation Feature of Preferred Stock (1)..... 10.0
Pay accrued Preferred Stock dividends................... 6.0
Estimated fees and expenses............................. 0.5
-------
Total uses................................... $51.5
=======
(1) The Preferred Stock had a participating common equity component (the
"Participation Feature") for which Vestar/CS Holding paid $1.0 million at
the time of the Acquisition. On August 14, 1997, when the Preferred Stock
was redeemed, the Participation Feature was purchased for $10.0 million.
Vestar/CS Holding and Vestar Equity Partners, L.P.
Vestar CS/Holding, a Delaware limited liability company, was formed by
Vestar Equity Partners, L.P. to hold all the investments of Vestar Equity
Partners, L.P. and certain other investors. Vestar Equity Partners, L.P. is an
institutional equity fund managed by Vestar Capital Partners. Founded in 1988,
Vestar Capital Partners is a New York-based investment firm focusing on
investing in management buyouts and recapitalizations of middle market
companies. Since 1988, Vestar Capital Partners has organized and invested in 21
management buyouts and recapitalizations with an aggregate value exceeding $2.5
billion. Included among these are Clark-Schwebel, Inc., Celestial Seasonings,
Inc., Westinghouse Air Brake Company, Hampshire Chemical Corporation, MAG
Aerospace Industries, Inc., Consolidated Cigar Corporation, La Petite Academy,
Inc., Pyramid Communications, Inc., Prestone Products Corporation, Anvil
Knitwear, Inc., Cabot Safety Corporation and Pinnacle Automation, Inc.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of Holdings'
obligations under the Purchase Agreement and the Registration Rights Agreement.
Holdings' did not receive any cash proceeds from the issuance of the Old
Debentures and will not receive any cash proceeds from the issuance of the New
Debentures offered hereby. In consideration for issuing the New Debentures
contemplated in this Prospectus, Holdings will receive Old Debentures in like
principal amount, the form and terms of which are the same as the form and terms
of the New Debentures (which they replace), except as otherwise described
herein. The Old Debentures surrendered in exchange for New Debentures will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Debentures will not result in any increase or decrease in the indebtedness of
Holdings.
- 27 -
<PAGE>
CAPITALIZATION
(Dollars in millions)
The following table sets forth the cash and consolidated capitalization of
Holdings at June 28, 1997 and pro forma to give effect to the Transactions as if
they had occurred on June 28, 1997. This table should be read in conjunction
with the "Unaudited Pro Forma Financial Statements" included elsewhere in this
Prospectus.
At June 28, 1997
Actual Pro Forma
------ ---------
Cash ................................................... $14.4 $ ----
Long-term debt (including current portion):
Term Loan.......................................... $11.2 $ ----
Revolving Credit Facility.......................... ---- ----
Notes.............................................. 110.0 110.0
Senior Debentures.................................. ---- 46.0
---------- ----------
TOTAL LONG-TERM DEBT............................ $121.2 $156.0
========== ==========
Stockholders' equity
Participating Preferred Stock (1,000 and 0
shares issued and outstanding, historically and
pro forma, respectively)........................ $35.0 $ ----
Common Stock (9,000 shares issued
and outstanding, historically and pro forma,
respectively)................................... 9.2 9.0
Retained Earnings.................................. 14.0 4.1
Cumulative translation adjustment.................. (3.6) (3.6)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY...................... 54.6 9.5
---------- ----------
TOTAL CAPITALIZATION.................................... $175.8 $165.5
========== ==========
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(Dollars in Millions)
Set forth below are selected historical and other financial data of Fort
Mill, the predecessor company, for the fiscal years ended 1992 through 1995.
Fort Mill had no other operations other than Clark-Schwebel, Inc. and its sole
asset was all of the capital stock of Clark-Schwebel, Inc. The selected
historical financial data were derived from the historical balance sheets for
1994 and 1995 and the historical income statements for 1993, 1994 and 1995. The
historical balance sheets for 1995 and the historical income statements for 1994
and 1995 were audited by Deloitte & Touche LLP. The selected historical
consolidated balance sheet data for 1992 and 1993 and the income statement data
for 1992 were derived from unaudited historical financial statements of Fort
Mill. The 1996 selected historical and other financial data represents the
results of operations of Fort Mill, the predecessor company, through April 17,
1996, and Holdings, the successor company, for the period of April 18, 1996
through December 28, 1996. Holdings' sole asset is all of the common stock of
Clark-Schwebel, Inc., its operating company. The 1996 selected historical
financial data were derived from 1996 consolidated financial statements which
were audited by Arthur Andersen, LLP. Also set forth below are selected
historical and other financial data for the first six months of 1996 and 1997.
These results are unaudited, but include all normal recurring adjustments
necessary for a fair presentation of the financial data for such periods. This
analysis compares the results of operations of Holdings, the successor company,
for the six months ended June 28, 1997 to the six months ended June 29, 1996.
The results of operations for the six months ended June 29, 1996 represents the
combined results of Fort Mill, the predecessor company, for the period of
December 31, 1995 through April 17, 1996, and the successor Company for the
period of April 18, 1996 through June 29, 1996. The information contained in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and accompanying notes thereto included elsewhere in this Prospectus.
- 29 -
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------------
1996 1996 Combined
1992 (2) 1993 1994 1995 (3.5 months) (8.5 months) 1996
(Predecessor (Successor) (12 months)
--------- -------- -------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $158.8 $163.7 $189.4 $231.3 $68.9 $152.0 $220.9
Cost of sales.................... 138.9 139.2 160.7 192.0 55.0 118.6 173.6
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 19.9 24.5 28.7 39.3 13.9 33.4 47.3
Selling, general and
administrative expenses......... 16.3 15.5 14.4 17.8 4.8 10.4 15.2
Idle equipment write-off (1)..... -- -- 1.8 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Operating income................. 3.6 9.0 12.5 21.6 9.1 23.0 32.1
Interest expense................. 0.5 0.4 0.4 0.4 0.1 10.1 10.2
Other, net....................... 0.1 -- -- -- -- -- 0.1
----- ----- ----- ----- ----- -----
Income before income taxes....... 3.2 8.6 12.0 21.2 9.0 13.0 22.0
Provision for income taxes....... 1.6 3.6 4.9 8.4 3.6 5.5 9.1
Income (loss) from equity
investees, net (2).............. (5.4) (3.4) 1.2 2.6 1.2 2.6 3.8
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations..................... (3.8) 1.6 8.3 15.3 6.6 10.1 16.7
Discounted operations (3)........ (0.2) 0.7 3.0 0.1 -- -- --
------ ----- ----- ----- ----- ----- -----
Net income (loss)................ (4.0) 2.3 11.3 15.4 6.6 10.1 16.7
Accrued dividends on preferred
stock........................... -- -- -- -- -- 3.1 3.1
------ ----- ----- ----- ----- ----- -----
Net income (loss) applicable to
common shares................... $(4.0) $ 2.3 $11.3 $15.4 $ 6.6 $ 7.0 $13.6
====== ===== ===== ===== ===== ===== =====
Other Data:
EBITDA (4)...................... $13.0 $19.0 $22.5 $32.7 $12.7 $29.6 $42.3
EBITDA, as adjusted (4)......... 13.0 19.0 24.3 34.1 12.7 29.6 42.3
Depreciation & amortization..... 9.4 10.0 10.0 11.1 3.5 7.3 10.8
Capital expenditures............ 4.3 8.8 11.5 8.4 1.6 2.0 3.6
Gross profit as a percentage
of net sales................... 12.5% 15.0% 15.1% 17.0% 20.2% 22.0% 21.4%
EBITDA, as a percentage of
net sales...................... 8.2% 11.6% 11.9% 14.1% 18.4% 19.5% 19.1%
EBITDA, as adjusted as a
percentage of net sales........ 8.2% 11.6% 12.8% 14.7% 18.4% 19.5% 19.1%
Ratio of earnings to fixed
charges (5).................... 4.3x 15.0x 23.x 45.7x 47.5x 2.0x 2.5x
Net cash provided by (used
in) (6):
Operating activities........... $(1.4) $ 17.3 $16.2 $18.0 $8.0 $ 41.1 $ 49.1
Investing activities........... (4.3) (8.7) 7.6 (8.4) (1.6) (194.9) (196.5)
Financing activities........... 5.7 (8.7) (23.8) (9.1) (6.5) 157.4 150.9
</TABLE>
<TABLE>
<CAPTION>
FIRST SIX MONTHS
----------------------------------------------------
1996 1996 Combined
(3.5 months) (2.5 months) 1996
(Predecessor) (Successor) (6 months) 1997
------------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Net sales........................ $68.9 $47.3 $116.2 $123.3
Cost of sales.................... 55.0 37.7 92.7 95.9
----- ----- ----- -----
Gross profit..................... 13.9 9.6 23.5 27.4
Selling, general and
administrative expenses......... 4.8 3.0 7.8 7.7
Idle equipment write-off (1)..... -- -- -- --
----- ----- ----- -----
Operating income................. 9.1 6.6 15.7 19.7
Interest expense................. 0.1 3.2 3.3 6.4
Other, net....................... -- -- -- --
----- ----- ----- -----
Income before income taxes....... 9.0 3.4 12.4 13.3
Provision for income taxes....... 3.6 1.5 5.1 5.5
Income (loss) from equity
investees, net (2).............. 1.2 1.0 2.2 1.6
----- ----- ----- -----
Income (loss) from continuing
operations..................... 6.6 2.9 9.5 9.4
Discounted operations (3)........ -- -- -- --
----- ----- ----- -----
Net income (loss)................ 6.6 2.9 9.5 9.4
Accrued dividends on preferred
stock........................... -- 0.9 0.9 2.4
----- ----- ----- -----
Net income (loss) applicable to
common shares................... $ 6.6 $ 2.0 $ 8.6 $ 7.0
===== ===== ===== =====
Other Data:
EBITDA (4)...................... $12.7 $ 8.5 $21.2 $24.3
EBITDA, as adjusted (4)......... 12.7 8.5 21.2 24.3
Depreciation & amortization..... 3.5 2.0 5.5 4.6
Capital expenditures............ 1.6 0.4 2.0 3.5
Gross profit as a percentage
of net sales................... 20.2% 20.3% 20.3% 22.3%
EBITDA, as a percentage of
net sales...................... 18.4% 18.0% 18.2% 19.7%
EBITDA, as adjusted as a
percentage of net sales........ 18.4% 18.0% 18.2% 19.7%
Ratio of earnings to fixed
charges (5).................... 47.5x 1.9x 3.7x 2.4x
Net cash provided by (used
in) (6):
Operating activities........... $8.0 $ 21.5 $ 29.5 $14.6
Investing activities........... (1.6) (193.3) (194.9) (2.0)
Financing activities........... (6.5) 174.9 168.4 (2.3)
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Six Months
1992(2) 1993 1994 1995 1996 1996 1997
------------------------------------------ ----------------
(Predecessor) (Successor)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at end
of period):
Working Capital $ 37.9 $ 38.1 $41.2 $46.3 $25.2 $32.1 $33.2
Total assets 184.8 186.2 179.6 188.7 240.7 248.7 250.1
Total long-term debt
(including current
portion) 5.9 5.9 6.1 6.0 123.5 141.3 121.2
Total stockholders' equity 148.7 147.6 137.5 144.0 49.8 45.5 54.6
</TABLE>
(1) During 1994, the Company recorded a $1.8 million charge against operating
income related to the write-off of certain idle manufacturing equipment.
(2) In 1992, CSI's European operations were conducted through the European
Subsidiaries. On March 25, 1993, CSI contributed its two European
Subsidiaries and $8.8 million in cash to CS-Interglas AG, in consideration
for a DM20 million convertible subordinated note and a minority equity
interest in CS-Interglas AG. At the end of 1996, the DM20.0 million
convertible note had a carrying value of $13.0 million. The value assigned
to CSI's minority interest at the time of the Acquisition was $14.1
million. Beginning in 1993, CSI accounted for this investment using the
equity method of accounting. In order to show comparable financial data,
the results of the European Subsidiaries for 1992 have been restated in
the "Selected Historical Financial Data" chart using the equity method of
accounting. The financial results of Fort Mill on a consolidated basis for
1992 are reflected below (in millions).
Fiscal Year
1992
----
Income Statement Data:
Net Sales $200.5
Operating loss (4.3)
Net loss (4.0)
(3) In 1994, the Company sold substantially all of the assets of a subsidiary
engaged in a separate line of business. In January 1996, the Company sold
its equity investment in a company engaged in a separate line of business.
For further discussion, see Note 15 to the Audited Financial Statements.
(4) EBITDA is defined herein as operating income plus depreciation and
amortization. EBITDA, as adjusted, is defined herein as operating income
plus depreciation, amortization, the non-recurring asset write-off ($1.8
million in 1994) and the provision for a customer bad debt ($1.4 million
in 1995) related to a receivable retained by Springs Industries. EBITDA
and EBITDA, as adjusted, do not include any income (loss) from equity
investees, net. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA is not a defined term
under generally accepted accounting principles ("GAAP") and should not be
construed as an alternative to operating income, net income or cash flows
from operating activities as determined by GAAP and should not be
construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA and EBITDA, as adjusted, do not represent
available or discretionary funds of the Company.
- 31 -
<PAGE>
(5) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income before taxes, earnings (loss) from a 50% owned
equity investment, distributed income from the less than 50% owned equity
investments and fixed charges. Fixed charges include interest expense,
including the interest portion of lease expense, and amortization of bond
issue costs.
(6) This cash flow information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
- 32 -
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited consolidated pro forma financial statements (the
"Unaudited Pro Forma Financial Statements") of Clark-Schwebel Holdings, Inc.
have been derived by the application of pro forma adjustments to historical
consolidated financial statements, included elsewhere in this Prospectus. The
unaudited pro forma income statements for the year ended December 28, 1996 and
the six months ended June 28, 1997 give effect to the Transactions as if such
transactions were consummated as of December 31, 1995. The unaudited pro forma
balance sheet gives effect to the Transactions as if such transactions had
occurred on June 28, 1997. The Unaudited Pro Forma Financial Statements should
not be considered indicative of actual results that would have been achieved had
the Transactions been consummated on the date or for the periods indicated and
do not purport to indicate balance sheet data or results of operations as of any
future date or for any future period. The Unaudited Pro Forma Financial
Statements should be read in conjunction with the historical financial
statements and the notes thereto included elsewhere in the Prospectus.
The redemption of the Preferred Stock, the issuance of the Old Debentures,
the repayment of the Term Loan under the Credit Agreement and the related Credit
Agreement Amendment, and the repayment of the Management Loans are referred to
in the Unaudited Pro Forma Financial Statements as the "Transactions."
- 33 -
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT
For the Year Ended December 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
December
31, Combined
1995 - April 18 - 1996
April 17, December Historical Pro Forma
1996 28, 1996 (1) Adjustments Pro Forma
------------ ---------- ---------- ----------- ---------
(Predecessor (Successor
Basis) Basis)
<S> <C> <C> <C> <C> <C>
Net sales............................. $68,911 $152,003 $220,914 $---- $220,914
Cost of goods sold.................... 54,958 118,605 173,563 ---- 173,563
--------- ---------- ---------- ------------ -----------
Gross profit.......................... 13,953 33,398 47,351 ---- 47,351
Selling, general and administrative
expenses............................ 4,812 10,418 15,230 ---- 15,230
--------- ---------- ---------- ------------ -----------
Operating income...................... 9,141 22,980 32,121 ---- 32,121
Other income (expense):
Interest expense.............. (148) (10,061) (10,209) (6,249)(2) (16,458)
Other, net.................... (5) 50 45 ---- 45
--------- ---------- ---------- ------------ -----------
Income before income taxes............ 8,988 12,969 21,957 (6,249) 15,708
Provision for income tax.............. (3,595) (5,460) (9,055) 2,450(3) (6,605)
Income from equity investees,
net................................. 1,174 2,633 3,807 ---- 3,807
--------- ---------- ---------- ------------ -----------
Net income............................ $6,567 10,142 16,709 (3,799) 12,910
=========
Accrued dividends on preferred
stock............................... (3,137) (3,137) 3,137(4) 0
---------- ---------- ------------ -----------
Net income applicable to common
shares.............................. $7,005 $13,572 $(662) $12,910
========== ========== ============ ===========
</TABLE>
See notes to unaudited pro forma income statement.
- 34 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA INCOME STATEMENT
For the Year Ended December 28, 1996
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to the historical financial statements for the period noted.
(1) This historical income statement includes the results of operations
of Fort Mill A, Inc. (predecessor company) for the period of
December 31, 1995 to April 17, 1996, and the results of operations
of Clark-Schwebel Holdings, Inc. (successor company) for the period
April 18, 1996 to December 28, 1996.
(2) The pro forma adjustment to interest expense under the new capital
structure represents the annual interest cost of the Old Debentures
calculated as 12.5% of the principal amount of $45,994 plus the
charge related to estimated financing costs.
(3) The pro forma adjustment to the provision for income taxes
represents the reduction to income tax expense for the additional
interest deduction and charge for financing costs using a combined
federal and state statutory income tax rate of 39.2%.
(4) The pro forma adjustment to accrued dividends on preferred stock
represents the elimination of the dividend requirement as a result
of the redemption of the preferred stock.
- 35 -
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT
For the Six Months Ended June 28, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- -----------
<S> <C> <C> <C>
Net sales .............................................. $123,299 --- $123,299
Cost of goods sold...................................... 95,851 --- 95,851
------------ -------------- -----------
Gross profit............................................ 27,448 --- 27,448
Selling, general and administrative expenses............ 7,727 --- 7,727
------------ -------------- -----------
Operating income............................... 19,721 --- 19,721
Other income (expense):
Interest expense............................... (6,427) (3,375)(1) (9,802)
Other, net..................................... (3) --- (3)
------------ -------------- -----------
Income before income taxes.............................. 13,291 (3,375) 9,916
Provision for income tax................................ (5,475) 1,323(2) (4,152)
Income from equity investees, net....................... 1,582 --- 1,582
------------ -------------- -----------
Net income.............................................. 9,398 (2,052) 7,346
Accrued dividends on preferred stock.................... (2,416) 2,416(3) 0
------------ -------------- -----------
Net income applicable to common shares......... $6,982 $364 $7,346
============ ============== ===========
</TABLE>
See notes to unaudited pro forma income statement.
- 36 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA INCOME STATEMENT
For the Six Months Ended June 28, 1997
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to the historical financial statements for the period noted.
(1) The pro forma adjustment to interest expense under the new capital
structure represents the semi-annual interest cost of the Old
Debentures calculated as 12.5% of the principal amount of $45,994
plus the charge related to estimated financing costs.
(2) The pro forma adjustment to the provision for income taxes
represents the reduction to income tax expense for the additional
interest deduction and charge for financing costs using a combined
federal and state statutory income tax rate of 39.2%.
(3) The pro forma adjustment to accrued dividends on preferred stock
represents the elimination of the dividend requirement as a result
of the redemption of the Preferred Stock.
- 37 -
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
As of June 28, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 14,352 $ (14,352) (1) $ 0
Accounts receivable, net.................................. 26,351 ------ 26,351
Inventories, net.......................................... 36,763 ------ 36,763
Other..................................................... 703 ------ 703
----------- ------------ -----------
Total current assets.................................. 78,169 (14,352) 63,817
----------- ------------ -----------
PROPERTY, PLANT AND EQUIPMENT.................................. 68,149 ------ 68,149
Accumulated depreciation.................................... (8,514) ------ (8,514)
----------- ------------ -----------
Property, plant and equipment, net........................ 59,635 ------ 59,635
----------- ------------ -----------
EQUITY INVESTMENTS............................................. 62,130 ------ 62,130
GOODWILL....................................................... 43,780 ------ 43,780
OTHER ASSETS................................................... 6,391 ------ 6,391
----------- ------------ -----------
TOTAL ASSETS................................................... $ 250,105 $ (14,352) $ 235,753
=========== ============ ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, including book overdraft............... $ 28,973 $ 1,539 (1) $ 30,512
Accrued liabilities...................................... 13,561 ------ 13,561
Deferred tax liabilities -- current...................... 2,056 ------ 2,056
Current maturities of long-term debt..................... 366 (366) (2) 0
----------- ------------ -----------
Total current liabilities............................ 44,956 1,173 46,129
----------- ------------ -----------
LONG-TERM DEBT................................................. 120,824 35,170 (2) 155,994
DEFERRED TAX LIABILITIES ...................................... 20,170 ------ 20,170
ACCRUED PREFERRED STOCK DIVIDEND............................... 5,551 (5,551) (3) 0
LONG-TERM BENEFIT PLANS AND OTHER ............................. 3,984 ------ 3,984
COMMITMENTS AND CONTINGENCIES..................................
----------- ------------ -----------
TOTAL LIABILITIES.............................................. 195,485 30,792 226,277
----------- ------------ -----------
EQUITY:
Preferred stock (1,000 and 0 shares issued and
outstanding on a historical and pro forma basis, 35,000 (35,000) (4) 0
respectively).........................................
Common Stock (9,000 shares issued and
outstanding, less management loans of $799 and
$0, respectively on a historical and pro forma basis) 9,201 (201) (4) 9,000
Retained earnings........................................ 13,987 (9,943) (4) 4,044
Cumulative translation adjustment........................ (3,568) ------ (3,568)
----------- ------------ -----------
Total equity......................................... 54,620 (45,144) 9,476
----------- ------------ -----------
TOTAL LIABILITIES AND EQUITY................................... $ 250,105 $ (14,352) $ 235,753
=========== ============ ===========
</TABLE>
See notes to unaudited pro forma balance sheet.
- 38 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of June 28, 1997
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to historical financial statements for the period noted. The
table below shows the sources of funds used to redeem the Preferred Stock, the
Participation Feature of the Preferred Stock, and accrued dividends:
Total sources of funds:
Old Debentures $ 45,994
Available cash balance 5,500
------------
Total source of funds $ 51,494
============
Total uses of funds:
Preferred stock book value $ 35,000
Participation Feature value 10,000
Accrued dividends on preferred stock to the date
of redemption 5,994
Estimated fees and expenses 500
------------
Total uses of funds $ 51,494
============
(1) The adjustment to cash reflects the prepayment of the term loan, use of
cash on hand to redeem the preferred stock, repayment of management loans
and a book overdraft necessary to fund the transaction on a pro forma
basis as follows:
Prepay term loan $ (11,190)
Cash redemption of preferred (5,000)
Repayment of management loans 799
Pay estimated fees and expenses (500)
------------
(15,891)
Less amount funded by book overdraft 1,539
------------
Total adjustment $ (14,352)
============
(2) The pro forma adjustment to debt reflects the prepayment of the term loan
and the issuance of the Old Debentures as follows:
Prepay term loan $ (11,190)
Issue Old Debentures 45,994
------------
Change in total debt 34,804
Amount of term loan classified as current maturities
of long-term debt 366
------------
Total adjustment $ 35,170
============
(3) The pro forma adjustment to accrued preferred stock dividends reflects the
additional accrual of dividends to the redemption date less the payment of
the dividends on the redemption date.
(4) The pro forma adjustment reflects the redemption of preferred stock at
book value, repayment of management loans, the additional accrual of
preferred stock dividends to the redemption date, and the redemption of
the Participation Feature of the preferred stock. The Participation
Feature of the preferred stock was valued at
- 39 -
<PAGE>
$10,000 of which $1,000 represents the book value of the Participation
Feature at the time of the Acquisition. The $9,000 difference between the
Participation Feature value and book value was redeemed from the Company's
retained earnings.
Preferred Capital Retained
Stock Stock Earnings
---------- -------- ----------
Redeem preferred stock $ (35,000) $ ----- $ -----
Repay management loans ----- 799 -----
Additional preferred stock dividend accrual ----- ----- (443)
Redeem Participation Feature ----- (1,000) (9,000)
Charge for estimated fees and expenses ----- ----- (500)
--------- -------- ---------
Total adjustment $ (35,000) $ (201) $ (9,943)
========= ======== =========
- 40 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Financial Data" and the Financial Statements and the notes thereto included
elsewhere in this Prospectus.
General
The Company believes it is the largest United States manufacturer of fiber
glass fabrics for use in the electronics industry and a leading manufacturer of
fiber glass fabrics and high performance fabrics for a wide variety of
industrial applications. Fiber glass fabric is a critical component of printed
circuit boards which are used in virtually all electronic products, including
computers, telecommunications equipment, advanced cable television equipment,
network servers, televisions, automotive equipment and home appliances. Fiber
glass fabrics are also used to reinforce plastic composite materials for
aircraft and aerospace applications and for marine and tooling markets. Other
applications of fiber glass fabrics include reinforcing electrical tape and
providing high temperature dust filtration for the carbon black, steel and power
industries. The Company's high performance fabrics are used primarily for
civilian and military ballistics protection in bullet-resistant vests and
helmets, and by the aerospace industry in the manufacture of composite material
aircraft parts.
Sales of the Company's fiber glass fabrics are principally driven by the
electronics industry which has experienced growth due to: (i) expanded
applications for computer systems; (ii) technological advancements; and (iii)
new product introductions. The Company believes that there is no cost-effective
substitute for fiber glass fabric that can satisfy the stringent quality and
performance criteria demanded of printed circuit boards. The Company's high
performance sales to the military end-use market are generally dependent upon
government expenditures and may fluctuate from year to year; however, sales to
the civilian ballistics protection market have historically been stable.
From 1994 to 1996, the Company's gross profit margin increased from 15.1%
to 21.4% due to management's initiatives to increase weekly production schedules
from five days to seven days and improve productivity on selected equipment,
thereby enabling the Company to better leverage the fixed component of its cost
structure. Furthermore, management's efforts to control the aggregate level of
fixed operating expenses in a period of increasing sales resulted in a reduction
of the Company's selling, general and administrative expenses as a percentage of
net sales from 7.6% in 1994 to 6.9% in 1996. Consequently, during the same
period, EBITDA as a percentage of net sales increased from 11.9% to 19.1%,
operating income as a percentage of net sales increased from 6.6% to 14.5%, and
net income as a percentage of net sales increased from 6.0% to 7.6%.
The Company's financial results have historically been affected by general
economic conditions and by conditions affecting the electronics industry in
particular. However, the Company believes the impact of the economic recession
occurring from 1990 to 1992, was particularly severe with regard to sales of
electronic components for several reasons: (i) the 1990 to 1992 recession was
global in nature, affecting North America, Europe and Asia; (ii) United States
electronics manufacturers were less competitive in the global market than today;
(iii) the end-user markets for electronics products were fewer and less
diversified than today; (iv) many electronics products, such as personal
computers, fax machines and cellular telephones, were owned by a smaller
percentage of the population than today and used primarily for business
purposes; and (v) complex multilayer printed circuit boards (with increased
piles of fiber glass fabric) were less prevalent than today. The domestic
economy's stable growth from 1992 to 1996 have positively impacted the Company's
operations and financial condition. Although there have been downturns in demand
for electronics fiber glass fabric during this period, they have been temporary
in nature. The Company experienced softening demand for electronics fiber glass
fabric in the third quarter of 1996, but shipments returned to pre-correction
levels in
- 41 -
<PAGE>
the fourth quarter of 1996. Likewise, electronics fiber glass fabric volume
moderated in the latter part of the second quarter of 1997 from levels
experienced earlier in 1997. The Company expected this slowdown to be temporary
in nature and, by mid-third quarter, the Company began to see improving demand
for electronics fiber glass fabric. Technology advancements as well as cost
reductions for personal computers and cellular telephones continue to drive the
proliferation of electronic devices and growth in wireless telecommunications.
These factors increase demand for the Company's fiber glass fabric products,
which in turn fuels growth in the Company's operations and improves the
Company's financial condition.
Fiber glass yarn is the principal raw material used in the production of
fiber glass fabric. There are two major suppliers of fiber glass yarn in the
United States, and substitutes are not readily available. The Company purchases
most of its aramid yarn from one supplier. Beginning in the fourth quarter of
1994, shortages of fiber glass yarn occurred, and, in the first quarter of 1995,
suppliers of fiber glass yarn reduced shipments, limiting supply to the Company
and other purchasers of fiber glass yarn. However, since mid-1996, fiber glass
yarn supply has been sufficient to meet demand because of capacity increases by
the Company's suppliers coupled with periodic softness in electronics fiber
glass fabric requirements as mentioned above. Yarn prices increased in 1996 at a
higher than historical rate due in part to the yarn shortage. The Company
generally has been able to pass through such price increases to its customers.
The accompanying analysis compares the results of operations of Holdings,
the successor company, for the three months ended June 28, 1997 to the three
months ended June 29, 1996. The results of operations for the three months ended
June 29, 1996 represents the combined results of Fort Mill, the predecessor
company ("Predecessor Company"), for the period of March 31, 1996 through April
17, 1996, and the successor Company for the period of April 18, 1996 through
June 29, 1996. The accompanying analysis also compares the results of operations
of the Company for the six months ended June 28, 1997 to the six months ended
June 29, 1996. The results of operations for the six months ended June 29, 1996
represents the combined results of the Predecessor Company for the period of
December 31, 1995 through April 17, 1996, and the successor Company for the
period of April 18, 1996 through June 29, 1996.
The accompanying analysis also compares the results of operations of
Holdings, the successor company, on a consolidated basis, for the year ended
December 28, 1996 to the results of operations of Fort Mill, the predecessor
company, for the year ended December 30, 1995, and the results of operations of
the predecessor company for the 1995 fiscal year to those for the 1994 fiscal
year. The results of operations for the year ended December 28, 1996 represent
the combined results of the Predecessor Company, for the period of December 31,
1995 through April 17, 1996, and the successor company for the period of April
18, 1996 through December 28, 1996, in order to establish comparative periods.
No pro forma adjustments were made to the financial statements for
purposes of these analyses due to the insignificance of the adjustments on
operating income. Interest expense for the periods is not comparable and the
impact of interest expense on the successor company is discussed below.
- 42 -
<PAGE>
Results of Operations
Second Quarter 1997 Compared to Second Quarter 1996
The following table sets forth for the Company selected income statement data
for the periods indicated.
<TABLE>
<CAPTION>
Period from Period from Combined three Three month period
March 31 - April 18 - month period from from March 30 -
April 17, 1996 June 29, 1996 March 31 - June 29, June 28, 1997
(Predecessor Basis) (Successor Basis) 1996 (Successor Basis)
------------------- ----------------- ------------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $8,741 $47,330 $56,071 $61,061
Cost of goods sold 7,107 37,744 44,851 47,217
------------------- ----------------- ------------------- -----------------
Gross profit 1,634 9,586 11,220 13,844
Selling, general and administrative expenses 937 3,023 3,960 3,825
------------------- ----------------- ------------------- -----------------
Operating income 697 6,563 7,260 10,019
Interest expense (20) (3,134) (3,154) (3,147)
Other income (expense), net (5) (1) (6) (3)
Provision for income tax (269) (1,471) (1,740) (2,824)
Income from equity investees, net 267 985 1,252 944
------------------- ----------------- ------------------- -----------------
Net income $670 $2,942 $3,612 S4,989
=================== ================= =================== =================
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 81.3 79.7 80.0 77.3
------------------- ----------------- ------------------- -----------------
Gross profit 18.7 20.3 20.0 22.7
Selling, general and administrative expenses 10.7 6.4 7.1 6.3
------------------- ----------------- ------------------- -----------------
Operating income 8.0 13.9 12.9 16.4
Interest expense (0.2) (6.6) (5.6) (5.1)
Provision for income tax (3.1) (3.1) (3.1) (4.6)
Income from equity investees, net 3.0 2.0 2.2 1.5
------------------- ----------------- ------------------- -----------------
Net income 7.7% 6.2% 6.4% 8.2%
=================== ================= =================== =================
</TABLE>
- 43 -
<PAGE>
Net Sales. Net sales for the second quarter of 1997 increased $5.0
million, or 8.9%, to $61.1 million from $56.1 million in 1996. Overall fiber
glass sales were up by $2.9 million, or 6.1%, while high performance sales were
up by $2.1 million, or 24.7%. Sales of electronic fiber glass and composite
material fiber glass increased by 6.3% and 5.5%, respectively, when compared to
1996. High performance sales in the second quarter of 1997 improved
significantly from second quarter 1996 as a result of higher sales to the
military ballistics market.
Gross Profit. Gross profit for the second quarter of 1997 increased $2.6
million, or 23.4%, to $13.8 million from $11.2 million in 1996. Gross profit as
a percentage of net sales improved to 22.7% in 1997 from 20.0% in 1996. The
improvement in gross profit resulted primarily from higher sales in 1997
compared to 1996, a shift in sales mix weighted more towards higher margin fiber
glass fabrics, and the favorable impact of improved manufacturing efficiencies.
SG&A. Selling, general, and administrative expenses, at $3.8 million, were
slightly lower than the $4.0 million reported in the second quarter of 1996. The
decline resulted primarily from the second quarter 1996 payout to certain
executives of compensation under Springs Industries' executive compensation
plans which vested and were paid on the closing of the Acquisition. As a
percentage of net sales, SG&A expenses decreased to 6.3% in 1997 from 7.0% in
1996.
Operating Income. Operating income increased $2.7 million to $10.0 million
in the second quarter of 1997 from $7.3 million in the same period a year ago.
As a percentage of net sales, operating income was 16.4%, up from 12.9% in 1996.
The increases in sales and gross profit led to the increase in operating income.
Interest Expense. Interest expense incurred by the Company was flat at
$3.1 million, for both the second quarter of 1997 and 1996.
Income From Equity Investees, Net. Income from equity investees, net,
decreased by $0.3 million to $0.9 million from $1.2 million in the second
quarter of 1996. A decrease in the operating results reported by CS-Interglas
primarily caused the decrease in equity income. CS-Interglas reported an
improvement in demand from the weak levels experienced in the first quarter of
1997, but the market did not recover to the demand levels experienced in the
second quarter a year ago. Results reported by Asahi-Schwebel continue strong
and were slightly higher than a year ago while results for CS-Tech Fab were
slightly lower than last year's results.
The equity investment balance as of June 28, 1997 decreased by $1.3
million from the December 28, 1996 balance sheet. The decline resulted primarily
from a strengthening U.S. dollar relative to the German mark (the functional
currency for CS-Interglas) and the Japanese yen (the functional currency for
Asahi-Schwebel), net of additional equity income recorded in 1997. The change in
the equity investment balance had no impact on results of operations or on cash
flows in the second quarter or the first half of 1997.
Net Income. The $2.8 million increase in operating income reported in the
second quarter of 1997 led to a $1.1 million increase in the provision for
taxes. After considering the $0.3 million decrease in income from equity
investees, the overall net effect was a $1.4 million increase in second quarter
net income when compared to the same period last year.
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<PAGE>
First Six Months of 1997 Compared to the First Six Months of 1996
Results of Operations
The following table sets forth for the Company selected income statement
data for the periods indicated.
<TABLE>
<CAPTION>
Period from December Combined six-month Six-month period from
31, 1995 to April 17, Period from April 18 to period from December 29, 1996 to June
1996 June 29, 1996 December 31, 1995 to 28, 1997
(Predecessor Basis) (Successor Basis) June 28, 1996 (Successor Basis)
------------------- ----------------------- --------------------- -------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Sales $68,911 $47,330 $116,241 $123,299
Cost of goods sold 54,958 37,744 92,702 95,851
------------------- ----------------------- --------------------- -------------------------
Gross profit 13,953 9,586 23,539 27,448
Selling, general and administrative
expenses 4,812 3,023 7,835 7,727
------------------- ----------------------- --------------------- -------------------------
Operating income 9,141 6,563 15,704 19,721
Interest expense (148) (3,134) (3,282) (6,427)
Other income (expense), net (5) (1) (6) (3)
Provision for income tax (3,595) (1,471) (5,066) (5,475)
Income from equity investees, net 1,174 985 2,159 1,582
------------------- ----------------------- --------------------- -------------------------
Net income $ 6,567 $ 2,942 $ 9,509 $ 9,398
=================== ======================= ===================== =========================
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 79.7 79.7 79.7 77.7
------------------- ----------------------- --------------------- -------------------------
Gross profit 20.3 20.3 20.3 22.3
Selling, general and administrative
expenses 7.0 6.4 6.8 6.3
------------------- ----------------------- --------------------- -------------------------
Operating income 13.3 13.9 13.5 16.0
Interest expense (0.2) (6.6) (2.8) (5.2)
Provision for income tax (5.2) (3.1) (4.3) (4.5)
Income (loss) from equity
investees, net 1.7 2.0 1.8 1.3
------------------- ----------------------- --------------------- -------------------------
Net income 9.6% 6.2% 8.2% 7.6%
=================== ======================= ===================== =========================
</TABLE>
Net Sales. Net sales for the six months ended June 28, 1997 increased $7.1
million, or 6.1%, to $123.3 million from $116.2 million in 1996. Overall fiber
glass sales were up by $6.1 million, or 6.3%, while high performance sales were
up by $1.0 million, or 5.0%. Sales of electronic fiber glass increased 4.9%,
while sales of composite material fiber glass increased by 10.8% when compared
to the first six months in 1996. Higher demand from the aerospace industry
accounted for most of the increased sales of composite material fiber glass.
Gross Profit. Gross profit for the first half of 1997 increased $3.9
million, or 16.6%, to $27.4 million from $23.5 million in 1996. Gross profit as
a percentage of net sales improved to 22.3% in 1997 from 20.3% in 1996. The
improvement in gross profit resulted primarily from higher sales in 1997
compared to 1996, a
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<PAGE>
shift in sales mix weighted more towards higher margin fiber glass fabrics, and
the favorable impact of improved manufacturing efficiencies.
SG&A. Selling, general, and administrative expenses were relatively flat
at $7.7 million and $7.8 million, respectively, for the first half of 1997 and
1996. As a percentage of net sales, SG&A expenses decreased to 6.3% in 1997 from
6.7% in 1996.
Operating Income. As a result of the above factors, operating income for
the first half of 1997 increased by $4.0 million to $19.7 million from $15.7
million in 1996. As a percentage of net sales, operating income increased to
16.0% in the first half of 1997 from 13.5% in 1996.
Interest Expense. Interest expense is not fully comparable to the prior
period because of the financing related to the Acquisition of the Company from
Springs. Interest expense incurred by the Company in the first half of 1997 was
$6.4 million, attributable primarily to interest expense related to the Senior
Notes.
Income From Equity Investees, Net. Income from equity investees, net,
decreased by $0.6 million to $1.6 million in the first half of 1997 from $2.2
million in 1996. A decrease in the operating results reported by CS-Interglas
primarily caused the decrease in equity income. Weaker demand relative to a year
ago in Europe for electronic fiber glass fabric led to the decrease in operating
results reported by CS-Interglas. Results reported by Asahi-Schwebel were
slightly higher and results for CS-Tech Fab were slightly lower than last year's
comparable results.
Net Income. The significant improvement in operating income ($4.0 million)
was more than offset by the increase in interest expense ($3.1 million), higher
income tax expense ($0.4 million), and lower income from equity investees, net
($0.6 million), as net income for the first half of 1997 decreased by $0.1
million to $9.4 million from $9.5 million in the first half of 1996.
- 46 -
<PAGE>
Results Of Operations
1996 Compared To 1995
<TABLE>
<CAPTION>
12-month period Period from Dec. Combined 12-
from Jan. 1-Dec. 31, 1995 to April Period from month period
30, 1995 17, 1996 April 18-Dec. 28, from Dec. 31,
(Predecessor (Predecessor 1996 1995 to Dec. 28,
Basis) Basis (Successor Basis 1996
---------------- ----------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $231,306 $68,911 $152,003 $220,914
Cost of goods sold 191,978 54,958 118,605 173,563
---------------- ----------------- ----------------- ----------------
Gross profit 39,328 13,953 33,398 47,351
Selling, general and administrative
expenses 17,750 4,812 10,418 15,230
---------------- ----------------- ----------------- ----------------
Operating income 21,578 9,141 22,980 32,121
Interest expense (401) (148) (10,061) (10,209)
Other income (expense), net 12 (5) 50 45
Provision for income tax (8,444) (3,595) (5,460) (9,055)
Income from equity investees, net 2,553 1,174 2,633 3,807
---------------- ----------------- ----------------- ----------------
Income from continuing
operations $15,298 $6,567 $10,142 $16,709
================ ================= ================= ================
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 83.0 79.7 78.0 78.6
---------------- ----------------- ----------------- ----------------
Gross profit 17.0 20.3 22.0 21.4
Selling, general and administrative
expenses 7.7 7.0 6.9 6.9
---------------- ----------------- ----------------- ----------------
Operating income 9.3 13.3 15.1 14.5
Interest expense (0.2) (0.2) (6.6) (4.6)
Other income (expense), net --- --- --- ---
Provision for income tax (3.6) (5.2) (3.6) (4.1)
Income (loss) from equity
investees, net 1.1 1.7 1.7 1.7
---------------- ----------------- ----------------- ----------------
Income from continuing
operations 6.6% 9.6% 6.7% 7.5%
================ ================= ================= ================
</TABLE>
Net Sales. Net sales for 1996 decreased by $10.4 million, or 4.5%, to
$220.9 million from $231.3 million in 1995. Despite reduced demand for
electronics fiber glass fabric in the third quarter due to an inventory
correction in the supply chain, sales of electronics fiber glass in 1996
increased modestly by 2.0% in 1996 over 1995. Composite material fiber glass
sales increased 10.2% in the same period. Higher sales to the aerospace and
coating & laminating markets accounted for this increase. While overall fiber
glass sales were up $7.1 million, or 3.9%, the increase was more than offset by
a $17.5 million, or 33.4%, decline in high performance fabric sales. After a
strong first quarter in high performance fabric sales, there was a significant
reduction in the number of contract quotes requested by the government for
military ballistic fabrics.
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<PAGE>
Management's decision to exit the automotive airbag fabric business also
contributed to the decline in high performance sales.
Gross Profit. Gross profit for 1996 increased $8.0 million or 20.4% to
$47.4 million from $39.3 million in 1995. Gross profit as a percentage of sales
improved to 21.4% in 1996 from 17.0% in 1995. The significant improvement in
both gross profit dollars and gross profit percentage resulted from several
factors including a shift in sales mix weighted more towards fiberglass fabrics
which generate higher margins than high performance fabric, improved operating
efficiencies which allow management the flexibility to run extended workweeks at
electronic fiber glass plants and to adjust running schedules to customer demand
when necessary, and improved pricing.
SG&A. SG&A for 1996 decreased by $2.5 million, or 14.2%, to $15.2 million.
As a percentage of net sales, SG&A decreased to 6.9% in 1996 from 7.7% in 1995.
This decrease resulted from lower bad debt expense and lower stand alone
expenses in 1996 compared to parent company allocations in 1995, offset somewhat
by higher goodwill amortization and the payout to certain executives of
compensation under Springs Industries' executive compensation plans which vested
and were paid on the Closing of the Acquisition.
Operating Income. Operating income increased by 48.8% in 1996 to $32.1
million from $21.6 million in 1995. As a percentage of sales, operating income
increased to 14.5% in 1996 from 9.5% in 1995 due to all the factors mentioned
above.
Interest Expense. Interest expense is not comparable to prior periods as a
result of the financing related to the Acquisition. Interest expense for the
successor company was $10.2 million, for the period of April 18,1996 to December
28,1996.
Income From Equity Investees, Net. Income from equity investees, net,
improved by $1.3 million to $3.8 million in 1996. This improvement resulted from
higher net income reported by Asahi-Schwebel. Asahi-Schwebel's results were
favorably impacted primarily by the strength of sales in Japan, driven by
improved pricing and a stronger dollar, and, to a lesser degree, by the
inclusion of the financial results of its newly acquired 51% owned subsidiary,
Asahi-Schwebel (Taiwan) Co., Ltd. The results of operations of Taiwan were
included with the results of Asahi-Schwebel effective with the acquisition on
April 1, 1996. CS-Interglas results were flat when compared to last year. Demand
for electronic fiber glass fabric in the last quarter of 1996 moderated somewhat
in Europe from earlier demand levels. CS-Tech Fab results in 1996 were slightly
lower than those experienced in 1995.
Income From Continuing Operations. The significant improvements in
operating results and income from equity investees were more than enough to
offset the increase in interest expense, as income from continuing operations
for 1996 was 9.2% higher than in 1995.
1995 Compared To 1994
Net Sales. Net sales for 1995 increased $41.9 million, or 22.1%, to $231.3
million from $189.4 million in 1994. This increase was substantially driven by
volume increases in the electronics fiber glass and high performance fabrics
categories. Net sales of electronics fiber glass fabric grew in 1995 by 25.0%,
with volume increases accounting for the majority of this increase. Net sales of
composite materials fiber glass fabric in 1995 decreased 5.8% due primarily to
lower volume in the markets for coated and laminated fabrics. Net sales of high
performance fabrics grew by $17.3 million, or 49.4%, to $52.3 million in 1995.
Military contract related volume increases accounted for $14.1 million of this
increase. In late 1995, the Company elected to discontinue sales of high
performance fabrics to the automotive industry for use in airbags due to the
existence of several well-established competitors and significant price
competition in the market. Airbag
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<PAGE>
sales were $4.7 million, or 2.0%, of the Company's net sales, in 1995 compared
to $2.4 million in 1994. The Company exited this business in the first half of
1996.
Gross Profit. Gross profit for 1995 increased to $39.3 million, or by
37.2%, from $28.7 million in 1994. The increase in gross profit resulted
primarily from increased volume in electronics fiber glass and high performance
fabrics. Gross profit as a percentage of net sales improved to 17.0% in 1995
from 15.1% in 1994 due primarily to improved capacity utilization resulting from
the volume increases and management's initiatives to improve productivity at its
manufacturing facilities.
SG&A. SG&A for 1995 increased by $3.4 million to $17.8 million from $14.4
million in 1994. Increased bad debt expense, higher intercompany charges
allocated by the Company's parent, Springs Industries, and increased
distribution costs related to higher volume accounted for $1.6 million, $0.6
million and $0.4 million, respectively, of the increase. Approximately $1.4
million of the increase in bad debt expense related to the potential
uncollectibility of an outstanding receivable from a high performance fabric
customer servicing the military end-use market. The outstanding accounts
receivable balance and corresponding reserve was transferred to Springs
Industries prior to the Closing of the Acquisition. As a percentage of net
sales, SG&A increased to 7.7% in 1995 from 7.6% in 1994.
Operating Income. Operating income for 1995 increased $9.1 million to
$21.6 million from $12.5 million in 1994. As a percentage of net sales,
operating income for 1995 increased to 9.3% from 6.6% in 1994. During 1994, the
Company took a $1.8 million charge against operating earnings related to the
write-off of certain idle manufacturing equipment. Operating income for 1994
excluding the write-off of certain idle equipment was $14.3 million or 7.6% of
net sales.
Income From Equity Investees, Net. Income from equity investees, net,
increased $1.4 million in 1995 from $1.2 million in 1994. This improvement
resulted primarily from higher net income reported by Asahi-Schwebel and
CS-Interglas due to increased world wide demand for fiber glass fabric. Similar
to the U.S. market, this increase was driven primarily by the strong demand for
electronics. CS Tech-Fab reported a slight increase in net income.
Income From Continuing Operations. The significant improvements in
operating results and income from equity investees were more than enough to
offset the increase in SG&A expenses, as income from continuing operations for
1995 was 83.9% higher than in 1994.
Liquidity And Capital Resources
Historical. On April 17, 1996, the Company was purchased from Springs
Industries for approximately $192.9 million, funded by a combination of equity
and debt. Equity of $45.0 million was provided by Vestar/CS Holding and the
Management Investors in exchange for all of the capital stock of Holdings.
Vestar/CS Holding contributed $43.2 million in exchange for $35.0 million
liquidation value of the 12.5% participating preferred stock of Holdings
("Preferred Stock") and $8.2 million of the common stock of Holdings ("Holdings
Common Stock"). The Management Investors invested $1.8 million in Holdings
Common Stock. Approximately $0.8 million of the contribution from the Management
Investors was financed by loans from the Company. The funded debt used to
finance the Acquisition consisted of $110.0 million of Senior Notes, $15.0
million of loans under a Term Loan under the Credit Agreement, and $35.0 million
of loans under a Revolving Credit Facility under the Credit Agreement. The
required amortization payments under the Term Loan are $0.4 million in 1997,
$1.6 million in 1998, $2.1 million in 1999, $2.5 million in 2000, $2.9 million
in 2001 and $1.6 million in 2002. As required by the Credit Agreement, the
Company prepaid $2.3 million of the Term Loan in the first quarter of 1997. The
Company may prepay the Term Loan at any time without penalty. The Revolving
Credit Facility matures in April 2002. Substantially all of the assets of CSI,
the operating company, are subject to liens in favor of the Credit Agreement
lenders. Other than
- 49 -
<PAGE>
upon a change of control or as a result of certain asset sales, the Company will
not be required to make any principal payments in respect of the Senior Notes
until maturity in April 2006. The Company is required to make semi-annual
interest payments on April 15 and October 15 with respect to the Senior Notes.
Six Months 1997 Compared to Six Months 1996. Cash provided by operating
activities in the first six months of 1997 was $14.6 million, compared with
$29.5 million provided in the same period a year ago. Despite improved
profitability in 1997 compared to 1996, cash provided by operating activities
declined because 1997 requirements for working capital were greater than those
of 1996. The Company spent $3.5 million on capital additions during that period.
The Company anticipates capital expenditures will approximate $10.0 million for
fiscal 1997. As of June 28, 1997, the Company had cash and cash equivalents of
approximately $14.3 million. In addition, the Company had $55.0 million of
undrawn availability under the Revolving Credit Facility. The Company ended the
quarter with debt, net of cash, of $106.8 million, consisting of $110.0 million
in Senior Notes, $11.2 million under the Term Loan, and $14.3 million in cash
and cash equivalents.
1996 Compared to 1995. Cash provided by operations for the period from
April 18, 1996 to December 28, 1996 was $41.1 million, and for the period from
December 31, 1995 to April 17, 1996 was $8.0 million compared with $18.0 million
provided by operations in fiscal 1995. Strong profitability coupled with the
Company's efforts to reduce its investment in working capital led to the
significant improvement in cash generated from operations for 1996. The Company
invested $2.0 million in capital expenditures for the period from April 18, 1996
to December 28, 1996, and an additional $1.6 million for the period from
December 31, 1995 to April 17, 1996, which was moderate compared to previous
periods. The moderate level of capital spending was primarily the result of
fewer planned major projects for fiscal 1996. The Company typically makes
capital expenditures to enhance capacity and improve manufacturing facilities
and processing equipment. The Company anticipates that capital spending in 1997
will increase to approximately $9.5 million. Strong cash flow from operations
and moderate capital spending allowed the Company to reduce total long-term debt
by $36.6 million since April 18, 1996. Debt of $35.0 million which was borrowed
under the Credit Agreement's Revolving Credit Facility at Closing was repaid
during the period, while the amount outstanding under the Credit Agreement's
Term Loan was reduced by $1.6 million. As of December 28, 1996, the Company had
$55.0 million of undrawn availability under the Revolving Credit Facility. The
Company ended the year with debt, net of cash, of $119.4 million, consisting of
$110.0 million in Senior Notes, $13.4 million under the Term Loan, and $4.0
million in cash and cash equivalents.
To meet its liquidity needs, the Company has relied and expects to
continue to rely on internally generated funds and, to the extent necessary, on
undrawn commitments available under the Revolving Credit Facility. The Company's
ability to borrow in excess of the commitments set forth in the Credit Agreement
is limited by the terms of the Credit Agreement and the Senior Notes' Indenture.
Additionally, such terms place restrictions on the Company with respect to
liens, investments, dividends, debt repayments, capital expenditures,
transactions with affiliates, and mergers. All assets of Clark-Schwebel, Inc.
represent restricted net assets with the exception of the foreign equity
investments and distributions received from the foreign equity investments.
Except in limited circumstances, Clark-Schwebel, Inc. is prohibited from
transferring restricted net assets to Clark-Schwebel Holdings, Inc. in the form
of cash dividends, loans, or advances without the consent of a third party
lender. The amount of unrestricted net assets at December 28, 1996 is $61,221,
which represents the book value of the foreign equity investments ($59,906) and
distributions received in the form of cash from the foreign equity investments
($1,315). The Company believes that cash generated from operations and borrowing
resources will be sufficient to fund the Company's cash needs for the
foreseeable future.
Following the Transactions. Following the closing of the Transactions, the
Company had outstanding indebtedness of $156.0 million ($110.0 million in Senior
Notes and $46.0 million in Old Debentures) compared to outstanding indebtedness
of $121.2 million before the Transactions. Additionally, the
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<PAGE>
Company's cash on hand was reduced by $16.2 million following the Transactions
as a result of prepaying the Term Loan ($11.2 million) and paying $5.0 million
in redemption of the Preferred Stock. Other than upon a change of control or as
a result of certain asset sales, the Company will not be required to make any
principal payments in respect of the Senior Notes or the Debentures until April
2006 and July 2007, respectively. Additionally, borrowings under the Revolving
Credit Facility under the Credit Agreement mature April 2002.
The Company's primary capital requirements continue to be debt service and
capital expenditures. The Company is required to make semi-annual interest
payments with regard to its Senior Notes on April 15 and October 15, and with
regard to its Debentures on January 15 and July 15. Interest payments on the
Debentures are subject to CSI meeting certain earnings thresholds and complying
with certain financial ratio tests under the terms of the CSI Indenture and
Credit Agreement. If, on any interest payment date relating to the Debentures,
CSI could not dividend or distribute a sufficient amount of cash to Holdings
under the terms of the CSI Indenture or Credit Agreement in order to make such
interest payment in cash, Holdings may make such interest payment in the form of
additional Debentures having an aggregate principal amount equal to the amount
of such interest.
The Company typically makes capital expenditures related primarily to the
maintenance and improvement of manufacturing facilities and processing
equipment. The Company estimates that capital expenditures will be approximately
$10.0 million in 1997.
To meet its liquidity needs, the Company will rely on internally generated
funds and, to the extent necessary, on undrawn commitments available under the
Revolving Credit Facility, subject to certain drawing conditions. At the time of
redemption of the Preferred Stock and issuance of the Debentures, the Company
had no drawings under its Revolving Credit Facility and $65.0 million in undrawn
availability. The Company believes that cash generated from operations and
borrowing resources are adequate to permit the Company to meet both its debt
service requirements and capital requirements for the foreseeable future,
although no assurance can be given in this regard.
Joint Ventures
The Company accounts for its three joint venture interests using the
equity method of accounting. Accordingly, the Company's operating income
excludes net income (loss) from such interests. Historically, each of the three
joint venture interests has been wholly self-supporting and received no
distributions from the Company. See "Business--Joint Ventures."
Accounting Standards
A summary of the Company's significant accounting policies is included in
Note 3 to the footnotes of the Audited Financial Statements for the fiscal year
ended December 28, 1996, enclosed in this Prospectus.
Certain Relevant Factors
Under the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, forward looking statements, such as earnings projections,
are protected from liability as long as they are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from projected results. The Company wishes to
caution readers that the following important factors, among others, in some
cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company whether contained herein, in other documents subsequently filed by the
Company with the SEC, or in oral statements:
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<PAGE>
o A moderating growth rate or reduction in sales of electronics products,
which incorporate a significant percentage of the Company's products,
could materially affect operating results. The electronics industry is
cyclical and has experienced recurring downturns. A future downturn could
reduce demand for, and prices of, materials used in electronics products,
including those manufactured by the Company.
o Rapid technology changes in the electronics industry have placed
increasingly rigorous demands on weight, thickness, and consistency of
fiber glass products produced by the Company. Technological change in the
printed circuit board industry is rapid and continuous and will continue
to require increased technological and manufacturing capability and
expertise. Advances in semi-conductor technology could further reduce the
surface area of printed circuit boards and possibly demand for the
Company's products. Operating results could be materially affected by the
Company's ability to maintain its technological position.
o The Company could face increased competition if cost-effective
alternatives to fiber glass fabrics were developed for the electronics
industry. Currently, only lower-end electronics, which use a paper based
laminate system for printed circuit boards, and very high-end electronics,
which use a variety of very expensive materials for printed circuit
boards, use non-fiber glass fabrics. However, the development and
introduction of cost-competitive alternatives could have a material
adverse impact on the Company's business, financial condition, and results
of operations.
o Virtually all fiber glass yarn manufactured in North America is produced
by two suppliers, and substitutes are not readily available. The Company
purchases substantially all of its fiber glass yarn from these two
suppliers. The Company purchases most of its aramid yarn from one
supplier. Any disruption in the ability or willingness of the Company's
suppliers to deliver fiber glass or aramid yarns to the Company could have
a material adverse effect on the Company's business, financial condition,
and results of operations. During 1995 and through mid-1996, the Company
experienced a fiber glass yarn shortage which limited the Company's
ability to expand production of fiber glass fabrics. Additionally, due in
part to the fiber glass yarn shortage, the price of fiber glass yarn
increased over the prior year at a higher than historical rate. While the
Company generally has been able to pass through increases in the cost of
fiber glass yarn, the inability of the Company to do so in the future
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
o The Company's customer base is concentrated. In 1996, sales to two of the
Company's customers each accounted for more than 10% of the Company's net
sales, and sales to the Company's top ten customers accounted for
approximately 70% of net sales. As customers seek to establish closer
relationships with their suppliers, the Company expects its customer base
to continue to become more concentrated. If, for any reason, any of its
key customers were to purchase significantly less of the Company's
products in the future, such decreased level of purchases could have a
material adverse effect on the Company's business, financial condition,
and results of operations.
o The Company could face an increasingly competitive market place in
electronics fiber glass fabric resulting from expected capacity growth in
glass yarn and woven fiber glass both domestically and world wide.
o The Company relies on constant communication with its customers to
anticipate the future volume of purchase orders. A variety of conditions,
both specific to the individual customer and generally affecting the
customer's industry, can cause a customer to reduce or delay orders
previously anticipated by the Company.
o The Company's facilities are subject to a broad range of federal, state,
local, and foreign environmental laws and requirements, including those
governing discharges to the air and water, the handling and disposal of
solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and offsite disposal locations. The Company has made, and
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<PAGE>
will continue to make, expenditures to comply with such laws and
requirements. The Company believes, based on information currently
available to management, that it will not require material capital
expenditures to maintain compliance with environmental requirements during
this or the following fiscal year or the foreseeable future. However,
future events, such as changes in existing laws and regulations or the
discovery of contamination at sites owned or operated by the Company, or
to which Company waste has been transported, may give rise to additional
compliance or remediation costs which could have a material adverse effect
on the Company's financial condition or results of operations.
o The Company's success is dependent upon certain key management personnel.
There is competition for qualified employees among companies in the
electronic materials industry, and the loss of certain of the Company's
employees or an inability to continue to attract and motivate highly
skilled employees could have a material adverse effect on the Company's
business, financial condition, and results of operations.
o The Company's international joint ventures are subject to risks, including
exchange rates, unexpected changes in regulatory requirements, tariffs,
international trade restrictions or prohibitions, political and economic
instability, and changes in taxation. Equity income from the international
joint ventures may be materially affected by currency exchange rate
fluctuations.
Inflation
The Company generally attempts to pass cost increases to its customers.
Costs are affected by, among other things, inflation, and the effects of
inflation may be experienced by the Company in future periods. The Company
believes, however, that inflationary effects have not been material to the
Company during the past three years.
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<PAGE>
THE BUSINESS
The Company believes it has been a leading manufacturer and marketer of
industrial fabrics, including electronics fiber glass fabric, composite
materials fiber glass fabric and high performance fabrics since the founding of
the business in 1960. The Company believes it is the largest producer of fiber
glass fabrics for use in the growing electronics industry, with an estimated 50%
market share in the United States. Fiber glass fabrics are a critical component
used in the production of printed circuit boards, which are integral to
virtually all advanced electronic products, including computers,
telecommunications equipment, advanced cable television equipment, network
servers, televisions, automotive equipment and home appliances. The Company's
fiber glass fabrics are also used in composite materials to strengthen, insulate
and enhance the dimensional stability of hundreds of products in a variety of
markets, such as aerospace, coating and laminating, marine and tooling, building
insulation and sports equipment. The Company is also a leading manufacturer of
high performance fabrics composed of Kevlar(R), Spectra(R) and quartz fibers.
High performance fabrics composed of Kevlar(R), the most widely used aramid
fiber, are used primarily in ballistic protection products, such as vests and
helmets worn by state, local and private police forces and the military, and in
composite materials for aerospace applications.
Electronics Fiber Glass Fabric
The Company believes it is a leading producer of electronics fiber glass
fabric in the United States. The Company sells fiber glass fabric to
manufacturers of high pressure laminates ("HPL") who, in turn, convert fiber
glass fabric into rigid and thin core laminates that are sold to manufacturers
of single-sided, double-sided and multilayered printed circuit boards. Printed
circuit boards require a highly engineered substrate material on which to mount
and interconnect semiconductor chips, passive electronic devices and other
electronic components. Due to its low cost, high strength, dimensional
stability, temperature resistance and electrical insulating properties, fiber
glass fabric has proven to be the most effective substrate material used in the
manufacture of printed circuit boards. In addition, the Company believes that
currently there is no cost-effective substitute material which can satisfy the
stringent quality and performance specifications required of fiber glass fabric
for HPLs in printed circuit boards. Electronics fiber glass fabric represented
57.6%, 58.9% and 62.9% of the Company's net sales in 1994, 1995 and 1996,
respectively.
The Company continues to capitalize on the growth in demand for printed
circuit boards resulting from (i) the development of increasingly complex
electronics products, including personal computers, cellular phones, pagers and
portable computing devices, and (ii) the increasing electronic content of
products in which such use has been historically absent or limited, such as
automobiles, home appliances and medical equipment.
Composite Materials Fiber Glass Fabric
Fiber glass fabrics are also used in composite materials for the
aerospace, coating and laminating, marine and tooling, building insulation and
sports equipment markets. Composite materials fiber glass fabric is used in
various applications which require combinations of fiber glass' inherent
properties, including light weight, strength, temperature and flame resistance,
moisture and chemical resistance, and durability. The Company's customers
produce composite materials by impregnating fiber glass fabric with
thermosetting epoxy and phenolic resin systems. Applications of composite
material fiber glass fabric include aircraft components, such as interior
paneling systems and passenger overhead storage compartments. Fiber glass
fabrics are also used in a wide range of other industrial applications, such as
Teflon(R) coated conveyor belts, window shades, movie screens, electrical
insulation products, marine construction materials, automotive tooling and
roofing materials. Composite materials fiber glass fabric represented 23.9%,
18.5% and 21.3% of the Company's net sales in 1994, 1995 and 1996, respectively.
The Company's fiber glass fabrics can be found on major airframe programs
at The Boeing Company, McDonnell Douglas Corporation and Airbus Industries. The
Company expects increases in commercial
- 54 -
<PAGE>
aircraft build rates over the next several years. The growing global economy and
governmental regulations forcing the removal of older, louder, less fuel
efficient aircraft are expected to drive demand for new aircraft.
High Performance Fabrics
The Company believes it is a leading producer of high performance fabrics
used primarily to make ballistic protection products, such as vests and helmets
worn by state, local and private police forces and the military and to reinforce
composite materials for aircraft applications. The Company's high performance
fabrics possess physical properties such as durability, low weight and high
tensile strength. The Company's line of high performance products are
manufactured by arranging and finishing aramid and other materials, such as
Kevlar(R), Spectra(R) and quartz. Wide ranges of fiber types and construction
patterns provide broad design potential, allowing the Company to manufacture
high performance fabrics to meet stringent customer standards. For instance, the
Company manufactures Kevlar(R) fabric, the most widely used aramid fabric,
according to ballistic design parameters determined by performance criteria of
the end product. The Company sells ballistic protection fabrics designed to
capture high mass, relatively low velocity bullets as well as ballistic
protection fabrics designed to capture low mass, high velocity fragments. High
performance fabrics represented 18.5%, 22.6% and 15.8% of the Company's net
sales in 1994, 1995, and 1996, respectively.
Business Strategy
The Company's business strategy is to increase sales and profitability by
capitalizing on its leading position in the fiber glass fabrics industry and the
expected increased demand for printed circuit boards. The Company believes that
its long-standing customer and supplier relationships, manufacturing and
technical expertise, and commitment to providing consistent, high quality
products will enable the Company to maintain its leading position in the
industry.
The Electronics Fiber Glass Fabric Industry
Fiber glass fabric suppliers to the electronics industry, such as the
Company, convert fiber glass yarn into a variety of fabrics which are then sold
to HPL manufacturers. HPL manufacturers, in turn, convert fiber glass fabric
into rigid, layered laminates that are sold to printed circuit board
manufacturers. There are many intermediate steps between the manufacture of
unstuffed printed circuit boards (i.e. without semiconductors) and final
electronics products. The following chart illustrates the role of electronics
fiber glass fabric suppliers in the large and growing electronics industry.
- 55 -
<PAGE>
[GRAPHIC OMITTED]
Increasing Demand for Electronic Products. Fiber glass fabrics are a
critical component in the production of printed circuit boards, which are used
in virtually all electronics products. Demand for electronics products has
experienced substantial growth in recent years and is expected to continue to
grow due to expanded applications for computer systems, technological
advancements and new product introductions. This growth is primarily
attributable to the development of more complex and sophisticated electronic
products, including cellular phones, pagers, personal computers and portable
computing devices, as well as the increasing electronic content of products in
which such use has been historically absent or limited, such as automobiles,
home appliances and medical equipment.
The following table illustrates the historical growth of the major
end-user markets for electronics fiber glass fabric.
- 56 -
<PAGE>
United States Electronic Equipment Production
(Dollars in Billions)
<TABLE>
<CAPTION>
Historical
CAGR
1992 1993 1994 1995 1996 1992-1996
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Computer & office equipment $ 82.7 $ 91.5 $106.8 $125.7 $143.1 14.7%
Industrial/Instrumentation 57.6 61.5 67.1 77.5 84.9 10.2
Communications 36.7 40.2 47.9 53.6 59.8 13.0
Military 52.2 49.0 45.5 44.5 43.7 (4.3)
Automotive/Consumer 16.9 18.2 20.9 21.6 22.6 7.5
------ ------ ------ ------ ------ ----
Total $246.1 $260.5 $288.2 $322.9 $354.1 9.5%
====== ====== ====== ====== ====== ===
</TABLE>
Source: PCI Quarterly Forecast (4th Quarter 1995) and Henderson Electronic
Market Forecast (December 1996)
High Performance Standards. As the proliferation of advanced electronics
products continues, electronics producers require printed circuit boards and
fiber glass materials which: (i) operate at higher speeds and frequencies; (ii)
have higher temperature tolerances; and (iii) have reliable, predictable
performance characteristics. Printed circuit boards that perform at faster
speeds with limited power usage must employ printed circuit materials with
improved electrical conductivity properties and insulating characteristics. The
ability of printed circuit boards to perform in high temperature environments is
directly correlated to the electronic materials used to construct the board.
Printed circuit board components must have consistently manufactured dimensional
characteristics and purity to extremely high tolerance levels in order for
printed circuit board manufacturers to achieve acceptable production yields.
Faster Production Cycles Require Closer Collaboration with Customers.
Competitive pressures have led electronic equipment manufacturers to introduce
new products and increase production volume to satisfy growing commercial
demand. These trends have increased the level of collaboration among system
providers, fabricators and printed circuit materials suppliers. Manufacturers of
electronics component materials, such as the Company, must maintain strong
customer and supplier relationships and provide greater technical support to
high pressure laminators on a timely basis.
Product Characteristics
The versatility of fiber glass fabric makes it a unique industrial
material. The Company's fiber glass fabrics offer an excellent combination of
properties from high strength to fire resistance. Wide ranges of yarn sizes and
weave patterns provide broad design potential, enabling the Company to work with
its customers to choose the best combination of material performance, economics
and product flexibility. Fiber glass fabrics have the properties shown below:
o Dimensional Stability. Fiber glass is a dimensionally stable
engineering material. Fiber glass does not stretch or shrink after
exposure to extremely high or low temperatures.
o Moisture Resistance. Fiber glass does not absorb moisture and does
not change physically or chemically when exposed to water.
o High Strength. The high strength-to-weight ratio of fiber glass
makes it a superior material in applications where high strength and
minimum weight are required. When manufactured into a fiber glass
fabric, this strength can be unidirectional or bi-directional,
allowing flexibility in design and cost.
- 57 -
<PAGE>
o Temperature Resistance. Fiber glass is an inorganic material and
does not burn or support combustion.
o Chemical Resistance. Most chemicals have little or no effect on
fiber glass. Fiber glass fabric does not mildew, rot or deteriorate.
o Electrical Properties. Fiber glass fabric is an excellent material
for electrical insulation. The combination of properties such as low
moisture absorption, high strength, heat resistance and low
dielectric constant makes fiber glass fabric suitable as a
reinforcement for printed circuit boards and insulating varnishes.
o Thermal Conductivity. High thermal conductivity properties enable
fiber glass fabric to rapidly dissipate heat.
Product Applications
The Company manufactures approximately 600 products which are used in a
broad range of technical, highly engineered product applications as shown below:
<TABLE>
<CAPTION>
Percentage
of 1996 Product
Product Market Net Sales Application
------- ------ ---------- ------------
<S> <C> <C> <C>
Electronics Fiber High pressure 62.9% Personal and mainframe computers,
Glass Fabric laminates printers, cellular telephones,
manufactured for automotive electronics, advanced
printed circuit cable television
boards equipment, personal communication
devices, network servers
Composite Materials Aerospace, 21.3% Commercial aircraft components,
water
Fiber Glass Fabric Coating/ skis, electrical cable insulation,
Laminating, movie screens, window shades,
Filtration, Marine, pollution control, reinforced roofing
Tooling, Building products
High Performance Aerospace, 15.8% Bullet-resistant vests and helmets,
Fabrics Ballistics aircraft interior/exterior components
(Kevlar(R),
Spectra(R),
quartz)
</TABLE>
Research And Development
The Company has a modern, well-equipped research and development
laboratory located at its headquarters in Anderson, South Carolina. The
laboratory is equipped to (i) test the physical properties of yarns, fabrics,
and high pressure laminates and the chemical analysis of finishes, sizings and
resins and (ii) produce laminate samples similar to those made by its customers.
The Company's product development and technical staff works with the
in-house technical staffs of its customers in the early stages of product
development to produce and manufacture products with certain
- 58 -
<PAGE>
qualities and performance specifications to meet specific customer needs. The
Company believes that its emphasis on product development and technology
exchanges with its German and Japanese joint ventures has enhanced its technical
knowledge and ability to serve its customers.
Customers
The Company's customer list includes many leading companies in their
respective industry segments. In 1996, the Company sold its products to nearly
500 customers, with the ten largest accounting for approximately 70% of net
sales. Sales to two of the Company's customers, Allied-Signal Laminate Systems
and Park Electrochemical, each accounted for more than 10% of the Company's 1996
net sales. Sales to the two customers represented as a percentage of net sales
40.2% in 1994, 42.3% in 1995, and 43.3% in 1996, respectively. The Company's top
ten customers have been customers for over five years.
As customers seek to establish closer relationships with suppliers, the
Company expects its customer base to continue to be concentrated. The Company
believes that each of its four largest electronics customers purchased over 50%
of its fiber glass fabrics supplies from the Company in 1996. If, for any
reason, any of its key customers were to purchase significantly less of the
Company's products in the future, such decreased level of purchases could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company markets its products primarily through a direct sales force
and distributes its products primarily through the use of common carriers. The
Company generally manufactures products according to customer forecasts and
regular communications with its customers.
Raw Materials
The principal materials used in the manufacture of the Company's products
are fiber glass, Kevlar(R) and Spectra(R) yarns, PVA sizing and silane binding
agents and coating materials. Over the past 35 years, the company has developed
close beneficial relationships with the two companies that produce virtually all
the fiber glass yarn manufactured in North America, PPG Industries, Inc. and
Owens-Corning. The Company currently purchases substantially all of its fiber
glass yarn from these two suppliers. Based on its long-standing relationships
with its fiber glass yarn suppliers and the volume of its purchases, the Company
believes it receives favorable terms on its purchases of fiber glass yarn.
DuPont, the sole manufacturer of Kevlar(R), has provided its Kevlar(R) yarn to
the Company for more than 20 years. The Company currently purchases
substantially all of its aramid yarn from this one supplier. There are a limited
number of manufacturers of fiber glass yarn and aramid yarn. Any disruption in
the ability or willingness of the Company's suppliers to deliver fiber glass or
aramid yarn to the Company, or any adverse changes to the terms governing its
yarn purchases, could have a material adverse effect on the Company's business,
financial condition, and results of operations.
Through mid-1996, fiber glass yarn was in short supply on a global basis,
and the price of fiber glass yarn increased in 1996 at a higher than historical
rate. During the latter half of 1996, fiber glass yarn supply became sufficient
to meet the Company's requirements and supply should be sufficient for the
foreseeable future. The Company generally has been able to pass through its raw
material price increases to customers.
Competition
The Company believes it is the market share leader in its targeted fiber
glass fabrics markets in the United States, where it competes primarily on the
basis of long-term relationships with customers and suppliers, quality,
technical support, price and reliability. The Company's major competitor in the
fiber glass fabrics market is BGF Industries. Other fiber glass fabrics
manufacturers are smaller and generally compete
- 59 -
<PAGE>
in niche markets. The Company's major competitor in the high performance fabrics
market is Hexcel Corporation.
Joint Ventures
The Company has three joint ventures: Clark-Schwebel Tech-Fab Company ("CS
Tech-Fab") in the United States, CS-Interglas AG ("CS-Interglas") in Europe and
Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel") in Asia.
CS-Interglas. Through a DM20 million convertible subordinated note and a
25% common stock ownership position, the Company effectively has a 42% fully
diluted equity interest in CS-Interglas, a publicly held German company.
CS-Interglas is the successor corporation to a 1993 combination of the Company's
European operations with Interglas. Today, CS-Interglas is Europe's leading
manufacturer of fiber glass fabrics with plants in England, Belgium, France and
Germany. In 1996, CS-Interglas had net sales of approximately $168.7 million.
Asahi-Schwebel. The Company owns a 39% interest in Asahi-Schwebel, a
manufacturer of fiber glass fabrics for the electronics industry headquartered
in Japan. Asahi-Schwebel has plant facilities in Japan and a majority interest
in a fiber glass fabric manufacturing and finishing plant in Taiwan. In 1996,
Asahi-Schwebel had net sales of $135.8 million.
CS Tech-Fab. CS Tech-Fab is 50% owned by each of the Company and Les Fils
d'Auguste Chomarat, a French Company. CS Tech-Fab manufactures nonwoven fiber
glass materials for roofing and cement construction applications and for high
performance sails. In 1996, CS Tech-Fab had net sales of approximately $13.4
million.
The Company's joint venture interests are not subject to the covenants of
the Indenture governing the Senior Notes or the Credit Agreement.
Employees
As of August 27, 1997, the Company had 1,346 full time employees, all of
whom were located in the United States. Of these employees, 1,246 were engaged
in manufacturing and manufacturing related services, and 100 were engaged in
sales, marketing and administrative functions. The Company's employees are not
represented by labor unions. The Company considers its relationship with its
employees to be satisfactory.
Environmental Matters
The Company's facilities are subject to a broad range of federal, state
and local environmental laws and requirements, including those governing
discharges to the air and water, the handling and disposal of solid and
hazardous substances and wastes and the remediation of contamination associated
with releases of hazardous substances at Company facilities and offsite disposal
locations. Liability with respect to hazardous substance releases arises
principally under the federal Comprehensive Environmental Response, Compensation
and Liability Act and similar state laws, which impose strict, retroactive,
joint and several liability upon statutorily defined classes of "potentially
responsible parties." The Company's foreign joint venture operations are subject
to varying degrees of environmental regulation in the jurisdictions in which
those facilities are located.
Based upon an environmental review conducted by outside consultants in
connection with the Acquisition, the Company believes that it is currently in
substantial compliance with all material environmental requirements, and will
not require material capital expenditures to maintain compliance with
- 60 -
<PAGE>
such requirements in the foreseeable future. Nevertheless, as is the case with
manufacturing operations in general, if a release of hazardous substances occurs
on or from the Company's properties or any offsite disposal locations, or if
contamination from prior activities is discovered at such properties or
locations, the Company may be held liable and may be required to pay the cost of
remedying the condition and/or satisfying third party damage claims. The Company
has from time to time been the subject of administrative proceedings, litigation
or investigations relating to environmental matters. Management does not believe
that the Company is currently subject to any environmental proceedings,
litigation or investigations which will have a material adverse effect on the
Company.
Patents And Trademarks
The Company has several United States patents, patent applications and
trademarks. While the Company considers its patents to be valuable assets, the
Company does not believe that its competitive position is dependent on patent
protection or that its operations are dependent on any individual patent or
group of related patents. However, in some instances, patents and patent
protection may serve as a barrier to entry in certain product lines. The
Company's policy is to obtain patents on its new products and enforce its patent
rights.
Properties
The Company's executive offices are located in Anderson, South Carolina.
The Company leases warehouses in Santa Fe Springs, California and Anderson,
South Carolina and owns a warehouse that is part of its Statesville facility.
The Company owns and operates four principal manufacturing facilities located in
the southeastern United States.
<TABLE>
<CAPTION>
Facility size
Location (Square Feet) Principal Product Manufactured
-------- ------------- ------------------------------
<S> <C> <C>
Statesville, North Carolina 553,000 Electronics Fiber Glass Fabric
Washington, Georgia 160,000 Electronics Fiber Glass Fabric
Cleveland, Georgia 93,000 Electronics Fiber Glass Fabric
Anderson, South Carolina 432,000 Composite Materials Fiber Glass Fabric,
High Performance Fabrics
</TABLE>
In 1994, 1995 and 1996 the Company spent an aggregate of approximately
$23.6 million on facilities maintenance, capacity expansion, modernization, and
upgrades of equipment. Management believes that substantially all of its
property and equipment is in good condition and that, with current capacity
substantially full, it has sufficient capacity to meet its current manufacturing
needs. Through capacity expansion and productivity improvements, management
believes that the Company will meet its projected manufacturing needs. The
Company's existing manufacturing facilities have approximately 1.2 million
square feet of floor space and are highly automated in their manufacturing
processes and equipment. The manufacturing processes and standards comply with
applicable environmental and worker safety laws and regulations. Three of the
Company's four manufacturing facilities produce a family of closely related
products. Management believes that this focused approach to manufacturing allows
these facilities to shorten manufacturing time, optimize product flow, and avoid
long and costly equipment retooling and employee training time, all of which
lead to overall reduced costs.
Substantially all of the Company's assets are subject to liens in favor of
the Credit Agreement lenders.
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<PAGE>
MANAGEMENT
Directors and Executive Officers of the Registrant
The following sets forth certain information with respect to members of
the Board of Directors and executive officers of the Company.
Name Age Position
Jack P. Schwebel 72 Chairman of the Board
William D. Bennison 53 President and Director
Richard C. Wolfe 49 Executive Vice President and Director
William H. Boyles 54 Vice President--Fiber Glass Sales and Marketing
Donald R. Burnette 49 Chief Financial Officer, Treasurer and Secretary
Harvey A. Morse 43 Vice President--Human Resources
Dieter R. Wachter 53 Vice President--High Performance Fabrics
Norman W. Alpert 38 Director
John D. Howard 45 Director
Sander M. Levy 35 Director
Arthur J. Nagle 59 Director
Daniel S. O'Connell 43 Director
Frank Greenberg 68 Director
Gerard Seelig 71 Director
All of the above have been Directors since the Acquisition.
Jack P. Schwebel has served as Chairman of the Board of the Company since
the Acquisition. Mr. Schwebel also serves as a director of CS-Interglas and
Asahi-Schwebel. Mr. Schwebel co-founded Clark-Schwebel, Inc. in 1960 and served
as Chairman, President and Chief Executive Officer from 1964 until retiring at
the end of 1992. Mr. Schwebel received a B.S. degree from The Wharton School of
the University of Pennsylvania.
William D. Bennison joined the Company in 1989 as Vice President, Sales
and Marketing, and since 1992 has served as President. Mr. Bennison also serves
as President of CS Tech-Fab and director of CS-Interglas and Asahi-Schwebel. Mr.
Bennison was President of BGF Industries and its predecessor, Burlington Glass
Fabrics Co., from 1981 to 1989. Mr. Bennison received a B.S. degree from Indiana
University and an M.B.A. degree from Columbia University.
Richard C. Wolfe has served as Executive Vice President of the Company
since the Acquisition. Mr. Wolfe joined the Company in 1986 as Vice President,
Manufacturing, and from 1989 to 1996, he served as Senior Vice President of
United States Manufacturing and Operational Functions. Mr. Wolfe received a B.S.
degree from the Georgia Institute of Technology and is a graduate of the
Advanced Management Program of The Harvard Business School.
William H. Boyles joined the Company in 1988 as National Sales Manager and
since 1989 has served as Vice President, Fiber Glass Sales and Marketing. Prior
to 1988, Mr. Boyles was Vice President and General Manager of Uniglass
Industries.
Donald R. Burnette has served as Chief Financial Officer, Treasurer and
Secretary of the Company since the Acquisition. Mr. Burnette was Vice President
and Controller of the Company from 1993 to 1996. From 1987 to 1993, Mr. Burnette
was Vice President of Administration and Controller for the Wamsutta
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<PAGE>
Home Products Division (a manufacturer of home furnishings) of Springs
Industries. Mr. Burnette served in various financial positions with Springs
Industries from 1978 to 1987. Mr. Burnette received a B.S. degree from Francis
Marion University.
Harvey A. Morse has served as Vice President, Human Resources since 1994.
From 1987 to 1994, Mr. Morse served as Director of Human Resources for the
Company, and from 1978 to 1987, he served in various human resource positions
for Springs Industries. Mr. Morse received a bachelor's degree from the
University of North Carolina at Chapel Hill.
Dieter R. Wachter has served as Vice President, High Performance Fabrics
since 1989. Prior to 1989, Mr. Wachter was involved in the development of the
High Performance Fabrics unit and held positions in a variety of areas within
High Performance Fabrics, including sales and marketing. Mr. Wachter graduated
from business school in Zurich, Switzerland.
Norman W. Alpert is a Managing Director of Vestar Capital Partners*
(engaged in merchant banking) and was a founding partner of Vestar at its
inception in 1988. Mr. Alpert is Chairman of the Board of Directors of Advanced
Organics, Inc. and International AirParts Corporation and a director of
Russell-Stanley Corporation, Remington Products Company and Aearo Corporation,
all companies in which Vestar or its affiliates have a significant equity
interest. Mr. Alpert received an A.B. degree from Brown University.
John D. Howard is a Senior Managing Director for Bear Stearns & Co. Inc.
serving as head of its Merchant Banking Group. Mr. Howard founded Gryphon
Capital Partners (engaged in merchant banking) and serves as its Chief Executive
Officer. Previously Mr. Howard was Co-Chief Executive Officer of Vestar Capital
Partners. Mr. Howard is a director of Celestial Seasonings, Inc. and Access
Beyond, Inc. Mr. Howard received a B.A. degree from Trinity College and an
M.P.P.M. degree from Yale University School of Management.
Sander M. Levy is a Managing Director of Vestar Capital Partners* and was
a founding partner of Vestar at its inception in 1988. Mr. Levy received a B.S.
degree from The Wharton School of the University of Pennsylvania and an M.B.A.
degree from Columbia University.
Arthur J. Nagle is a Managing Director of Vestar Capital Partners* and was
a founding partner of Vestar at its inception in 1988. Mr. Nagle is a director
of Aearo Corporation, Chart House Enterprises, Inc., Russell-Stanley
Corporation, La Petite Holdings Corporation and Remington Products Company, all
companies (other than Chart House Enterprises, Inc.) in which Vestar or its
affiliates have a significant equity interest. Mr. Nagle received a B.S. degree
from Pennsylvania State University and an M.B.A. degree from Columbia
University.
Daniel S. O'Connell is the Chief Executive Officer and founder of Vestar
Capital Partners.* Mr. O'Connell is a director of Advanced Organics, Inc., Aearo
Corporation, Pinnacle Automation, Inc., Russell-Stanley Corporation and
Remington Products Company, all companies in which Vestar or its affiliates have
a significant equity interest. Mr. O'Connell received an A.B. degree from Brown
University and an M.P.P.M. degree from Yale University School of Management.
Frank Greenberg was the Chairman of the Board of Directors and Chief
Executive Officer of Burlington Industries, Inc. (engaged in textile
manufacturing) from 1986 until his retirement in 1994. Mr.
- --------
* Vestar/CS Holding Co., L.L.C., which is an affiliate of Vestar Capital
Partners, is the principal shareholder of the Company.
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<PAGE>
Greenberg now serves as Chairman of the Board of Burlington. Mr. Greenberg
received a B. A. degree from the University of Chicago.
Gerard L. Seelig has over 35 years of experience in managing worldwide
industrial and technology based businesses. Most recently he was an Executive
Vice President with Allied Signal, Inc. Prior to joining Allied Signal, Inc., he
held Senior Executive positions at ITT (12 years) and Lockheed Corporation (10
years). Mr. Seelig is a Director of Advanced Organics, Inc. and International
AirParts Corporation, companies in which Vestar or its affiliates have a
significant equity interest, Simplicity Corporation and Larson-Davis
Corporation. Mr. Seelig received a B. S. degree from Ohio State University and
an M.S. degree from New York University.
The term in office of each director ends when his or her successor has
been elected or upon his or her removal or resignation. Each executive officer
serves at the discretion of the Board of Directors.
Executive Compensation
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company upon the recommendation of the Compensation
Committee. None of the historical benefit or compensation plans of Springs
Industries is described herein because each was terminated with respect to the
named officers in connection with the Acquisition. The following table sets
forth information concerning compensation received by the five executive
officers of the Company who received the most salary and bonus in 1996 (the
"Named Executive Officers") for services rendered in 1996 and 1995.
- 64 -
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted
Name and Principal Stock Options All Other
Position Year Salary($) Bonus($) Awards($) SAR's(#) Payouts($) Compensation($)
- ---------- ---- --------- -------- --------- -------- --------- --------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Bennison 1996 199,250 239,100 -- -- -- 626,325(4)
President 1995 191,211 133,848 4,859 6,000 33,317 38,600(5)
Schwebel, Jack P.(6) 1996 170,192 204,230 -- -- -- 9,873(4)
Chairman of the
Board 1995 -- -- -- -- -- --
Wolfe, Richard C 1996 161,000 193,200 -- -- -- 254,483(4)
Executive Vice
President 1995 153,846 92,308 4,859 4,000 22,846 27,640(5)
Boyles, William H 1996 125,077 125,077 -- -- -- 14,594(4)
Vice President 1995 118,500 56,000 2,916 -- -- 12,500(5)
Burnette, Donald R 1996 114,000 114,000 -- -- -- 82,275(4)
Chief Financial
Officer, 1995 106,385 63,832 2,916 -- -- 12,851(5)
Treasurer &
Secretary
</TABLE>
(1) Under a Springs Industries' restricted stock award plan, certain of the
Named Executive Officers were awarded restricted shares of Springs
Industries Class A Common Stock. The dollar value shown in the table for
these shares is based on the $38.875 per share closing market price on the
date of grant of such shares. The number of such shares is as follows: Mr.
Bennison, 125: Mr. Wolfe, 125: Mr. Boyles, 75; and Mr. Burnette, 75.
One-third of these shares vested in 1994, one-third in 1995 and one-third
in 1996. Dividends were paid on all restricted stock holdings.
(2) On February 16, 1995, Messrs. Bennison and Wolfe received options to
purchase 6,000 and 4,000 shares of Springs Industries Class A Common
Stock, respectively, pursuant to the Springs Industries, Inc. 1991
Incentive Stock Plan.
(3) Messrs. Bennison and Wolfe received cash payments pursuant to performance
unit awards granted under an incentive stock plan of Springs Industries of
$16,659 and $11,423, respectively. Messrs. Bennison and Wolfe received
shares of Springs Industries Class A Common Stock under the Restated and
Amended Springs Industries, Inc. Deferred Unit Stock Plan with a value on
the date of issuance of $16,658 and $11,423, respectively.
(4) In connection with the Acquisition, benefits payable under certain
executive compensation plans of Springs Industries were accelerated and
paid in cash to Messrs. Bennison, Wolfe, Boyles and Burnette on the
closing date of the Acquisition as follows: Mr. Bennison received $613,452
under the Springs Industries Incentive Stock Plan, Deferred Unit Stock
Plan, Contingent Compensation Plan and Excess Benefit Plan; Mr. Wolfe
received $241,619 under the Springs Industries Incentive Stock Plan,
Deferred Unit Stock Plan, Contingent Compensation Plan, and Excess Benefit
Plan; Mr. Boyles received $1,721 under the Springs Industries Excess
Benefit Plan; and Mr. Burnette received $69,402 under the Springs
Industries Deferred Unit Stock Plan and Excess Benefit Plan. Additionally,
the Named Executive Officers participated in the Company's Profit Sharing
and 401(k) match programs. The payments made pursuant to these programs
for 1996 were as follows: Mr. Bennison - $12,873, Mr. Schwebel - $9,873,
Mr. Wolfe $12,873, Mr. Boyles - $12,873, Mr. Burnette - $12,873. The
payments made pursuant to all the above programs are listed under All
Other Compensation for 1996.
(5) The Named Executive Officers participated in Springs Industries' profit
sharing, 401(k) match, contingent compensation and excess benefit
programs. The aggregate payments made by Springs Industries pursuant to
such programs are listed under All Other Compensation for 1995.
(6) Represents compensation from April 18, 1996 to the end of the year.
Management Equity Participation
In connection with the Acquisition, in order to provide financial
incentives for certain of its employees, the Company entered into a management
subscription agreement with each of the Management
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<PAGE>
Investors (each, a "Management Subscription Agreement"). The Management
Subscription Agreement provides for certain rights with respect to shares of
Holdings Common Stock purchased by the Management Investors (the "Purchased
Shares").
At Closing, the Management Investors purchased an aggregate of $1.8
million of Purchased Shares representing 18% of the fully diluted Common Stock
of Clark-Schwebel Holdings, Inc. Approximately $0.8 million of the purchase
price of the Purchased Shares was financed by the Company (the "Management
Loans"), which was secured by a pledge of the relevant Management Investor's
Holdings Common Stock. On July 14, 1997, Vestar/CS-Holding purchased 10% of the
Purchased Shares from the Management Investors on a pro rata basis, and a
portion of the proceeds of such purchase were used by the relevant Management
Investors to repay the Management Loans in full. Upon the termination of
employment of the holder, the Purchased Shares will be subject to certain call
provisions exercisable by the Company and/or Vestar/CS Holding at a purchase
price that varies depending upon the reason for the termination and the number
of years from the Acquisition. Upon the termination of the holder's employment
due to disability, death or retirement, the holder will have the right, subject
to certain limitations, to cause the Company to purchase the holder's Holdings
Common Stock at a price that varies according to the number of years that have
elapsed following the Acquisition.
Compensation of Directors
Mr. Schwebel receives base annual compensation of $260,000 plus bonus for
his services as Chairman of the Board. Directors of the Company who are neither
employees of the Company nor affiliated with Vestar receive annual compensation
of $12,500 plus $2,500 per Board meeting attended plus $1,250 for each Board
Committee meeting. Other directors do not receive any compensation for services
in such capacity.
Compensation Committee Interlocks and Insider Participation
Messrs. Greenberg, Nagle and Levy are the members of the Compensation
Committee which reviews and makes recommendations to the Board of Directors
regarding the compensation and benefits of the Company's executive officers and
key employees.
Since the Acquisition, each of these individuals has had an interest in
transactions or business relationships involving the Company. See the
information contained in Item 13, "Certain Relationships and Related
Transactions", which is incorporated herein by reference.
Bonus
The Company intends to provide performance-based compensation awards to
executive officers and key employees for achievement during each year as part of
a bonus plan. Such compensation awards may be a function of individual
performance and consolidated corporate results. The qualitative and quantitative
criteria will be determined by the Board of Directors of the Company.
401(k) Plan
The Company has adopted a savings plan (the "Savings Plan"), which is
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. All
regular employees of the Company in the United States are eligible to
participate in the Savings Plan. For each employee who elects to participate in
the Savings Plan and makes a contribution thereto, the Company makes a matching
contribution. The maximum contribution for any participant for any year will be
12.0% of such participant's eligible compensation.
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SECURITY OWNERSHIP
All of CSI's issued and outstanding capital stock is owned by Holdings.
Set forth below is certain information regarding the beneficial ownership of
Holdings Common Stock as of the date of this Prospectus by each person known by
Holdings to beneficially own 5.0% or more of the outstanding shares of Holdings
Common Stock, each director and Named Executive Officer and all directors and
Executive Officers as a group. Except as indicated below, the address for each
of the persons listed below is c/o Clark-Schwebel, Inc., 2200 South Murray
Avenue, Anderson, South Carolina, 29622.
Holdings' Common Stock
----------------------
Name Number Percentage
- ---- ------ ----------
Vestar/CS Holding Company, L.L.C.(1)(2).................. 7,380 82.0%
c/o Vestar Equity Partners
245 Park Avenue, 41st Floor
New York, New York 10167
William D. Bennison(2)................................... 432 4.8%
Richard C. Wolfe(2)...................................... 324 3.6%
William H. Boyles(2)..................................... 108 1.2%
Donald R. Burnette(2).................................... 135 1.5%
Jack P. Schwebel(3)...................................... 0 0
Norman W. Alpert(4)...................................... 7,380 82.0%
John D. Howard........................................... 0 0
Sander M. Levy(4)........................................ 7,380 82.0%
Arthur J. Nagle(4)....................................... 7,380 82.0%
Daniel S. O'Connell(4)................................... 7,380 82.0%
Frank Greenberg.......................................... 0 0
Gerard L. Seelig......................................... 0 0
Directors and Executive Officers
as a group (14 persons)................................ 8,514 94.6%
(1) The sole manager of Vestar/CS Holding is Vestar. The sole general partner
of Vestar is Vestar Associates L.P., a limited partnership whose sole
general partner is Vestar Associates Corporation ("VAC"). In such
capacity, VAC exercises sole voting and investment power with respect to
all of the shares of Holdings held of record by Vestar/CS Holding. Messrs.
Alpert, Levy, Nagle and O'Connell, who are directors of the Company, are
affiliated with Vestar in the capacities described under
"Management--Directors and Executive Officers of the Company" and are
directors, executive officers and stockholders of VAC. Individually, no
stockholder, director or officer of VAC is deemed to have or share such
voting or investment power with respect to shares of Holdings held of
record by Vestar/CS Holding within, the meaning of Rule 13d-3 under the
Exchange Act. Accordingly, no part of the shares of Holdings Common Stock
is beneficially owned by Messrs. Alpert, Levy, Nagle or O'Connell or any
other stockholder, director or officer of VAC.
(2) Messrs. Bennison, Wolfe, Boyles, and Burnette have entered into the
Securityholders Agreement which contains certain agreements with respect
to the capital stock and corporate governance of the Company and the
Voting Trust Agreement (as defined herein) pursuant to which Messrs.
Bennison, Wolfe, Boyles and Burnette have agreed to vote their shares as
directed by Vestar/CS Holding with respect to certain matters. All
outstanding shares of Holdings Common Stock are held by Vestar/CS Holding,
as trustee under the Voting Trust Agreement. Each of Messrs. Bennison,
Wolfe, Boyles and Burnette is also party to a Management Subscription
Agreement. See the information under the subheading, "Management Equity
Participation", in Item 11, "Executive Compensation".
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(3) Each of Mr. Schwebel's three adult children owns 1.94% of the fully
diluted Holdings Common Stock which shares are not included in the table
above as beneficially owned by Mr. Schwebel. Mr. Schwebel has no voting or
investment power with respect to the shares owned by any of his daughters,
and accordingly no part of such shares is beneficially owned by Mr.
Schwebel.
(4) Messrs. Alpert, Levy, Nagle and O'Connell are affiliated with Vestar/CS
Holdings in the capacities described in Note (1) above and under
"Management--Directors and Executive Officers of the Company." Beneficial
ownership of Holdings capital stock for each of these individuals includes
7,380 shares of Holdings Common Stock included in the above table
beneficially owned by Vestar/CS Holding, of which such persons disclaim
beneficial ownership. Each such person's business address is c/o Vestar
Equity Partners, L.P., 245 Park Avenue, 41st Floor, New York, New York
10167.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Securityholders Agreement and Voting Trust Agreement
In connection with the Acquisition, Vestar/CS Holding and the Management
Investors entered into a securityholders agreement (the "Securityholders
Agreement") which contains certain agreements among such parties with respect to
the capital stock and corporate governance of the Company.
Pursuant to the Securityholders Agreement, Vestar/CS Holding has the right
to appoint all members to the Board of Directors of the Company, provided that
two of the directors designated by Vestar/CS Holding shall be elected from the
management of the Company. In addition, pursuant to the Securityholders
Agreement and a voting trust agreement (the "Voting Trust Agreement"), the
Management Investors will vote all of their Holdings Common Stock as directed by
Vestar/CS Holding for the approval of any amendment to Holdings' Certificate of
Incorporation, the merger, share exchange, combination or consolidation of the
Company with any other person, the sale, lease or exchange of all or
substantially all of the property and assets of the Company and its subsidiaries
on a consolidated basis or the reorganization, recapitalization, liquidation,
dissolution or winding-up of the Company.
The Securityholders Agreement contains certain provisions which, with
certain exceptions, (i) restrict the ability of the Management Investors to
transfer their respective equity interest in Holdings except pursuant to, among
other things, an exercise of tag-along rights upon the sale of Holdings Common
Stock held by Vestar/CS Holding, a sale of the Company, the exercise of certain
put and call options under the Management Subscription Agreements, or a public
sale of Holdings Common Stock; and (ii) restrict the ability of Vestar/CS
Holding to transfer its securities of the Company, except pursuant to, among
other things, the tag-along rights of the Management Investors, a public sale of
Holdings Common Stock, or a sale of the Company.
The Securityholders Agreement contains certain provisions which, subject
to certain exceptions, grant Vestar/CS Holding, subsequent to the first public
sale of Holdings Common Stock, the right to demand registration of Holdings
Common Stock under the Securities Act (a "Demand Right"). Vestar/CS Holding will
be able to exercise such Demand Right four times. All persons party to the
Securityholders Agreement will have the right to participate, or "piggyback," in
certain registrations initiated by Holdings or pursuant to a Demand Right.
Other Relationships
Upon consummation of the Acquisition, the Company paid to Vestar Capital
Partners an investment banking fee of approximately $1.5 million plus
out-of-pocket expenses for its services in structuring the transaction and
providing financial advice in connection therewith. Each of Messrs. Alpert, Levy
and Nagle (all of whom are directors of the Company) is a Managing Director and
Mr. O'Connell (a director of the Company), is the Chief Executive Officer of
Vestar. Each of Messrs. Alpert, Levy, Nagle and O'Connell, four of the directors
of the Company, benefits from any payments received by Vestar Capital Partners.
Upon consummation of the Acquisition, the Company paid to Frank Greenberg,
a transaction fee of $600,000 for Mr. Greenberg's services in connection with
the transaction. Mr. Greenberg is a director of the Company.
Pursuant to a management advisory agreement (the "Management Agreement"),
Vestar Capital Partners will receive an annual fee and reimbursement of
out-of-pocket expenses for management and financial consulting services provided
to the Company. Such services include advising the Company on the establishment
of effective banking, legal and other business relationships, and assisting
management in
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developing and implementing strategies for improving the operational, marketing
and financial performance of the Company. The management advisory fees to be
paid per annum will equal the greater of (i) after fiscal 1996, 1.0% of the
consolidated earnings of the Company before interest, taxes, depreciation and
amortization or (ii) $350,000. Approximately $258,000 was paid to Vestar Capital
Partners pursuant to the Management Agreement in 1996.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Description of Certain Indebtedness
General. Clark-S Acquisition entered into the Credit Agreement with Chase
Manhattan Bank, as agent, and Bankers Trust Company, Fleet National Bank and
NationsBank, N.A., as co-agents and BHF-Bank Aktiengesellschaft (collectively,
the "Banks"). CSI, through its merger with CS Finance Corporation of Delaware
and the merger with Fort Mill, assumed by operation of law the obligations under
the Credit Agreement. The information relating to the 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 Credit Agreement.
The Credit Agreement, as amended through the date of this Prospectus,
provides for a Revolving Credit Facility of $65.0 million. As of June 28, 1997,
giving pro forma effect to the Transaction as if they had occurred on June 28,
1997, the Company had no borrowings outstanding under the Revolving Credit
Facility. The $65.0 million undrawn amount under the Revolving Credit Facility
is available for working capital and general corporate purposes.
Security. The obligations of CSI under the Credit Agreement are
unconditionally and irrevocably guaranteed by Holdings and certain future
subsidiaries of Holdings and CSI. In addition, the Credit Agreement and the
guarantees thereunder are secured by: (i) a first priority security interest in
all of the assets and properties (including, without limitation, accounts
receivable, inventory, real property, machinery, equipment, contracts and
contract rights, trademarks, copyrights, patents, license agreements and general
intangibles) of CSI and Holdings and certain future domestic subsidiaries of
Holdings (direct or indirect), whether now owned or hereafter acquired subject
to customary exceptions as set forth in the Credit Agreement; (ii) a first
priority perfected pledge of certain capital stock owned by Holdings and certain
future domestic subsidiaries of Holdings (direct or indirect), whether now owned
or hereafter acquired (other than CS-Interglas, Asahi-Schwebel and CS Tech-Fab);
and (iii) a first priority perfected pledge of 65% of the capital stock of
foreign subsidiaries owned by Holdings and certain future domestic subsidiaries
of Holdings (direct or indirect), whether now owned or hereafter acquired (other
than CS-Interglas, Asahi-Schwebel and CS Tech-Fab).
Interest. At CSI's option, the interest rates per annum applicable to the
loans under the Credit Agreement will be based upon (i) the Base Rate (as
defined in the Credit Agreement) or (ii) the London Interbank Offered Rate for
one, two, three, six or, if available, nine or twelve months, plus 1.25%;
provided, however, the interest rates are subject to reduction if certain
requirements of financial performance are met.
Maturity. Outstanding loans under the Revolving Credit Facility must be
repaid in April 2002. Loans made pursuant to the Revolving Credit Facility may
be borrowed, repaid and reborrowed from time to time, subject to the
satisfaction of certain conditions on the date of any such borrowing. In
addition, the Credit Agreement provides for mandatory repayments in the event of
certain asset sales, debt issuances and sales of equity.
Extension 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 the absence of a default or event of default under the Credit
Agreement.
Covenants. The Credit Agreement requires the Company to meet certain
financial tests, including minimum fixed charge coverage ratio, minimum interest
coverage ratio, maximum senior debt ratio and maximum amounts of capital
expenditures. The Credit Agreement also contains covenants which, among other
things, limits the incurrence of additional indebtedness, the nature of the
business of the Company and
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its subsidiaries, investments, leases of assets, ownership of subsidiaries,
dividends, transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and
other matters customarily restricted in such agreements. Certain of the
Company's joint venture interests are not subject to the covenants under the
Credit Agreement.
Event of Default. The Credit Agreement contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-default to certain other indebtedness, certain events
of bankruptcy and insolvency, ERISA violations, judgment defaults, failure of
any guaranty or security agreement supporting the Credit Agreement to be in full
force and effect and change of control of Holdings or CSI.
Description of CSI Indenture
General. Clark-S Acquisition, CS Finance Corporation of Delaware, and
Holdings entered the CSI Indenture with Fleet National Bank. The information
relating to the CSI Indenture 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 CSI Indenture.
CSI issued the Senior Notes pursuant to the CSI Indenture in an aggregate
original principal amount of $110 million.
Security. The obligations of CSI under the CSI Indenture are
unconditionally and irrevocably guaranteed by Holdings and certain future
subsidiaries of CSI.
Interest. The Senior Notes bear interest at a rate of 10 1/2 % per annum,
payable semi-annually on April 15 and October 15 of each year, commencing
October 15, 1996.
Maturity. The Senior Notes will mature on April 15, 2006.
Covenants. The CSI Indenture contains certain covenants which, among other
things, limit the ability of CSI and the subsidiaries of CSI subject to the CSI
Indenture to incur additional indebtedness and issue preferred stock, repay
certain other indebtedness, pay dividends or make certain other distributions,
repurchase equity interests, consummate certain asset sales, enter into certain
transactions with affiliates, enter into sale and lease-back transactions, incur
liens, merge or consolidate with any other person, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
CSI. In addition, under certain circumstances, CSI will be required to make an
offer to repurchase the Senior Notes at a price equal to the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase, with the
proceeds of certain significant asset sales.
Event of Default. The CSI Indenture contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-default to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA violations, judgment defaults, failure of any
guaranty or security agreement supporting the CSI Indenture to be in full force
and effect and change of control of Holdings or CSI.
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DESCRIPTION OF NEW DEBENTURES
General
The New Debentures will be issued pursuant to an Indenture dated as of
August 14, 1997 (the "Indenture") between Holdings and States Street Bank and
Trust, as trustee (the "Trustee"). The terms of the New Debentures include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The New Debentures are
subject to all such terms, and Holders of New Debentures are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain 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. A copy of the Indenture and the
Registration Rights Agreement is available as set forth under "--Additional
Information." The definitions of certain terms used in this summary are set
forth below under "--Certain Definitions."
The New Debentures will be senior unsecured obligations of Holdings and
will rank senior in right of payment to all subordinated Indebtedness of
Holdings and pari passu in right of payment with all existing and future senior
Indebtedness, including Indebtedness pursuant to the Credit Agreement. The New
Debentures will be effectively subordinated to all existing and future secured
Indebtedness of the Company, including Indebtedness pursuant to the Credit
Agreement, to the extent of the value of the assets securing such Indebtedness
and the New Debentures will be structurally subordinated to Indebtedness of CSI
and the other Subsidiaries of Holdings. At June 28, 1997, on a pro forma basis
after giving effect to the Transactions, the New Debentures would have been
effectively subordinated to $110,000,000 of Indebtedness under the CSI
Indenture. There would have been no borrowings outstanding under the Credit
Agreement on a pro forma basis.
Restrictions in the Indenture on the ability of Holdings and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of Holdings or CSI, whether favored or
opposed by the management of the Company. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford holders of New Debentures
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
Under certain circumstances, Holdings will be able to designate future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture. In
addition, Holdings' interests in the Joint Ventures have effectively been
excluded from the Indenture's covenants. See "Business -- Joint Ventures."
Maturity and Interest
The Debentures will mature on July 15, 2007. Interest on the Debentures
will accrue at the rate of 12 1/2% per annum and will be payable semi-annually
in arrears on January 15 and July 15, commencing on January 15, 1998, to Holders
of record on the immediately preceding January 1 and July 1; provided, however,
that if on any interest payment date CSI could not dividend or distribute a
sufficient amount of cash to Holdings under the terms of the CSI Indenture or
the Credit Agreement in order to make such interest payment in cash, Holdings
may make such interest payment in the form of additional Debentures having an
aggregate principal amount equal to the amount of such interest. Interest on the
Debentures 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.
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Principal, premium, if any, interest and Liquidated Damages on the Debentures
will be payable at the office or agency of Holdings maintained for such purpose
within the City and State of New York or, at the option of Holdings, payment of
interest and Liquidated Damages may be made by check mailed to the Holders of
the Debentures at their respective addresses set forth in the register of
Holders of Debentures; provided that payment by wire transfer of immediately
available funds will be required with respect to principal of and cash interest,
premium, if any, and Liquidated Damages, if any, on, all Global Debentures and
all other Debentures the Holders of which shall have provided wire transfer
instructions to Holdings or the Paying Agent. Until otherwise designated by
Holdings, Holdings' office or agency in New York will be the office of the
Trustee maintained for such purpose. The New Debentures will be issued in
denominations of $1,000 and integral multiples thereof.
Optional Redemption
The Debentures are not redeemable at the Company's option prior July 15,
2002. Thereafter, the Debentures are 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 redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on July 15 of the years indicated below:
Year Percentage
---- ----------
2002 106.250%
2003 104.167%
2004 102.083%
2005 and thereafter 100.00%
Notwithstanding the foregoing, Holdings may redeem the Debentures, in
whole or in part, after January 15, 1998 at a redemption price of 106% of the
principal amount thereof, in each case plus an amount in cash equal to all
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of an Equity Offering; provided, that
such redemption will occur within 60 days of the date of the closing of such
Equity Offering. In addition, notwithstanding the foregoing, Holdings may redeem
Debentures, in whole or in part, at the option of Holdings, after January 15,
1998, at a redemption price of 106% of the principal amount thereof, in each
case plus an amount in cash equal to all accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, in the event of a
Change of Control or a Subsidiary Change of Control.
If less than all of the Debentures are to be redeemed at any time,
selection of Debentures for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Debentures are listed, or, if the Debentures 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 Debentures 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 Debentures to
be redeemed at its registered address. If any Debenture is to be redeemed in
part only, the notice of redemption that relates to such Debenture will state
the portion of the principal amount thereof to be redeemed. A new Debenture in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Debenture. On and
after the redemption date, interest ceases to accrue on Debentures or portions
of them called for redemption.
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Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Debentures.
Repurchase at the Option of Holders
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder of Debentures will have the right to require Holdings to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Debentures 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, Holdings will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Debentures pursuant to the procedures required by the
Indenture and described in such notice. Holdings will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Debentures 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 Change
of Control Offer Period (the "Change of Control Purchase Date"), Holdings will
purchase all Debentures tendered in response to the Change of Control Offer.
Payment for any Debentures so purchased will be made in the same manner as cash
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 Debenture is registered at
the close of business on such record date, and no additional interest will be
payable to Holders who tender Debentures pursuant to the Change of Control
Offer.
On the Change of Control Purchase Date, Holdings will, to the extent
lawful, (1) accept for payment all Debentures 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
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an Officers'
Certificate stating the aggregate principal amount of Debentures or portions
thereof being purchased by Holdings. The Paying Agent will promptly mail to each
Holder of Debentures so tendered the Change of Control Payment for such
Debentures, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Debenture equal in principal
amount to any unpurchased portion of the Debentures surrendered, if any;
provided that each such new Debenture will be in a principal of $1,000 or an
integral multiple thereof.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of Debentures to
require that Holdings repurchase or redeem the Debentures in the event of a
takeover, recapitalization or other restructuring.
The Credit Agreement provides that certain Change of Control events with
respect to Holdings would constitute a default thereunder permitting the lending
parties thereto to accelerate the Indebtedness thereunder. In addition, the CSI
Indenture requires CSI to make an offer to repurchase the Senior Notes upon
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the occurrence of substantially all of the events that would constitute a Change
of Control for purposes of the Indenture. The Company may not have sufficient
resources to repay Indebtedness under the Credit Agreement, to repurchase
tendered Senior Notes and to repurchase tendered Debentures. Furthermore, any
future credit agreements or other agreements relating to senior Indebtedness to
which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time the Company is
prohibited from purchasing Debentures, the Company could seek the consent of its
lenders to the purchase of Debentures or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Debentures. Holdings' failure to purchase tendered Debentures would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Credit Agreement and may constitute a default
under the CSI Indenture.
The definition of Change of Control includes a phrase relating to the
sale, lease or transfer of "all or substantially all" of the assets of Holdings
and its Subsidiaries, taken as a whole. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precisely
established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of Debentures to require the Company to repurchase such
Debentures as a result of a sale, lease or transfer of less than all of the
assets of the Company and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
Asset Sales
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, engage in an Asset Sale in excess of $10.0
million unless (i) Holdings (or the Restricted 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 Holdings (or the Restricted
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 other disposed of, and (ii)
at least 75% (100% in the case of lease payments) of the consideration therefor
received by Holdings or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
Holdings' or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto, excluding contingent liabilities and trade payables), of Holdings
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Debentures) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by Holdings or any such
Restricted Subsidiary from such transferee that are promptly, but in no event
more than 30 days after receipt, converted by Holdings or such Subsidiary into
cash (to the extent of the cash received), will be deemed to be cash for
purposes of this provision.
Within 360 days after Holdings' actual receipt of any Net Proceeds from an
Asset Sale, Holdings may apply such Net Proceeds (a) to permanently reduce
long-term Indebtedness of a Restricted Subsidiary, (b) to permanently reduce
Indebtedness (and, in the case of revolving Indebtedness, to permanently reduce
the commitments) under the Credit Agreement, or (c) to make an investment in
another business, the making of a capital expenditure or the acquisition of
other tangible assets, in each case, in the same or a similar line of business
as Holdings was engaged in on the date of the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds". When
the aggregate amount of Excess Proceeds exceeds $5.0 million, Holdings will be
required to make an offer to all Holders of Debentures (an "Asset Sale Offer")
to purchase the maximum principal amount of Debentures 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 thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Debentures tendered pursuant to an
Asset Sale Offer is less than the Excess
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Proceeds, the Trustee shall select the Debentures to be purchased on a pro rata
basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
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 Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), Holdings will purchase the principal amount of
Debentures 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 Debentures tendered in response to the Asset Sale Offer. Payment for any
Debentures 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 Debenture is registered at the close
of business on such record date, and no additional interest will be payable to
Holders who tender Debentures pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, Holdings will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Debentures or portions thereof tendered pursuant to
the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been
tendered, all Debentures tendered, and will deliver to the Trustee an Officers'
Certificate stating that such Debentures or portions thereof were accepted for
payment by the Company in accordance with the terms of this covenant. Holdings,
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
Debentures tendered by such Holder and accepted by Holdings for purchase, and
Holdings will promptly issue a new Debenture, and the Trustee, upon delivery of
an Officers' Certificate from Holdings will authenticate and mail or deliver
such new Debenture to such Holder, in a principal amount equal to any
unpurchased portion of the Debenture surrendered. Any Debenture not so accepted
will be promptly mailed or delivered by Holdings to the Holder thereof. Holdings
will publicly announce the results of the Asset Sale Offer on the Asset Sale
Purchase Date.
Certain Covenants
Restricted Payments
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of Holdings' or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving Holdings)
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Holdings or dividends or distributions payable to
Holdings or any Wholly Owned Subsidiary of Holdings); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of Holdings or any
direct or indirect parent of Holdings or other Affiliate or Restricted
Subsidiary of Holdings; (iii) make any principal payment on, or purchase, redeem
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Debentures, except in accordance with the scheduled
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness (but not pursuant to any mandatory
offer to repurchase upon the occurrence of any event); 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;
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(b) Holdings would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under "-- Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by Holdings and its Restricted Subsidiaries
after the date of the Indenture and all Restricted Payments made by the
Restricted Subsidiaries during the period commencing after April 17, 1996
through the date of the Indenture, is less than the sum of, without
duplication, (i) 50% of the Consolidated Net Income of Holdings for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after April 17, 1996 to the end of Holdings'
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) to the extent not included in the amount described in
clause (i) above, 100% of the aggregate net cash proceeds received after
April 17, 1996 by Holdings from the issue or sale of, or from additional
capital contributions in respect of, Equity Interests of Holdings or of
debt securities of Holdings or any Restricted Subsidiary that have been
converted into, or canceled in exchange for, Equity Interests of Holdings
(other than Equity Interests (or convertible debt securities) sold to a
Restricted Subsidiary or an Unrestricted Subsidiary of Holdings and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) 100% of any cash dividends received by
Holdings or a Wholly Owned Subsidiary from an Unrestricted Subsidiary of
Holdings, plus (iv) 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 to such
person) following April 17, 1996, plus (v) to the extent that any
Restricted Investment that was made after April 17, 1996, is sold to an
unaffiliated purchaser for cash or otherwise liquidated or repaid for
cash, the cash proceeds realized with respect to such Restricted
Investment (less the cost of disposition, if any).
The foregoing 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) 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 Holdings) of,
or from substantially concurrent additional capital contributions in respect of,
Equity Interests of Holdings (other than Disqualified Stock); (iii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of Holdings in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of Holdings) of, or from
substantially concurrent additional capital contributions in respect of, other
Equity Interests of Holdings (other than any Disqualified Stock); (iv) the
defeasance, redemption or repurchase of subordinated Indebtedness with the net
cash proceeds from (X) an incurrence of Permitted Refinancing Indebtedness or
(Y) the substantially concurrent sale (other than to a Subsidiary of Holdings)
of, or from substantially concurrent additional capital contributions in respect
of, Equity Interests of Holdings (other than Disqualified Stock); (v) the
distribution of the Joint Ventures or interests in the Joint Ventures or Joint
Venture Funds; (vi) the declaration or payment of any dividend to Holdings for,
or the direct repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Holdings or any Restricted Subsidiary of
Holdings or any direct or indirect parent of Holdings held by any member of
Holdings' (or any of its Restricted Subsidiaries') management pursuant to any
management agreement, stock option agreement or plan or stockholders agreement;
provided that (x) the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests will not exceed $1.0 million in any fiscal
year (plus any amount
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available for such payments hereunder since the April 17, 1996 which have not
been used for such purpose) or $5.0 million in the aggregate (in each case, net
of the cash proceeds received by Holdings from subsequent reissuances of such
Equity Interests to new members of management); (vii) loans to members of
management of Holdings or any Restricted Subsidiary the proceeds of which are
used for a concurrent purchase of Equity Interests of Holdings; (viii) payments
under the Management Advisory Agreement; (ix) payments by Holdings of director's
fees and the reasonable expenses of its directors in an aggregate amount not to
exceed $100,000 per year; (x) any principal payment on, or purchase, redemption,
defeasance or other acquisition or retirement for value of any Indebtedness that
is subordinated to the Debentures out of Excess Proceeds available for general
corporate purposes after consummation of purchases of Debentures pursuant to an
Asset Sale Offer; and (xi) any payments permitted under the CSI Indenture (and
amounts expended in respect of such payments under this clause (xi) shall be
excluded or included, as applicable, in the calculation of the aggregate amount
of Restricted Payments under the Indenture made by the Restricted Subsidiaries
to the extent such amounts are excluded or included, as applicable, in the
calculation of "Restricted Payments" as defined in and calculated under the CSI
Indenture); provided however that in the case of any transaction described in
clauses (i), (ii), (iii), (iv) and (vi) no Default or Event of Default will have
occurred and be continuing immediately after such transaction. In determining
the aggregate amount of Restricted Payments made after the date of the
Indenture, 100% of the amounts expended pursuant to the foregoing clauses (ii),
(iii), (iv)(Y), (vi) and (vii) shall be included in such calculation and none of
the amounts expended pursuant to the foregoing clauses (i), (iv)(X), (v),
(viii), (ix) and (x) shall be included in such calculation.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary (subject to clause (c) of the definition of "Permitted Investments")
if such designation would not cause a Default. For purposes of making such
determination, all outstanding Investments (other than Investments of Joint
Venture Funds) by Holdings and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments (i) in any
Subsidiary that was not formerly a Joint Venture, 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 there were made or (ii) in any Subsidiary that was formerly a Joint
Venture, in an amount equal to the amount of such Investments made by Holdings
or a Restricted Subsidiary since the date of the Indenture. 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 Holdings or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, Holdings will deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculation required by
this covenant were computed, which calculations may be based upon Holdings'
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that Holdings will not, and will not permit any of
its Restricted 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 that Holdings
will not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries and Unrestricted Subsidiaries to issue any shares of preferred
stock; provided, however, that Holdings and its Restricted Subsidiaries may
incur Indebtedness (including
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Acquired Indebtedness) or issue shares of Disqualified Stock if: (i) the Fixed
Charge Coverage Ratio for Holdings' 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 2.00 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 Holdings or a Restricted Subsidiary pursuant to this
paragraph.
The foregoing provisions will not apply to:
(i) Indebtedness permitted under the CSI Indenture (regardless of
whether such Indenture is in effect);
(ii) the incurrence by Holdings and its Restricted Subsidiaries of
the Existing Indebtedness and the Guarantee by Holdings of Indebtedness
under the Credit Agreement in an amount not to exceed the amount referred
to in the CSI Indenture;
(iii) the incurrence by Holdings of Indebtedness represented by the
Debentures;
(iv) the incurrence by Holdings or any of its Restricted
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
Holdings or such Restricted Subsidiary, in an aggregate principal amount
not to exceed $10.0 million at any time outstanding;
(v) the incurrence by Holdings or any of its Restricted 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 Holdings or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Holdings 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
Holdings or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by Holdings or such
Subsidiary, as the case may be;
(vii) the incurrence by Holdings or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the Indenture to be incurred;
(viii) the incurrence by Holdings, its Restricted Subsidiaries and
its foreign subsidiaries that are Restricted Subsidiaries 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 $15.0 million; provided that such Indebtedness incurred by foreign
subsidiaries that are Restricted Subsidiaries shall not exceed an
aggregate principal amount at any time outstanding of $5.0 million;
(ix) the incurrence by Holdings' Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted
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Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of Holdings; and
(x) Indebtedness incurred by Holdings or any of its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing the
performance of Holdings or any of its Restricted Subsidiaries pursuant to
such agreements, in connection with the disposition of any business,
assets or Restricted Subsidiary of Holdings (other than guarantees or
similar credit support by Holdings or any of its Restricted Subsidiaries
of Indebtedness incurred by any Person acquiring all or any portion of
such business, assets or Restricted Subsidiary 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 Holdings in good faith) actually received by Holdings or
any of its Restricted Subsidiaries in connection with such disposition.
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.
Sale and Leaseback Transactions
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that Holdings or any Restricted Subsidiary may enter into a sale and
leaseback transaction if (i) Holdings or such Restricted Subsidiary could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant "--Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant "Liens," (ii) the net cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the proceeds
of such transaction are applied in compliance with, the covenant "--Asset
Sales."
Liens
The Indenture provides that Holdings will not, and will not permit any of
its Restricted 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 Restricted Subsidiaries
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any
other distributions to Holdings or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to Holdings or any of
its Restricted Subsidiaries, (ii) make loans or advances to Holdings or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
Holdings or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Credit Agreement or the CSI
Indenture including the Senior Notes,
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as the case may be, in each case 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, replacements or refinancings are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the Credit
Agreement or the CSI Indenture (including the Senior Notes), as the case may be,
in each case as in effect on the date of the Indenture, (c) the Indenture and
the Senior Debentures, (d) applicable law, (e) any instrument governing Acquired
Indebtedness or Capital Stock of a Person acquired by Holdings or any of its
Restricted 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 non-assignment 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 or (i) 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;
(j) or restrictions or encumbrances on dividends and distributions to Holdings
or any of its Restricted Subsidiaries under any Indebtedness permitted by the
Indenture that are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Credit Agreement or the CSI
Indenture, as the case may be, in each case as in effect on the date of the
Indenture.
Transactions with Affiliates
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make 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 Holdings or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by Holdings or
such Restricted Subsidiary with an unrelated Person and (ii) Holdings 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 Holdings or such Restricted Subsidiary
of such Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing; provided that the following shall
not be deemed to be Affiliate Transactions; (t) the existence of, or the
performance by Holdings under the terms of, any securityholders agreement,
registration rights agreement voting trust agreement, loan document with
employees or purchase agreement with employees to which Holdings is a party on
the Closing Date including any amendment thereto; provided, that any such
amendment is no more disadvantageous to the holders of the Debentures in any
material respect than the original agreement as in effect on the Closing Date;
(u) reasonable compensation paid to, and indemnity provided on behalf of,
officers and directors of Holdings, CSI or any Restricted Subsidiary as
determined in good faith by Holdings' Board of Directors or senior management;
(v) any employment agreement entered into by Holdings or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of Holdings or such Restricted Subsidiary;
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(w) transactions between or among Holdings and/or its Wholly Owned Subsidiaries;
(x) the provision of administrative or management services by CSI or any of its
officers to any of Holdings or the Restricted Subsidiaries; (y) fees paid and
reimbursement of out-of-pocket expenses pursuant to the Management Advisory
Agreement; and (z) transactions permitted by the covenant described in
"--Restricted Payments."
Line of Business
Holdings will not, and will not permit any Restricted Subsidiary to,
engage in any line of business which is not the same, similar, ancillary,
complementary or related to the businesses in which Holdings and its Restricted
Subsidiaries are engaged on the date of the Indenture.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Debentures are outstanding,
Holdings will furnish to the Holders of Debentures (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 Holdings 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 Holdings's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if Holdings were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, at any time after
Holdings files a registration statement with respect to the Exchange Offer,
Holdings will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, Holdings has agreed that, for
so long as any Debentures remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Merger, Consolidation, or Sale of Assets
The Indenture provides that Holdings shall not, in a single transaction or
series of related transactions, consolidate or merge with or into (whether or
not Holdings is the surviving corporation), or directly and/or indirectly
through its Restricted Subsidiaries sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets
determined on a consolidated basis for Holdings and its Restricted Subsidiaries
taken as a whole in one or more related transactions, to another corporation,
Person or entity unless (i) Holdings is the surviving corporation or the entity
or the Person formed by or surviving any such consolidation or merger (if other
than Holdings) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than Holdings) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of Holdings, under the Senior
Debentures and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such transaction
no Default or Event of Default exists; (iv) Holdings or the entity or Person
formed by or surviving any such consolidation or merger (if other than
Holdings), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) shall have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of Holdings immediately preceding the transaction and (B) shall, 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 described above under the caption "---Incurrence of Indebtedness and
Issuance of Preferred Stock"; and (v) Holdings delivers to the
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Trustee an Officers' Certificate and an Opinion of Counsel addressed to the
Trustee with respect to the foregoing matters.
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 Debentures; (ii) default in payment,
when due of the principal of or premium, if any, on the Debentures; (iii)
failure by Holdings to comply with the provisions described under the captions
"---Change of Control," "---Asset Sales," "---Restricted Payments,"
"--Incurrence of Indebtedness and Issuance of Preferred Stock," "---Sale and
Leaseback Transactions" or "---Merger, Consolidation or Sale of Assets"; (iv)
failure by Holdings for 60 days after notice to comply with any of its other
agreements in the Indenture or the Debentures; (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 Holdings or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by Holdings
or any of its Restricted Subsidiaries or Holdings) 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 million or more; (vi) failure by Holdings or any of
its Restricted Subsidiaries to pay final judgments aggregating in excess of $5
million, which judgments are not paid, discharged or stayed for a period of 60
days; and (vii) certain events of bankruptcy or insolvency with respect to
Holdings or any of its Significant Subsidiaries, or group of Restricted
Subsidiaries that, 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 Debentures
may declare all the Debentures 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 Holdings, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Debentures will become due
and payable without further action or notice. Holders of the Debentures may not
enforce the Indenture or the Debentures except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Debentures may direct the Trustee in its exercise of any trust
or power. However, the Trustee shall be under no obligation to exercise any
powers vested by the Indenture at the request or direction of any of the Holders
unless such Holders shall have furnished the Trustee reasonable security or
indemnity against costs, expenses, and liabilities. The Trustee may withhold
from Holders of the Debentures 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 Debentures
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Debentures waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, premium and Liquidated
Damages, if any, on the Debentures.
Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Holdings 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.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Holdings,
as such, will have any liability for any obligations of Holdings under the
Debentures, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Debentures by accepting a
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Debentures. 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
Holdings may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Debentures ("Legal
Defeasance") except for (i) the rights of the Holders of outstanding Debentures
to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages on such Debentures when such payments are due
from the trust referred to below, (ii) Holdings' obligations with respect to the
Debentures concerning issuing temporary Debentures, registration of Debentures,
mutilated, destroyed, lost or stolen Debentures 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 Holdings'
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, Holdings may, at its option and at any time, elect
to have the obligations of Holdings 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 Debentures. In the event Covenant Defeasance
occurs, certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Debentures, 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 Debentures on the stated maturity or on the applicable
redemption date, as the case may be, and Holdings must specify whether the
Debentures are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, Holdings will have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) Holdings 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 Debentures 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, Holdings
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 Debentures 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, Holdings 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 Debentures 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
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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 Holdings or any of its Subsidiaries is a party or by
which Holdings or any of its Subsidiaries is bound; (vi) Holdings must have
delivered to the Trustee an opinion of counsel to the effect that on 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) Holdings must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by Holdings with the
intent of preferring the Holders of Debentures over the other creditors of
Holdings with the intent of defeating, hindering, delaying or defrauding
creditors of Holdings or others; and (viii) Holdings 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.
Transfer and Exchange
A Holder may transfer or exchange Debentures 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 Holdings
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. Holdings is not required to transfer or exchange any Debenture
selected for redemption. Also, Holdings is not required to transfer or exchange
any Debenture for a period of 15 days before a selection of Debentures to be
redeemed.
The registered Holder of a Debenture will be treated as the owner of its
for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Debentures may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Debentures then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Debentures), and any existing default or compliance with any provision of
the Indenture or the Debentures may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Debentures (including
consents obtained in connection with a tender offer or exchange offer for
Debentures).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Debentures held by a non-consenting Holder): (i) reduce
the principal amount of Debentures whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Debenture or alter the provisions with respect to the redemption of the
Debentures (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Debenture, (iv) waive
a Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Debentures (except a rescission of acceleration of the
Debentures by the Holders of at least a majority in aggregate principal of the
Debentures and a waiver of the payment default that resulted from such
acceleration), (v) make any Debenture payable in money other than that stated in
the Debentures, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders of Debentures to receive
payments of principal of or premium, if any, or interest on the Debentures,
(vii) waive a redemption payment with respect to any Debenture (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.
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Notwithstanding the foregoing, without the consent of any Holder of
Debentures, Holdings and the Trustee may amend or supplement the Indenture or
the Debentures to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Debentures in addition to or in place of certificated Debentures,
to provide for the assumption of Holdings's obligations to Holders of Debentures
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of Debentures or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Holdings, 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.
The Holders of a majority in principal amount of the then outstanding
Debentures 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 Debentures, 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 and
the Registration Rights Agreement without charge by writing to Clark-Schwebel
Holdings, Inc.
Book-Entry, Delivery and Form
Except as set forth in the next paragraph, the Debentures to be resold as
set forth herein will initially be issued in the form of one Global Debenture
(the "Global Debenture"). The Global Debenture 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
Debenture 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
Purchaser), 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.
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Holdings expects that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Debenture, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Debenture and (ii) ownership of the
Debentures evidenced by the Global Debenture 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 Debentures evidenced by the
Global Debenture will be limited to such extent.
So long as the Global Debenture is the registered owner of any Debentures,
the Global Debenture Holder will be considered the sole Holder under the
Indenture of any Debentures evidenced by the Global Debenture. Beneficial owners
of Debentures evidenced by the Global Debenture 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 Holdings 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 Debentures.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Debentures registered in the name of the
Global Debenture Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Debenture Holder in its capacity as
the registered Holder under the Indenture. Under the terms of the Indenture,
Holdings and the Trustee may treat the persons in whose names Debentures,
including the Global Debenture, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither Holdings nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Debentures. Holdings 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 Debentures 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.
Certificated Securities
If (i) Holdings notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and Holdings is unable to locate a
qualified successor within 90 days or (ii) Holdings, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Debentures in
certificated form, then, upon surrender by the Global Debenture Holder of its
Global Debenture, Debentures in certificated form will be issued to each person
that the Global Debenture Holder and the Depositary identify as being the
beneficial owner of the related Debentures.
Neither Holdings nor the Trustee will be liable for any delay by the
Depositary in identifying the beneficial owners of Debentures and Holdings 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 Debentures
represented by the Global Certificate (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 Certificate Holder;
provided, however, that if on any interest payment date CSI could not dividend
or distribute a sufficient amount of cash
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to Holdings under the terms of the CSI Indenture or the Credit Agreement in
order to make such interest payment in cash, Holdings may make such interest
payment in the form of additional Debentures having an aggregate principal
amount equal to the amount of such interest. Secondary trading in long-term
notes and debentures of corporate issuers is generally settled in clearing-house
or next-day funds. In contrast, the Debentures represented by the Global
Certificate 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 Debentures will, therefore, be required by the Depositary to be settled in
immediately available funds. Holdings expects that secondary trading in the
Certificated Exchange Debentures Securities 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 or is designated a Restricted
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 or Restricted Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether 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 shall
be deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback, including any disposition by means of a merger, consolidation or
similar transaction and including the issuance, sale or other transfer of any of
the capital stock of any Restricted Subsidiary of such Person) other than to
Holdings or to any of its Wholly Owned Subsidiaries; and (ii) the issuance of
Equity Interests in any Restricted Subsidiaries or the sale of any Equity
Interests in any Restricted Subsidiaries, in each case, in one or a series of
related transactions, provided, that notwithstanding the foregoing, the term
"Asset Sale" shall not include: (a) the sale, lease, conveyance, disposition or
other transfer of all or substantially all of the assets of Holdings, as
permitted pursuant to the covenant described under "--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, (c) a transfer of assets by Holdings to a Wholly Owned Subsidiary
or by a Wholly Owned Subsidiary to Holdings or to another Wholly Owned
Subsidiary, (d) an issuance of Equity Interests by a Wholly Owned Subsidiary to
Holdings or to another Wholly Owned Subsidiary, (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) the sale, lease, conveyance or other
disposition of the Joint Ventures, the assets of the Joint Ventures or any
interest therein, (h) Permitted Investments or (i) any cash
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dividend, distribution, Investment or payment made pursuant to the first or
second paragraph of the "-- Restricted Payments" covenant.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of Holdings, or
any authorized committee of the Board of Directors.
"Borrowing Base" means, as of any date, an amount equal to the sum
of (i) 85% of the face amount of all Eligible Accounts Receivable owned by
Holdings and its Restricted Subsidiaries as of such date, and (ii) 65% of the
book value (calculated on first in, first out basis) of all Eligible Inventory
owned by Holdings and its Restricted Subsidiaries as of such date, all
calculated on a consolidated basis and in accordance with GAAP, calculated as of
the end of the most recently completed fiscal quarter.
"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 Holdings shall 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 Holdings of its common stock (other than a public offering
pursuant to a registration statement on Form S-8), Vestar
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and its Affiliates (collectively, the "Initial Investors") cease to have,
directly or indirectly, in the aggregate at least 51% of the voting power of the
voting stock of Holdings or (ii) after the initial public offering by Holdings
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 Holdings
which indicates that, or Holdings 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
stock of Holdings on a fully diluted basis after giving effect to the conversion
and exercise of all outstanding warrants, options and other securities of
Holdings, as the case may be (whether or not such securities are then currently
convertible or exercisable) and (B) such person or group has become, directly or
indirectly, the beneficial owner of a greater percentage of the voting capital
stock of Holdings, calculated on such fully diluted basis, than beneficially
owned by the Initial Investors, or (iii) the sale, lease or transfer of all or
substantially all of the assets of Holdings and its Subsidiaries taken as a
whole to any person or group (other than a Wholly Owned Subsidiary or the
Initial Investors), or (iv) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of Holdings (together with any new directors whose election by the
Board of Directors of Holdings or whose nomination for election by the
shareholders of Holdings, as the case may be, 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 Holdings, as the case may be, then in office.
"Company Order" means a written order or request signed in the name
of an Officer and delivered to the Trustee.
"Consolidated EBITDA" means, with respect to Holdings and its
Restricted Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) to the extent deducted from
Consolidated Net Income for such period, (x) the Fixed Charges for such period,
plus (y) non-cash dividends on Holdings's preferred stock, 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
Holdings and its Restricted Subsidiaries required to be reflected as expenses on
the books and records of Holdings, 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 Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to Holdings by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted 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 Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof that is a Subsidiary Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by operation of the terms of
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its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income of, or any dividends or other
distributions from, any Unrestricted Subsidiary, to the extent otherwise
included, shall be excluded, whether or not distributed to Holdings or one of
its Restricted Subsidiaries, (vi) income or loss attributable to discontinued
operations shall be excluded; (vii) any increase in cost of sales or other
write-offs resulting from the purchase accounting treatment of the Acquisition
or other acquisitions shall be excluded; and (viii) all other extraordinary,
unusual or nonrecurring gains or losses shall be excluded.
"Consolidated Net Worth" of a Person at any date means the amount by
which the assets of such Person and its consolidated Restricted Subsidiaries
(less any revaluation or other write-up subsequent to the date of the Indenture
in any such assets (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)) exceed the sum of
(a) the total liabilities of such Person and its consolidated Restricted
Subsidiaries, plus (b) any Disqualified Stock of such Person or any consolidated
Restricted Subsidiaries of such Person issued to any Person other than such
Person or a wholly owned Restricted Subsidiary of such Person, in each case
determined in accordance with GAAP.
"Credit Agreement" means, collectively, (i) that certain Credit
Agreement, as in effect on the date of the Indenture, by and among Holdings,
CSI, the lenders that may be from time to time parties thereto and The Chase
Manhattan Bank (formerly known as Chemical Bank), as administrative agent, as
the foregoing may from time to time be amended, renewed, supplemented or
otherwise modified at the option of the parties thereto, including increases in
the principal amount thereof; and (ii) after The Chase Manhattan Bank, as
administrative agent, has acknowledged in writing that the Credit Agreement has
been terminated and all then outstanding Indebtedness thereunder or with respect
thereto have been repaid in full in cash and discharged, any successors to or
replacements of (as designated by the board of directors of CSI in its sole
judgment, and evidenced by a resolution) such Credit Agreement, as such
successors or replacements may from time to time be amended, renewed,
supplemented, modified or replaced, including increases in the principal amount
thereof.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"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 Senior Debentures mature.
"Eligible Accounts Receivable" means at a particular date, all
accounts receivable owned by Holdings and Restricted Subsidiaries (i) which are
not 90 or more days past due; (ii) which are not owed by an obligor which has
taken any of the actions or suffered any of the events of the kind described in
clause (ix) under "--Events of Default"; (iii) which are not subject to any
asserted dispute, off-set, counterclaim or defense on the part of the account
debtor or to any asserted claim on the part of the account debtor denying
liability under such account in whole or in part and (iv) which are not owed by
an obligor in respect of which 50% or more of the accounts receivable are 90 or
more days past due or uncollectible.
"Eligible Inventory" means at the time of any determination thereof,
all inventory (less reserves for obsolescence) of Holdings and Restricted
Subsidiaries as to which the following requirements have been fulfilled: (a)
Holdings or a Restricted Subsidiary has lawful and absolute title to such
Inventory;
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and (b) none of such inventory is obsolete, unsalable, damaged or otherwise
unfit for sale or further processing.
"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 a Public Equity Offering or a Private Equity
Offering, as applicable.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the offer that may be made by Holdings
pursuant to the Registration Rights Agreement to exchange New Debentures for Old
Debentures.
"Existing Indebtedness" means the Indebtedness of Holdings and its
Restricted Subsidiaries 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 Restricted Subsidiaries for such period, whether paid or 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 Restricted 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 Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Restricted Subsidiary) on any series of preferred
stock of such Person payable to a party other than Holdings 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, but excluding from the
calculation of fixed charges amortization of financing costs (except to the
extent referred to in the parenthetical in clause (i) of this definition).
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that Holdings or any
of its Restricted Subsidiaries incurs, assumes, Guarantees or repays any
Indebtedness (other than the incurrence or repayment of revolving credit
borrowings used for working capital, except to the extent that a repayment is
accompanied by a permanent reduction in revolving credit commitments) 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 shall 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 Holdings
or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and shall give pro forma effect to the
Consolidated EBITDA and Indebtedness of the Person which is the subject of any
such acquisition, and (ii)
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the Consolidated EBITDA attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect 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 Debenture 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 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), the maximum fixed repurchase price of
Disqualified Stock issued by such Person in each case, if held by any Person
other than Holdings or a Wholly Owned Subsidiary of Holdings, and, to the extent
not otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person.
"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 (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the books of such Person) or capital
contributions (excluding commission, travel, relocation 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 Holdings for consideration
consisting of common equity securities of Holdings or of any direct or indirect
parent of Holdings shall not be deemed to be an Investment.
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"Joint Venture" means (a) each of Clark-Schwebel Corporation,
Clark-Schwebel Tech-Fab Company, CS-Interglas AG and Asahi-Schwebel Co., Ltd.,
(b) any other Person whose sole asset is directly or indirectly (i) a Joint
Venture (unless such Joint Venture or Person is a Restricted Subsidiary by
virtue of an Investment pursuant to clause (d) of the definition of "Permitted
Investment") (ii) any interest in a Joint Venture and (iii) Joint Venture Funds.
"Joint Venture Funds" means any distributions or dividends, directly
or indirectly, of or from any of the Joint Ventures or interests in the Joint
Ventures or any proceeds from the sale of, or distributions or dividends from,
any of the Joint Ventures.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, in the city of the Corporate Trust Office
of the Trustee, 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, payment
may be made on the next succeeding day that is not a Legal Holiday, and no
interest shall 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 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.
"Management Advisory Agreement" means the agreement dated as of
April 17, 1996, among Vestar, Holdings and CSI as in effect on April 17, 1996,
with only such amendments, alterations, modifications or waivers thereto which
are not materially adverse to the interests of the CSI or the holders of Senior
Debentures.
"Maturity Date" means July 15, 2007.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP, and before reduction
for non-cash preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (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) and (iii) fees and expenses related to the
acquisition of CSI in an amount not to exceed $11.5 million.
"Net Proceeds" means the aggregate cash proceeds received by
Holdings in respect of any Asset Sale (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any 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), and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP and net of any Purchase Money Obligations
relating to the assets comprising such Asset Sale.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither
Holdings nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; 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 Holdings
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they shall not have any recourse to the stock or assets of Holdings
or any of its Restricted Subsidiaries.
"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 Debentures by Holdings.
"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.
"Officers' Certificate" means with respect to any Person a
certificate signed on behalf of such Person by two Officers of such Person, one
of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of such Person, that
meets the requirements of the Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of the
Indenture. The counsel may be an employee of or counsel to Holdings, any
Subsidiary of Holdings or the Trustee.
"Permitted Investments" means (a) any Investments permitted by the
CSI Indenture (regardless of whether such Indenture is in effect at the time of
such Investment); (b) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described under "--Asset Sales"; (c) Investments by Holdings
or any Restricted Subsidiary in cash in an amount not to exceed $5.0 million in
the aggregate; (d) Investments by Holdings or any Restricted Subsidiary in cash
in an amount not to exceed $15.0 million in the aggregate to enable Holdings or
any Restricted Subsidiaries to purchase or otherwise acquire equity interests in
the Joint Ventures; provided that upon the consummation of any such Investment
pursuant to this clause (d) the Joint Venture in which the Investment is made
becomes a Restricted Subsidiary; (e) stock, obligations or securities received
in settlement of debts created in the ordinary course of business and owing to
Holdings or any Subsidiary or in satisfaction of judgments; (f) the conversion
or exchange of debt of CS-Interglas AG for common securities of CS-Interglas AG;
(g) the contribution of shares of stock or other equity securities of an
Unrestricted Subsidiary to another Subsidiary; (h) Investments in any Wholly
Owned Subsidiary of Holdings (or in CS Interglas AG to the extent it is a Wholly
Owned Subsidiary of Holdings) and that is engaged in the same or a similar line
of business as Holdings and its Restricted Subsidiaries were engaged in on the
date of the Indenture and reasonable extensions or expansions thereof; or (i)
Investments by Holdings in any Person if as a result of such Investment (1) such
Person becomes a Wholly Owned Subsidiary of Holdings that is engaged in the same
or a similar line of business as Holdings and its Restricted 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, Holdings or a Wholly Owned Subsidiary of Holdings that is engaged in the
same or a similar line of business as Holdings and its Restricted Subsidiaries
were engaged in on the
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date of the Indenture and reasonable extensions or expansions thereof; and (j)
Investments by Holdings or any of its Restricted Subsidiaries using Joint
Venture Funds.
"Permitted Liens" means (i) Liens securing (a) Indebtedness
permitted by clause (i) or clause (viii) under the covenant entitled
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) related
Hedging Obligations; (ii) Liens in favor of Holdings or any Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with Holdings or any Restricted Subsidiary
of Holdings; 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 Holdings; (iv)
Liens on property of a Person existing at the time such Person becomes a
Restricted Subsidiary of Holdings; (v) Liens on property existing at the time of
acquisition thereof by Holdings or any Restricted Subsidiary of Holdings,
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 shall be required in
conformity with GAAP shall 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 Holdings or any Restricted Subsidiary of Holdings with respect to
obligations that do not exceed $2.5 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 Holdings or such Restricted Subsidiary; (xii) nonconsensual Liens incurred in
the ordinary course of business of any foreign subsidiary that is a Restricted
Subsidiary that (a) are not incurred in connection with the borrowing of money
or the obtaining of advances of 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 such Restricted Subsidiary; (xiii) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (xiv) 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 Holdings or any of its Restricted Subsidiaries; (xv) Purchase Money
Liens (including extensions and renewals thereof); (xvi) judgment and attachment
Liens not giving rise to an Event of Default; (xvii) Liens arising out of
consignment or similar arrangements for the sale of goods; (xviii) any interest
or title of a lessor in property subject to any capital lease obligation or
operating lease; (xix) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; and (xx) Liens permitted under the CSI
Indenture.
"Permitted Refinancing Debt" means (a) any Indebtedness included in
the definition of "Permitted Refinancing Debt" in the CSI Indenture and (b) any
other Indebtedness of Holdings or any of its Restricted Subsidiaries issued in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of Holdings or any of its
Restricted 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 final maturity date at least as
late as the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended,
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refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Debentures, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Senior Debentures on terms at least as favorable to
the Holders of Senior Debentures 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 Holdings
or by the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company, other business entity 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).
"Private Equity Offering" means a private offering of (i) Equity
Interests of Holdings other than Disqualified Stock of Holdings or (ii) of
Equity Interests of Holdings' parent or indirect parent corporation to the
extent that the cash proceeds therefrom are contributed to the equity capital of
Holdings or are used to purchase Equity Interests of Holdings (other than
Disqualified Stock of Holdings).
"Public 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 of Holdings other than Disqualified Stock
of Holdings or (ii) of Equity Interests of Holdings' parent or indirect parent
corporation other than Disqualified Stock of Holdings' parent or indirect parent
corporation to the extent that the cash proceeds therefrom are contributed to
the equity capital of Holdings or are used to purchase Equity Interests of
Holdings (other than Disqualified Stock of Holdings).
"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 Restricted
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).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 14, 1997, by and among Holdings 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.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the 10 1/2% Senior Notes due 2006 issued
pursuant to the CSI Indenture in a principal amount not to exceed $110 million.
"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).
"Subsidiary Change of Control" means, with respect to a Restricted
Subsidiary, such time as (i) prior to the initial public offering by such
Restricted Subsidiary of its common stock (other than a public offering pursuant
to a registration statement on Form S-8), Vestar and its Affiliates
(collectively, the "Initial Investors") cease to have, directly or indirectly,
in the aggregate at least 51% of the voting power of the voting stock of such
Restricted Subsidiary or Holdings ceases to own, directly or indirectly, 100% of
the voting power of such Restricted Subsidiary or (ii) after the initial public
offering by such Restricted Subsidiary 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 such Restricted Subsidiary which indicates
that, or such Restricted Subsidiary 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
stock of such Restricted Subsidiary on a fully diluted basis after giving effect
to the conversion and exercise of all outstanding warrants, options and other
securities of such Restricted Subsidiary, as the case may be (whether or not
such securities are then currently convertible or exercisable), and (B) such
person or group has become, directly or indirectly, the beneficial owner of a
greater percentage of the voting capital stock of such Restricted Subsidiary,
calculated on such fully diluted basis, than beneficially owned by the Initial
Investors or Holdings, or (iii) the sale, lease or transfer of all or
substantially all of the assets of such Restricted Subsidiary and its
Subsidiaries taken as a whole to any person or group (other than the Initial
Investors or Holdings or any of its Subsidiaries), or (iv) during any period of
two consecutive calendar years, individuals who at the beginning of such period
constituted the board of directors of such Restricted Subsidiary (together with
any new directors whose election by the board of directors of such Restricted
Subsidiary or whose nomination for election by the shareholders of such
Restricted Subsidiary, as the case may be, 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 such
Restricted Subsidiary, as the case may be, then in office.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which the Indenture is qualified under
the TIA.
"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
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Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with Holdings or
any Restricted Subsidiary of Holdings unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to Holdings or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of Holdings; (c) is a Person with respect to which
neither Holdings nor any of its Restricted 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 Holdings or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described under the
caption "--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of Holdings as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," Holdings shall be in default of such covenant). The Board of
Directors of Holdings may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of Holdings of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) no
Default or Event of Default would be in existence following such designation.
Notwithstanding anything to the contrary in the foregoing, to the extent a Joint
Venture is or becomes, as the case may be, a Subsidiary, it is or it shall, as
the case may be, initially be an Unrestricted Subsidiary (A) except to the
extent that it becomes a Subsidiary in connection with an Investment pursuant to
clause (d) of the definition of "Permitted Investment" or (B) unless such
Subsidiary is designated by the Board of Directors as a Restricted Subsidiary
for purposes of the Indenture pursuant to a Board Resolution at the time such
Joint Venture becomes a Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that shall 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 Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) (or in
the case of CS-Interglas AG 90% of the outstanding Capital Stock or other
ownership interests) shall at the time be owned by such Person or by one or more
Wholly Owned Subsidiaries of such Person. Unrestricted Subsidiaries shall not be
included in the definition of Wholly Owned Subsidiary for any purposes of the
Indenture.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Debentures were originally issued by Holdings on July 14, 1997 to
the Initial Purchaser in exchange for and in redemption of all of Holdings' then
outstanding shares of Preferred Stock. The Initial Purchaser originally acquired
the Preferred Stock from Vestar/CS Holding pursuant to the Purchase Agreement,
and upon issuance of the Old Debentures in redemption of the Preferred Stock,
sold the Old Debentures to qualified institutional buyers and to institutional
accredited investors in reliance on Rule 144A under the Securities Act. As a
condition to the Purchase Agreement, Holdings entered into the Registration
Rights Agreement with the Initial Purchaser (the "Registration Rights
Agreement") pursuant to which Holdings agreed, for the benefit of the holders of
the Old Debentures to, among other things, (i) file the Exchange Offer
Registration Statement with the Commission on or prior to 45 days after the
Closing Date and (ii) use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 120
days after the Closing Date. Holdings 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
Debentures. For each Old Debenture surrendered to Holdings pursuant to the
Exchange Offer, the holder of such Old Debenture will receive a New Debenture
having a principal amount equal to that of the surrendered Old Debenture.
Interest on each New Debenture 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 Debentures would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Debentures who is an
"affiliate" of Holdings or who intends to participate in the Exchange Offer for
the purpose of distributing the New Debentures (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 Debentures 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 Debentures, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these non-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
Holdings in the Letter of Transmittal that (i) the New Debentures are to be
acquired by the holder or the person receiving such New Debentures, 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 Debentures, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the New Debentures, (iv) neither the holder nor any such other
person is an "affiliate" of Holdings 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 Debentures it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Debentures and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Debenture
for its own account in exchange for Old Debentures must acknowledge that it (i)
acquired the Old Debentures 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 Holdings or any "affiliate" of Holdings
(within the meaning of Rule 405 under the Securities Act) to distribute the New
Debentures 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 Debentures. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
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In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit Holdings 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 Debentures (other than an "affiliate" of Holdings or an
Initial Purchaser) is not eligible to participate in the Exchange Offer,
Holdings will (a) file the Shelf Registration Statement covering resales of the
Old Debentures, (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 Debentures have been sold thereunder. Holdings
will, in the event of the filing of the Shelf Registration Statement, provide to
each applicable holder of the Old Debentures 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 Debentures. A holder of
Old Debentures that sells such Old Debentures 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
Debentures 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 Debentures 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) Holdings will file an
Exchange Offer Registration Statement with the Commission on or prior to 45 days
after August 14, 1997, (ii) Holdings will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission on or
prior to 120 days after August 14, 1997, (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, Holdings will commence
the Exchange Offer and use its best efforts to issue on or prior to 150 days
after the Closing Date (the "Exchange Offer Effectiveness Date"), New Debentures
in exchange for all Old Debentures tendered prior thereto in the Exchange Offer
and (iv) if obligated to file the Shelf Registration Statement, Holdings will
cause to be filed the Shelf Registration Statement with the Commission on or
prior to 45 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises. If (a) Holdings 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)
Holdings fails to consummate the Exchange Offer within 30 day 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 Holdings will pay Liquidated Damages to each Holder of Old Debentures, 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 Debentures 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 Debentures. All accrued Liquidated Damages will be paid by Holdings on
each Damages Payment Date to the Global Debenture 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.
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Holders of Old Debentures will be required to make certain representations
to Holdings (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 Debentures
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
Debentures who were eligible to participate in the Exchange Offer but who did
not tender their Old Debentures will not have any further registration rights
and such Old Debentures will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old Debentures 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, Holdings will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Holdings will issue $1,000 principal amount of New
Debentures in exchange for each $1,000 principal amount of outstanding Old
Debentures accepted in the Exchange Offer. Holders may tender some or all of
their Old Debentures pursuant to the Exchange Offer. However, Old Debentures may
be tendered only in integral multiples of $1,000.
The form and terms of the New Debentures are the same as the form and
terms of the Old Debentures except that (i) the New Debentures bear a Series B
designation and a different CUSIP Number from the Old Debentures, (ii) the New
Debentures have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the New
Debentures 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 Debentures in certain circumstances relating to the timing of
the Exchange Offer, all of which rights will terminate when the Exchange Offer
is terminated. The New Debentures will evidence the same debt as the Old
Debentures and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $45,994,000 aggregate principal amount
of Old Debentures were outstanding. This Prospectus and the Letter of
Transmittal will be mailed initially to the holders of record of the Old
Debentures as of the close of business on _________, 199_.
Holders of Old Debentures do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. Holdings 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.
Holdings shall be deemed to have accepted validly tendered Old Debentures
when, as and if Holdings 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 Debentures from Holdings.
If any tendered Old Debentures 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
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Debentures will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Debentures 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
Debentures pursuant to the Exchange Offer. Holdings 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
________, 1998, unless Holdings, 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, Holdings 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.
Holdings reserves the right, in its sole discretion, (i) to delay
accepting any Old Debentures, 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 Debentures
The New Debentures will bear interest from their date of issuance. Holders
of Old Debentures that are accepted for exchange will receive accrued interest
thereon to, but not including, the date of issuance of the New Debentures. Such
interest will be paid with the first interest payment on the New Debentures on
January 15, 1998 in the manner provided in the Debentures. Interest on the Old
Debentures accepted for exchange will cease to accrue upon issuance of the New
Debentures.
Interest on the Debentures is payable semi-annually on each January 15 and
July 15, commencing on January 15, 1998; provided, however, that if on any
interest payment date CSI could not dividend or distribute a sufficient amount
of cash to Holdings under the terms of the CSI Indenture or the Credit Agreement
in order to make such interest payment in cash, Holdings may make such interest
payment in the form of additional Debentures having an aggregate principal
amount equal to the amount of such interest.
Procedures for Tendering
Only a holder of Old Debentures may tender such Old Debentures 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 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 Debentures must be received by the Exchange
Agent at such address or (b) such Debentures must be transferred pursuant to the
procedures for book-entry transfer described below (and a
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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 Debentures 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 Holdings 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 Debentures 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 Holdings
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 Holdings will
constitute agreement between such holder and Holdings 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 DEBENTURES 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 DEBENTURES SHOULD BE SENT TO HOLDINGS.
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 Debentures 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 below)
unless the Old Debentures 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 Debentures listed therein, such Old Debentures 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
Debentures with the signature thereon guaranteed by an Eligible Institution.
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If the Letter of Transmittal or any Old Debentures 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 Holdings of their authority to so act must be submitted with the
Letter of Transmittal.
Holdings understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Debentures 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 Debentures by causing such Book-Entry
Transfer Facility to transfer such Old Debentures into the Exchange Agent's
account with respect to the Old Debentures in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Debentures 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 Debentures 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 Debentures and withdrawal of tendered Old
Debentures will be determined by Holdings in its sole discretion, which
determination will be final and binding. Holdings reserves the absolute right to
reject any and all Old Debentures not properly tendered or any Old Debentures
Holdings's acceptance of which would, in the opinion of counsel for Holdings, be
unlawful. Holdings also reserves the right in its sole discretion to waive any
defects, irregularities or conditions of tender as to particular Old Debentures.
Holdings' 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 Debentures must be cured within such time as
Holdings shall determine. Although Holdings intends to notify holders of defects
or irregularities with respect to tenders of Old Debentures, neither Holdings,
the Exchange Agent nor any other person shall incur any liability for failure to
waive such notification. Tenders of Old Debentures will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Debentures 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 Debentures and (i) whose Old
Debentures are not immediately available, (ii) who cannot deliver their Old
Debentures, 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:
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(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 Debentures and the principal amount of Old
Debentures 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 Debentures (or a
confirmation of book-entry transfer of such Old Debentures into the
Exchange Agent's account at the 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 Debentures in proper form for transfer (or a confirmation of
book-entry transfer of such Old Debentures 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 Debentures according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Debentures 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 Debentures 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 Debentures to be
withdrawn (the "Depositor"), (ii) identify the Old Debentures to be withdrawn
(including the certificate number(s) and principal amount of such Old
Debentures, or, in the case of Old Debentures 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 Debentures
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Debentures register the transfer of such Old Debentures into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Debentures 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 Holdings whose determination shall be
final and binding on all parties. Any Old Debentures so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no New
Debentures will be issued with respect thereto unless the Old Debentures so
withdrawn are validly retendered. Any Old Debentures 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
Debentures may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the Expiration Date.
- 107 -
<PAGE>
Conditions
Notwithstanding any other term of the Exchange Offer, Holdings shall not
be required to accept for exchange, or exchange New Debentures for, any Old
Debentures, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Debentures, 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 Holdings, might materially
impair the ability of Holdings to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to Holdings 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 Holdings, might materially impair the ability of
Holdings to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to Holdings; or
(c) any governmental approval has not been obtained, which approval
Holdings shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If Holdings determines in its reasonable judgment that any of the
conditions are not satisfied, Holdings may (i) refuse to accept any Old
Debentures and return all tendered Debentures to the tendering holders, (ii)
extend the Exchange Offer and retain Old Debentures tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Debentures (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Debentures which have not been withdrawn.
Exchange Agent
The Exchange Agent for the Exchange Offer is:
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 Department
P.O. Box 778 Two International Plaza, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attention: Sandra Szczsponik Attention: Sandra Szczsponik
By Facsimile Transmission:
(for Eligible Institutions only)
State Street Bank and Trust Company
(617) 664-5232
Attention: Sandra Szczsponik
For Information or Confirmation by Telephone:
(617) 664-5314
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
- 108 -
<PAGE>
Fees and Expenses
The expenses of soliciting tenders will be borne by Holdings. 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 Holdings and its affiliates.
Holdings 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. Holdings, 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 Holdings. 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 Debentures will be recorded at the same carrying value as the Old
Debentures, which is face value, as reflected in Holdings' accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by Holdings. The expenses of the Exchange Offer will be expensed
over the term of the New Debentures.
Consequences of Failure to Exchange
The Old Debentures that are not exchanged for New Debentures pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Debentures may be resold only (i) to Holdings (upon redemption thereof or
otherwise), (ii) so long as the Old Debentures 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 Holdings), (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 Debentures
With respect to resales of New Debentures, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
Holdings believes that a holder or other person who receives New Debentures,
whether or not such person is the holder (other than a person that is an
"affiliate" of Holdings within the meaning of Rule 405 under the Securities Act)
who receives New Debentures in exchange for Old Debentures 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 Debentures, will be allowed to resell the New Debentures
to the public without further registration under the Securities Act and without
delivering to the purchasers of the New Debentures a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires New Debentures in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Debentures, 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 Broker-Dealer that receives New
Debentures
- 109 -
<PAGE>
for its own account in exchange for Old Debentures, where such New Debentures
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 Debentures.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
Holdings in the Letter of Transmittal that (i) the New Debentures are to be
acquired by the holder or the person receiving such New Debentures, 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 Debentures, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the New Debentures, (iv) neither the holder nor any such other
person is an "affiliate" of Holdings 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 Debentures it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Debentures and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Debenture
for its own account in exchange for Old Debentures must acknowledge that it (i)
acquired the Old Debentures for its own account as a result of market-making
activities or other trading activities, (ii) has not entered into any
arrangement with Holdings (within the meaning of Rule 405 under the Securities
Act or understanding with Holdings or any "affiliate" of the Securities Act) to
distribute the New Debentures 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 Debentures. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
- 110 -
<PAGE>
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 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. Holdings recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Old Debentures for New Debentures,
including the applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to Holdings, has advised Holdings that
in its opinion, the exchange of the Old Debentures for New Debentures pursuant
to the Exchange Offer will not be treated as an "exchange" for federal income
tax purposes because the New Debentures will not be considered to differ
materially in kind or extent from the Old Debentures. Rather, the New Debentures
received by a holder will be treated as a continuation of the Old Debentures in
the hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Debentures for New Debentures pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Debentures 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 Debentures. 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 Debentures
received in exchange for Old Debentures where such Old Debentures were acquired
as a result of market-making activities or other trading activities. Holdings
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. In addition, until
___________, 1998, all dealers effecting transactions in the New Debentures may
be required to deliver a prospectus.
Holdings will not receive any proceeds from any sales of the New
Debentures by Participating Broker-Dealers. New Debentures 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 Debentures 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 Debentures.
Any Participating Broker-Dealer that resells the New Debentures 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 Debentures may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Debentures 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.
- 111 -
<PAGE>
LEGAL MATTERS
The validity of the issuance of the New Debentures will be passed upon for
Holdings by Kirkland & Ellis, Washington, D.C. Certain partners of Kirkland &
Ellis are among the investors in Vestar/CS Holding.
EXPERTS
The financial statements of Fort Mill A, Inc. as of December 30, 1995, and
for the two fiscal years in the period ended December 30, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of Clark-Schwebel Holdings, Inc. as of December
28, 1996 and for the fiscal year then ended included in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
- 112 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Clark-Schwebel Holdings, Inc.
Audited Financial Statements
Independent Auditor's Report .................................... F-2
Consolidated Balance Sheets ..................................... F-4
Consolidated Statements of Income ............................... F-5
Consolidated Statements of Cash Flows ........................... F-6
Notes to Consolidated Financial Statements ...................... F-7
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets ..................................... F-19
Consolidated Statements of Income ............................... F-20
Consolidated Statements of Cash Flows ........................... F-21
Notes to Condensed and Consolidated Financial Statements ........ F-22
F-1
<PAGE>
Report of Independent Public Accountants
To the Board of Directors of
Clark-Schwebel Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Clark-Schwebel
Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 28,
1996, and the related consolidated statements of income and cash flows for each
of the two periods in the year ending December 28, 1996. 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clark-Schwebel Holdings, Inc.
and subsidiaries as of December 28, 1996, and the results of their operations
and their cash flows for each of the two periods in the year ended December 28,
1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index are the
responsibility of the Company's management and are presented for the purposes of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Columbia, South Carolina,
February 14, 1997.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Fort Mill A Inc. (the
"Predecessor") (a wholly owned subsidiary of Springs Industries, Inc.) as of
December 30, 1995, and the related statements of income and cash flows for the
two fiscal years in the period ended December 30, 1995. These financial
statements are the responsibility of the Predecessor's management. Our
responsibility is to express an opinion on the 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 financial statements present fairly, in all material
respects, the financial position of Fort Mill A Inc. as of December 30, 1995,
and the results of its operations and its cash flows for each of the two fiscal
years in the period ended December 30, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 9, 1996
(February 24, 1996 as to Note 2)
F-3
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 and DECEMBER 28, 1996
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
--------- ---------
(Predecessor (Successor
Basis) Basis)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 584 $ 4,064
Accounts receivable, net ......................... 33,298 25,794
Inventories, net ................................. 28,791 33,625
Other ............................................ 2,069 592
--------- ---------
Total current assets ....................... 64,742 64,075
--------- ---------
PROPERTY, PLANT AND EQUIPMENT .......................... 96,791 67,936
Accumulated depreciation ......................... (43,777) (5,841)
--------- ---------
Property, plant and equipment, net ......... 53,014 62,095
--------- ---------
EQUITY INVESTMENTS ..................................... 62,904 63,426
NET ASSETS OF DISCONTINUED OPERATIONS .................. 2,600 0
GOODWILL ............................................... 5,096 44,333
OTHER ASSETS ........................................... 373 6,808
--------- ---------
TOTAL ASSETS ........................................... $ 188,729 $ 240,737
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 9,032 $ 21,448
Accrued liabilities .............................. 7,328 15,330
Deferred tax liabilities -- current .............. 2,024 2,056
Current maturities of long-term debt ............. 79 51
--------- ---------
Total current liabilities .................. 18,463 38,885
LONG-TERM DEBT ......................................... 5,907 123,440
DEFERRED TAX LIABILITIES ............................... 14,826 21,458
LONG-TERM BENEFIT PLANS, DEFERRED COMPENSATION AND OTHER 5,570 7,121
COMMITMENTS AND CONTINGENCIES ..........................
--------- ---------
TOTAL LIABILITIES ...................................... 44,766 190,904
--------- ---------
EQUITY:
Preferred stock (par value per share -
$.01) - 12.5% participating, 10,000
shares authorized, 0 and 1,000 shares
issued and outstanding, respectively ................. 0 35,000
Common stock (par value per share -
$.01) - 100,000 shares authorized,
9,000 shares issued and outstanding,
less management loans of $822 ........................ 0 9,178
Common stock (par value per share -
$1.00) - 1,000 shares authorized, 100
shares issued and outstanding ........................ 1 0
Retained earnings ...................................... 0 7,005
Investment by Springs .................................. 134,357 0
Cumulative translation adjustment ...................... 9,605 (1,350)
--------- ---------
Total equity ........................................... 143,963 49,833
--------- ---------
TOTAL LIABILITIES AND EQUITY ........................... $ 188,729 $ 240,737
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1995 - April 18 -
April 17, December 28,
1994 1995 1996 1996
--------- --------- --------- ---------
(Predecessor Basis) (Successor Basis)
<S> <C> <C> <C> <C>
Net sales ....................................... $ 189,419 $ 231,306 $ 68,911 $ 152,003
Cost of goods sold .............................. 160,747 191,978 54,958 118,605
--------- --------- --------- ---------
Gross profit .................................... 28,672 39,328 13,953 33,398
Selling, general and adminstrative
expenses .................................. 14,370 17,750 4,812 10,418
Idle equipment write-off ........................ 1,836 0 0 0
--------- --------- --------- ---------
Operating income .......................... 12,466 21,578 9,141 22,980
Other income (expense):
Interest expense .......................... (401) (401) (148) (10,061)
Other, net ................................ (28) 12 (5) 50
--------- --------- --------- ---------
Income before income taxes ...................... 12,037 21,189 8,988 12,969
Provision for income tax ........................ (4,896) (8,444) (3,595) (5,460)
Income from equity investees, net ............... 1,176 2,553 1,174 2,633
--------- --------- --------- ---------
Income from continuing operations ............... 8,317 15,298 6,567 10,142
Discontinued operations:
Income from discontinued operations, net .. 426 111 0 0
Gain on sale of discontinued operation, net 2,573 0 0 0
--------- --------- --------- ---------
Net income ...................................... $ 11,316 $ 15,409 $ 6,567 10,142
========= ========= =========
Accrued dividends on preferred stock ............ (3,137)
---------
Net income applicable to common shares .... $ 7,005
=========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1995 - April 18 -
April 17, December 28,
1994 1995 1996 1996
--------- --------- --------- ---------
(Predecessor Basis) (Successor
Basis)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................................... $ 11,316 $ 15,409 $ 6,567 $ 10,142
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 10,028 11,128 3,526 7,284
Idle equipment write-off .......................................... 1,836 0 0 0
Deferred tax provision ............................................ 577 176 1,404 (1,128)
Income from equity investments, net ............................... (1,176) (2,553) (1,174) (2,633)
Income from discontinued operations, net .......................... (426) (111) 0 0
Gain on sale of discontinued operation, net ....................... (2,573) 0 0 0
Changes in assets and liabilities, net of the effects of the
purchase of the company:
Accounts receivable ........................................... (831) (8,244) 1,832 3,811
Inventories ................................................... (1,825) (2,931) (2,883) 3,323
Prepaid expenses and other .................................... (2,055) 1,465 (187) 1,399
Accounts payable .............................................. 833 3,181 (697) 14,011
Accrued liabilities ........................................... 261 367 (289) 5,076
Other ............................................................... 200 124 (131) (151)
--------- --------- --------- ---------
Net cash provided by operating activities ............... 16,165 18,011 7,968 41,134
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of equipment .............................................. (11,543) (8,429) (1,603) (2,035)
Proceeds from sale of discontinued operation ........................ 19,130 0 0 0
Proceeds from sale of assets ........................................ 18 42 0 0
Payment for purchase of company ..................................... 0 0 0 (192,895)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities ..... 7,605 (8,387) (1,603) (194,930)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Investment by Springs ............................................... (23,774) (8,982) (10,955) 0
Transfer of assets retained by Springs .............................. 0 0 4,461 0
Proceeds from issuance of stock ..................................... 0 0 0 45,000
Payment of acquisition fees, net .................................... 0 0 0 (10,128)
Loans to management investors ....................................... 0 0 0 (822)
Proceeds from long-term borrowings .................................. 0 0 0 160,000
Principal payments under long-term debt and capital lease obligations (43) (87) (29) (36,616)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ..... (23,817) (9,069) (6,523) 157,434
--------- --------- --------- ---------
NET CHANGE IN CASH ........................................................ (47) 555 (158) 3,638
CASH, BEGINNING OF PERIOD / YEAR .......................................... 76 29 584 426
--------- --------- --------- ---------
CASH, END OF PERIOD / YEAR ................................................ $ 29 $ 584 $ 426 $ 4,064
========= ========= ========= =========
CASH PAID FOR INTEREST .................................................... $ 401 $ 401 $ 120 $ 7,081
========= ========= ========= =========
CASH PAID FOR TAXES ....................................................... $ 0 $ 0 $ 0 $ 7,546
========= ========= ========= =========
</TABLE>
Noncash Transaction: The Company accrued dividends on preferred stock of $3,137
for the period of April 18 - December 28, 1996.
See notes to consolidated financial statements.
F-6
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS in THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the assets,
liabilities and results of operations as of December 28, 1996 and for the period
from April 18, 1996 to December 28, 1996 of Clark-Schwebel Holdings, Inc., the
successor company ("Company"), following the change in ownership (see Note 2).
The Company's primary assets is the capital stock of Clark-Schwebel, Inc., its
operating company. The statements also include the assets, liabilities, and
results of operations as of and for the period ended December 30, 1995 and
December 31, 1994, and for the period from December 31, 1995 to April 17, 1996
of Fort Mill A Inc., the predecessor company ("Predecessor Company"), prior to
the change in ownership. The statements of the Predecessor Company include
certain liabilities and expenses that historically were accounted for only at
the Springs Industries, Inc. ("Springs") - parent company level. The financial
statements of the Predecessor Company and Successor Company are not comparable
in certain respects due to differences between the costs bases of certain assets
and liabilities and the impact of interest expense on the Successor Company (see
Note 2).
Summarized Financial Information---The following table provides summarized
financial information for Clark-Schwebel, Inc., the operating company, on a
stand alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of
Clark-Schwebel Holdings, Inc. and its separate financial statements are not
included or filed separately because management has determined that they would
not be material to investors since they are not significantly different from the
financial statements of Clark-Schwebel Holdings, Inc. The balance sheet
information is as of December 28, 1996 and the income statement information is
for the period of April 18, 1996 through December 28, 1996.
1996
----
(Successor)
Current assets $ 64,038
Noncurrent assets 176,662
--------
Total assets ............................................ $240,700
========
Current liabilities $ 38,881
Noncurrent liabilities 152,019
Equity 49,800
--------
Total liabilities and equity ............................ $240,700
========
Net sales $152,003
Gross profit 33,398
Income from continuing operations 10,135
Net income .............................................. 6,998
========
All assets of Clark-Schwebel, Inc. represent restricted net assets with
the exception of the foreign equity investments and distributions received from
the foreign equity investments. Except in limited circumstances, Clark-Schwebel,
Inc. is prohibited from transferring restricted net assets to Clark-Schwebel
Holdings, Inc. in the form of cash dividends, loans, or advances without the
consent of a third party lender. The amount of unrestricted net assets at
December 28, 1996 is $61,221, which represents the book value of the foreign
equity investments ($59,906) and distributions received in the form of cash from
the foreign equity investments ($1,315).
Operations---The Company consists primarily of the operations, assets, and
liabilities of manufacturing facilities located in Anderson, SC, Statesville,
NC, Cleveland, GA, and Washington, GA, which produce woven fiber glass and
aramid fabrics. The Company's products are used in electronic circuit boards,
coated and laminated composites, aircraft construction and protective apparel
such as anti-ballistic vests and helmets.
F-7
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
2. PURCHASE TRANSACTION
On February 24, 1996, the Company, Springs and affiliates of Vestar Equity
Partners, L.P. (Vestar), entered into an Agreement and Plan of Merger
(Agreement) whereby affiliates of Vestar would acquire the Company. Pursuant to
the Agreement, on April 17, 1996 (Closing Date), Vestar/CS Holding Company, LLC
(Vestar/CS) purchased all of the issued and outstanding capital stock of Fort
Mill A Inc. from Springs for approximately $192,895. The sources of cash for
this purchase included $110,000 of senior notes, an equity contribution of
$45,000 and bank debt. On the day following the Closing Date, Vestar/CS had an
82% common equity interest and management investors had an 18% common equity
interest in the Company.
Under the Agreement, Springs agreed to (i) assume responsibility for
repayment of the Industrial Revenue Bonds payable in 2010 and related accrued
interest (see Note 4), (ii) pay $959 in certain accrued employee benefits, (iii)
provide indemnification for certain environmental, tax and other matters
(including the environmental matter described in Note 14 for which $175 was
accrued at December 30, 1995), (iv) retain the accounts receivable from one
customer (which totaled $2,782 as of December 30, 1995) and related $1,400
reserve described in Note 3, and (v) retain the $99 accrued obligation related
to the Company's Long-Term Disability Plan. At the Closing Date, all payable and
receivable accounts between the Company and Springs were canceled.
The acquisition was accounted for as a purchase business combination. The
adjustment to net assets represents the step-up to fair value of the net assets
acquired as follows:
Purchase price ................................................... $ 192,895
Nonfinancing portion of fees and expenses ........................ 2,780
---------
Total purchase price ............................................. 195,675
Less fair value of net assets acquired ........................... (150,547)
---------
Excess of purchase price over fair value of net assets acquired .. $ 45,128
=========
The fair values of Clark-Schwebel, Inc.'s assets and liabilities at the
date of acquisition are presented below:
Current assets .......................................... $ 68,410
Property, plant and equipment ............................ 66,391
Equity investments ....................................... 62,314
Current liabilities ...................................... (20,282)
Other liabilities ........................................ (26,286)
---------
Net assets acquired ...................................... $ 150,547
=========
Following the acquisition, the purchase cost (including the fees and
expenses related thereto) was allocated to the tangible and intangible assets
and liabilities of the Company based upon their respective fair values. This
resulted in a step-up in the basis of inventory of $5,274 and property, plant
and equipment of $15,000. The excess of the purchase price over the fair value
of net assets acquired of $45,128 was recorded as goodwill, and is being
amortized on a straight-line basis over a period of 40 years.
Additional agreements include Transition Agreements for specified periods
in which Springs would be compensated for certain services provided to the
Company, and a Management Agreement that specifies services to be provided to
the Company by Vestar.
In accordance with agreements related to the change of ownership
transaction, certain assets totaling $4,461 were transferred to Springs in the
first quarter of 1996. This balance has been separately disclosed on the face of
the accompanying 1996 statements of cash flows.
F-8
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies used in the
preparation of the financial statements of the Company.
Basis of Consolidation - The consolidated financial statements include the
accounts of the Company and its operating company and wholly-owned subsidiary,
Clark-Schwebel, Inc. All material intercompany amounts and transactions have
been eliminated.
Fiscal Year - The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to December 31. The
fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996
are referred to herein as 1994, 1995 and 1996, respectively. The 1994, 1995 and
1996 fiscal years each consisted of 52 weeks. Due to the purchase transaction on
April 17, 1996, the 52 week fiscal year in 1996 is comprised of the operations
of the Predecessor Company and the Successor Company.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates include the allowance for doubtful
accounts receivable and the liabilities for certain long-term benefit plans.
Actual results could differ from such estimates.
Revenue Recognition - Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer and the earnings process is
complete. This generally occurs when the goods are shipped.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand
and in the bank as well as short term investments held for the purpose of
general liquidity. Such investments normally mature within three months from the
date of acquisition.
Accounts Receivable - The Company establishes an allowance for doubtful
accounts based upon factors including the credit risk of specific customers,
historical trends and other information. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral. The reserve for doubtful accounts was $2,133 at December 30, 1995
and $853 at December 28, 1996. The reserve at December 30, 1995 included $1,400
applicable to $2,782 of accounts receivable from one customer. The provision for
uncollectible amounts was $240, $1,842, ($84), and $160 for fiscal 1994, 1995,
1996 (Predecessor) and 1996 (Successor), respectively. Net write-offs were $29,
$349, ($6), and ($38), respectively, for the same periods.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for substantially all
inventories.
Property, Plant, and Equipment - Property, plant, and equipment is
recorded at cost and depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets. Estimated useful lives are as
follows:
Land improvements ................................. 10 to 20 years
Buildings and improvements ........................ 20 to 40 years
Machinery and equipment ........................... 3 to 11 years
Equity Investments -The company owns equity interests in CS-Interglas AG
(headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan)
and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are
accounted for using the equity method of accounting.
F-9
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Foreign Currency - The foreign equity investments are translated at
year-end exchange rates. Equity income and losses are translated at the average
rate during the year. Cumulative translation adjustments are reflected as a
separate component of stockholders' equity.
Postretirement Benefits - Postretirement benefits are accounted for
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. SFAS No.
106 requires that the projected future cost of providing postretirement
benefits, such as health care and life insurance, be recognized as an expense as
employees render service rather than when claims are incurred.
Income Taxes - Income taxes are accounted for pursuant to SFAS 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income tax assets and
liabilities represent the future income tax effect of temporary differences
between the book and tax bases of assets and liabilities assuming they will be
realized and settled at the amounts reported in the financial statements. The
provision for income taxes included in the accompanying financial statements is
computed in a manner consistent with SFAS No. 109.
Certain Compensation Plans - Certain key employees of the Company were
granted stock options and certain types of deferred compensation related to
Springs common stock under Springs' executive plans. Compensation expense
allocated from Springs for these grants for 1994, 1995, 1996 (Predecessor) and
1996 (Successor) was approximately $125, $145, $418 and $0, respectively.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
--------- ---------
<S> <C> <C>
Senior Notes, payable in 2006, interest at 10.5% ....................... $ 0 $ 110,000
Term Loan payable in quarterly installments of $440 beginning
December 31, 1997, $500 beginning March 31, 1998, $750 beginning
September 30, 1999, and $1,000 beginning September 30, 2001 through
maturity in 2002, interest at
variable rates ....................................................... 0 13,440
Revolving Credit Agreement, due 2002, interest at variable rates ....... 0 0
Capitalized lease obligation payable in equal monthly
installments of $7, through August 1997 .............................. 136 51
Industrial Revenue Bonds, payable in 2010, interest at 6.85%
(See Note 2) ......................................................... 5,850 0
--------- ---------
Total .................................................................. 5,986 123,491
Less current maturities ................................................ (79) (51)
--------- ---------
Long-term debt ......................................................... $ 5,907 $ 123,440
========= =========
</TABLE>
The senior notes accrue interest at a fixed rate of 10.5% per annum, with
interest payable semiannually in arrears on April 15 and October 15. The senior
notes are not redeemable at the option of the Company prior to April 15, 2001.
The debt under the credit facility bears interest which varies with LIBOR plus a
margin which fluctuates based on the Company's leverage ratio. On December 28,
1996 the interest rate was 6.9375% per annum. Interest is typically payable
monthly. The Company pays a quarterly commitment fee equal to 0.375% on the
unused portion of the revolving credit facility which was $55,000 at December
28, 1996. Management estimates the fair value of the Senior Notes is $115,500 at
December 28, 1996, based on the estimated market
F-10
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
4. LONG-TERM DEBT - (Continued)
trading price for the Senior Notes as of December 28, 1996. The senior notes and
the debt under the credit facility represent liabilities of Clark-Schwebel,
Inc., the operating company, and are guaranteed by Clark-Schwebel Holdings, Inc.
The revolving credit facility and the senior notes' indenture contain
certain restrictive covenants which provide limitations on Clark-Schwebel, Inc.,
the operating company, with respect to restricted payments, indebtedness, liens,
investments, dividends, distributions, transactions with affiliates, debt
repayments, capital expenditures, mergers, and consolidations. The bank facility
and senior note covenants also require maintenance of certain financial ratios.
At December 28, 1996, the Company was in compliance with such covenants.
Substantially all of the assets of Clark-Schwebel, Inc., the operating
company, are subject to liens in favor of the revolving credit facility lenders.
The aggregate five-year maturities of long-term debt subsequent to
December 28, 1996 follow: 1997 - $491; 1998 - $2,000; 1999 - $2,500; 2000 -
$3,000; 2001 - $3,500.
5. INVENTORIES
Inventories consisted of the following:
December 30, December 28,
1995 1996
-------- --------
Finished goods ............................... $ 10,145 $ 10,256
Raw material and supplies .................... 9,868 9,254
In process ................................... 12,828 15,215
-------- --------
Total at standard cost
(which approximates average cost) .......... 32,841 34,725
Less LIFO reserve ............................ (4,050) (1,100)
-------- --------
Inventories, net ............................. $ 28,791 $ 33,625
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
1995 1996
-------- --------
Land ....................................... $ 1,306 $ 1,875
Buildings and improvements ................. 22,479 19,381
Machinery and equipment .................... 69,438 43,113
Construction in progress ................... 3,568 3,567
-------- --------
Total ...................................... 96,791 67,936
Less accumulated depreciation .............. (43,777) (5,841)
-------- --------
Property, plant and equipment, net ......... $ 53,014 $ 62,095
======== ========
F-11
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
7. OTHER CURRENT LIABILITIES
Accrued liabilities consisted of the following:
1995 1996
-------- --------
Accrued retirement and incentive ................... $ 2,361 $ 3,841
Employee benefit accruals .......................... 1,868 3,017
Accrued payroll .................................... 1,050 2,759
Accrued interest ................................... 4 2,477
Other accrued liabilities .......................... 1,044 2,235
Unearned revenue ................................... 1,001 1,001
-------- --------
Total accrued liabilities .......................... $ 7,328 $ 15,330
======== ========
8. INVESTMENT BY SPRINGS
The changes in Investment by Springs for the fiscal years ended December
31,1994 and December 30, 1995 were as follows:
1994 1995
--------- ---------
Beginning of year ............................ $ 143,044 $ 127,930
Net income ................................... 11,316 15,409
Intercompany charge for current
income tax provision ....................... 6,905 9,919
Intercompany charge for certain
administrative services .................... 2,452 3,041
Net cash paid to Springs, other
intercompany charges and cash paid by
Springs on behalf of the Company ........... (35,787) (21,942)
--------- ---------
End of year .................................. $ 127,930 $ 134,357
========= =========
Weighted average of Investment by Springs .... $ 135,487 $ 131,144
========= =========
The Investment by Springs account was eliminated at April 17, 1996 as part
of the accounting for the purchase transaction (see Note 1).
9. STOCKHOLDERS' EQUITY
Changes in stockholders' equity on a successor basis for the period of
April 18, 1996 through December 28, 1996 consisted of the following (in
thousands, except share amounts):
<TABLE>
<CAPTION>
Preferred Stock Common Stock Cumulative
--------------- ------------ Retained Translation
Shares Amount Shares Amount Earnings Adjustment
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock issued on April 17,1996 1,000 $ 35,000
Common stock issued on April 17,1996 .. 9,000 $ 10,000
Management loans (see Note 16) ........ (822)
Net income ............................ $ 10,142
Accrued preferred stock dividend ...... (3,137)
Cumulative translation adjustment ..... ($ 1,350)
-------- -------- -------- -------- -------- --------
Balance at December 28, 1996 .......... 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 ($ 1,350)
======== ======== ======== ======== ======== ========
</TABLE>
F-12
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
10. EMPLOYEE BENEFIT PLANS
Employees Profit Sharing/Retirement Plans
Substantially all associates of the Company are covered by defined
contribution plans. In 1994, 1995, and 1996 (Predecessor Company) the plan was
provided by Springs. The 1996 Successor Company plan operated substantially the
same as the Springs plan. The Company makes contributions to a defined
contribution Profit Sharing Plan annually based upon the profitability of the
Company. The contribution is allocated to participant accounts based upon
participant compensation. The amount of the Company contribution is subject to
approval by the Board of Directors.
In addition, associates are allowed to contribute a percentage of their
compensation to a defined contribution plan and the Company will match a portion
of their contribution. This plan, available to substantially all associates,
contains a matched savings provision that permits pre-tax employee
contributions. Participants can contribute from 1% to 12% of their compensation
and receive a 50% matching employer contribution on up to 4% of the
participant's contribution.
Defined contribution plan expense for 1994, 1995, 1996 (Predecessor) and
1996 (Successor) was $1,974, $1,810, $964 and $1,655, respectively.
Postretirement Benefits Other Than Pensions
The Company participates in a defined benefit postretirement medical plan
which covers substantially all salaried and nonsalaried employees. In 1994, 1995
and 1996 (Predecessor Company) the plan was provided by Springs. The benefit
cost and benefit obligation for these periods was allocated by Springs to the
Predecessor Company. The 1996 Successor Company plan operated identically as the
Springs plan, but was a separate plan on a stand alone company basis. The plan
provides medical coverage to age 65 for employees who retire at age 62 or later,
have at least 25 years of service and participated in the plan prior to
retirement. The plan is funded on a "pay-as-you-go" basis and is contributory,
with retiree contributions adjusted periodically. Postretirement benefit cost
consisted of the following components:
1994 1995 1996 1996
(Predecessor) (Successor)
Service cost $ 89 $ 138 $ 41 $ 71
Interest cost 287 278 83 229
------ ------ ------ ------
$ 376 $ 416 $ 124 $ 300
====== ====== ====== ======
Management believes that the 1994, 1995 and 1996 (Predecessor) allocated
amounts are reasonable and approximate the amounts that would have resulted from
a SFAS 106 calculation of postretirement benefit cost on a separate company
basis. The 1996 Successor amounts were determined on a stand alone company
basis.
The Company has assumed responsibility for the accrued benefits
attributable to employees of the Company. Pursuant to the Agreement, the Company
established employee benefit plans which are substantially similar to Springs'
employee benefit plans.
F-13
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
10. EMPLOYEE BENEFIT PLANS - (Continued)
The following table sets forth the status of the Company's obligation
under SFAS No. 106 at the end of 1995 and 1996:
Accumulated postretirement benefit obligation ("APBO") 1995 1996
-------- --------
Retirees ............................................ $ 1,200 $ 1,473
Fully eligible active plan participants ............. 800 393
Other active participants ........................... 2,000 2,145
-------- --------
Accumulated postretirement benefit obligation ....... $ 4,000 $ 4,011
Unrecognized gain/(loss) ............................ 0 (27)
-------- --------
Total recorded obligation ........................... $ 4,000 $ 3,984
======== ========
The 1995 and 1996 balance sheets include a liability of $4,000 and $3,984,
respectively, which is classified in "Long-Term Benefit Plans, Deferred
Compensation and Other."
For measurement purposes, an 11.4% annual rate of increase in the per
capita cost of covered health care benefits was assumed. This 11.4% rate is
assumed to decrease gradually to 6.3% until the year 2006 and remain at that
level thereafter. If the health care cost trend rate were increased by one
percent, the APBO would increase by 11% and postretirement benefit cost would
increase by approximately 10%. The discount rate used in determining the APBO at
December 28, 1996 was 7.75%.
11. INCOME TAXES
The following tables present the components of the provision for income
taxes, a reconciliation of the statutory U.S. income tax rate to the effective
income tax rate, and the principal items of deferred income tax assets and
liabilities at the end of 1994, 1995, 1996 (Predecessor) and 1996 (Successor).
Components of the total income tax provision were as follows:
1994 1995 1996 1996
-------- -------- -------- --------
(Predecessor) (Successor)
Current federal .......... $ 6,002 $ 8,622 $ 3,739 $ 6,011
Current state ............ 903 1,297 563 1,096
-------- -------- -------- --------
Total current ............ 6,905 9,919 4,302 7,107
-------- -------- -------- --------
Deferred federal 502 129 56 (18)
Deferred state 75 47 20 (3)
-------- -------- -------- --------
Total deferred 577 176 76 (21)
-------- -------- -------- --------
Total provision $ 7,482 $ 10,095 $ 4,378 $ 7,086
======== ======== ======== ========
The total provision is included in the statements of income as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1996
-------- -------- -------- --------
(Predecessor) (Successor)
<S> <C> <C> <C> <C>
Provision on income before income taxes .... $ 4,896 $ 8,444 $ 3,595 $ 5,460
Income from equity investees ............... 728 1,582 783 1,626
Income of discontinued operations .......... 264 69 0 0
Gain on sale of discontinued operations .... 1,594 0 0 0
-------- -------- -------- --------
Total provision $ 7,482 $ 10,095 $ 4,378 $ 7,086
======== ======== ======== ========
</TABLE>
F-14
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
11. INCOME TAXES - (Continued)
The difference between the federal statutory tax rate and the effective
tax rate on income before income taxes was as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1996
-------- -------- -------- --------
(Predecessor) (Successor)
<S> <C> <C> <C> <C>
Provision at federal statutory tax rate ...... 35.0% 35.0% 35.0% 35.0%
State income tax, net of federal tax effect .. 3.5 3.4 3.4 4.2
Amortization of acquisition price not
deductible for tax purposes ................ 1.2 0.7 0.7 2.1
Other ........................................ 1.0 0.8 0.9 (0.2)
-------- -------- -------- --------
Effective tax rate 40.7% 39.9% 40.0% 41.1%
======== ======== ======== ========
</TABLE>
Temporary differences and the related balances of deferred tax assets and
liabilities were as follows:
1995 1996
-------- --------
Employee benefit accruals .......................... $ 1,975 $ 3,356
Deferred compensation .............................. 186 0
Equity investments ................................. 2,562 2,376
Environmental reserve .............................. 67 0
Other items ........................................ 940 419
-------- --------
Total deferred tax assets .......................... 5,730 6,151
-------- --------
Property ........................................... 6,638 12,185
Equity investments ................................. 12,719 12,551
Inventories ........................................ 2,943 4,362
Other items ........................................ 280 566
-------- --------
Total deferred tax liabilities ..................... 22,580 29,665
-------- --------
Net deferred tax liabilities ....................... $ 16,850 $ 23,514
======== ========
12. EQUITY INVESTMENTS
CS-Interglas AG ("Interglas")---In March 1993, the Company contributed two
European subsidiaries and $8.8 million to Interglas, a company which
manufactures fiber glass, aramid and carbon fabrics, in exchange for a 24.9%
common stock interest and convertible notes with a face value of 20 million
Deutsche marks (the "Convertible Notes"). No gain or loss was recognized as a
result of this exchange. The Company's common stock investment in Interglas had
a carrying value of $12,809 and $14,282 at December 30, 1995 and December
28,1996, respectively.
The Convertible Notes, which had a carrying value of $13,922 and $13,037
at December 30, 1995 and December 28, 1996, respectively, are convertible into
common stock of Interglas at any time after December 31, 1996. At the Company's
option, conversion would result in the Company owning a total of 42% of the
outstanding common stock of Interglas as of December 28, 1996. Interest on the
Convertible Notes, which is included in income from equity investees, is at 8%
through December 31, 1996 and 5% thereafter. Interest income in 1994, 1995 and
1996 was recognized on an accrual basis. If Convertible Notes are not converted,
the principal balance plus outstanding interest becomes due on June 30, 2007.
Asahi-Schwebel Co. Ltd. ("ASCO")--- The Company owns a 39% common equity
interest in ASCO, a company which manufactures fiber glass fabrics. ASCO
operates a facility in Japan and, in 1996, acquired a majority interest in a
fiberglass manufacturer located in Taiwan. The Company's investment in ASCO had
a carrying value of $33,205 and $32,586 at December 30, 1995 and December 28,
1996,
F-15
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
12. EQUITY INVESTMENTS - (Continued)
respectively. The carrying value at December 28, 1996 exceeds 39% of ASCO's
total equity by approximately $2,700, which is being amortized on a
straight-line basis through 2008.
Clark-Schwebel Tech-Fab Company ("Tech-Fab")---The Company owns a 50%
partnership interest in Tech-Fab, a joint venture which manufactures nonwoven
fabrics using fiber glass and other synthetic materials. The Company's
investment in Tech-Fab had a carrying value of $2,968 and $3,521 at December 30,
1995 and December 28, 1996, respectively.
Combined Summarized Financial Information---The following table provides
combined summarized balance sheet information for these investees as of December
30, 1995 and December 28, 1996:
1995 1996
-------- --------
Current assets ............................. $139,541 $138,351
Noncurrent assets .......................... 101,538 127,221
-------- --------
Total assets ............................... $241,079 $265,572
======== ========
Current liabilities ........................ $ 47,883 $ 54,975
Noncurrent liabilities ..................... 92,345 85,665
Minority interest .......................... 0 9,715
Redeemable equity instrument ............... 21,341 21,341
Equity ..................................... 79,510 93,876
-------- --------
Total liabilities and equity ............... $241,079 $265,572
======== ========
The following table provides combined summarized income statement
information for these investees for the years ended December 31, 1994, December
30, 1995, and December 28,1996:
1994 1995 1996
-------- -------- --------
Net sales ................... $266,251 $328,145 $317,918
Operating income ............ 8,303 20,761 35,163
Net income .................. 3,045 13,207 16,643
======== ======== ========
13. MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS, AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Sales to two customers exceeded 10% of net sales during fiscal 1994, 1995,
and 1996. Sales to the two customers represented as a percentage of net sales
40.2% in 1994, 42.3% in 1995, 43.4% in 1996 (Predecessor), and 43.2% in 1996
(Successor), respectively. Accounts receivable due from the these two customers
as a percent of total accounts receivable was 52% at December 30, 1995 and 57.8%
at December 28, 1996. Although the Company's exposure to credit risk could be
affected by conditions or occurrences within these customers' industry, no
indication of such adverse circumstances existed at December 28, 1996.
The Company currently buys substantially all of its fiberglass yarn, an
important component of its products, from two suppliers and substantially all of
its aramid yarn from one supplier. There are a limited number of manufacturers
of fiberglass yarn and aramid yarn.
The Company's financial instruments include cash, short term investments,
accounts receivable, Convertible Notes, accounts payable and long-term debt.
Management estimates that the carrying value of such instruments approximates
fair value, with the exception of the Senior Notes (see Note 4).
F-16
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
14. COMMITMENTS AND CONTINGENCIES
The Company leases certain machinery and equipment under noncancelable
operating leases. Rent expense attributed to such leases was $432, $384, $177,
and $314 in 1994, 1995, 1996 (Predecessor), and 1996 (Successor), respectively.
Future minimum payments under the non-cancelable operating leases as of
December 28, 1996 were as follows:
1997 .................................. $ 473
1998 .................................. 217
1999 .................................. 96
2000 .................................. 81
2001 .................................. 79
-----
$ 946
=====
Prior to the Closing Date of the Acquisition, the Company was involved in
administrative proceedings under environmental laws and regulations, including
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act. On the closing date, Springs assumed all liabilities related to
the costs associated with these environmental matters. The Company had an
accrual of $175 related to these matters as of December 30, 1995. There was no
material provision for environmental matters in 1994, 1995 or 1996.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not materially affect the Company's financial
position or results of operations.
15. DISCONTINUED OPERATIONS
In June 1994, the Company sold substantially all the assets of certain
subsidiaries engaged in a separate line of business which had revenues of
$42,925 for the first six months of 1994. The Company reported a gain on this
transaction of $2,573, net of taxes of $1,594.
In January 1996, the Company sold its equity investment in a company
engaged in a separate line of business for an amount which approximated book
value. The proceeds received were distributed to Springs. The equity earnings
from this investment also are included in Discontinued Operations in the
Company's financial statements.
16. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, certain members of management (the
"Management Investors") made equity contributions to the Company pursuant to a
Management Subscription Agreement which provided the terms under which the
Management Investors could purchase shares in the Company. The Management
Subscription Agreement set forth the share price, vesting provisions,
disposition of shares upon termination of employment, and certain other rights
of the Management Investors with respect to the shares.
F-17
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(DOLLARS in THOUSANDS)
16. RELATED PARTY TRANSACTIONS - (Continued)
The Management Investors purchased $1.8 million, or 18%, of the common
equity in the Company. Approximately $0.8 million of the purchase price was
financed by the Company through a promissory note (the "Note"). The Note bears
interest at a rate of 6.51% annually. Principal and interest payments are
payable annually on April 17 through 2001. The remaining principal and accrued
interest are due in a balloon payment on April 17, 2006. In the event of the
sale or disposition of the shares, net proceeds from the sale or disposition
will be first applied to repayment of the Note.
The Management Investors have entered into a Securityholders Agreement
with the Company and Vestar/CS Holding which contains certain agreements among
such parties with respect to the capital stock and corporate governance of the
Company. The Securityholders Agreement gives Vestar/CS Holding the right to
appoint all members to the Board of Directors of the Company. Additionally, the
Securityholders Agreement restricts the ability of Management Investors to
transfer their equity interest except upon (A) the exercise of their tag along
rights, which allows Management Investors to sell their equity interest when
Vestar/CS Holding sells its equity interest in the Company; (B) a sale of the
Company; (C) the exercise of certain put and call options under the Management
Subscription Agreement; (D) a public sale of the Company's common stock.
The Management Investors have entered into a Voting Trust Agreement with
the Company and Vestar/CS Holding which requires Management Investors to vote
all of their common stock as directed by Vestar/CS Holding for the approval of
any of the following: amendment to the Company's Certificate of Incorporation,
merger, share exchange, combination or consolidation of the Company with any
other person, the sale, lease or exchange of all or substantially all of the
property and assets of the Company, or the reorganization, recapitalization,
liquidation, or dissolution of the Company.
Pursuant to a Management Advisory Agreement (the "Management Agreement"),
Vestar Capital Partners will receive an annual fee and reimbursement of
out-of-pocket expenses for management and financial consulting services provided
to the Company. Such services include advising the Company on the establishment
of effective banking, legal and other business relationships, and assisting
management in developing and implementing strategies for improving the
operational, marketing and financial performance of the Company. The management
advisory fees to be paid per annum will equal the greater of (i) 1.0% of the
consolidated earnings of the Company before interest, taxes, depreciation and
amortization or (ii) $350. Approximately $258 was paid to Vestar pursuant to the
Management Agreement for services rendered between April 18, 1996 and December
28, 1996 (Successor Company).
Upon consummation of the Acquisition, the Company paid to Vestar Capital
Partners an investment banking fee of approximately $1.5 million plus
out-of-pocket expenses for its services in structuring the transaction and
providing financial advice in connection therewith. Additionally, a member of
the Company's Board of Directors received a fee of approximately $600 for his
consulting services in connection with the Acquisition.
F-18
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 and JUNE 28, 1997
(Dollars in Thousands Except Per Share Data)
DECEMBER 28, JUNE 28,
1996 1997
---- ----
(Successor Basis) (Successor Basis)
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $ 4,064 $ 14,352
Accounts receivable, net ............... 25,794 26,351
Inventories, net ....................... 32,633 36,763
Other .................................. 592 703
--------- ---------
Total current assets ............. 63,083 78,169
--------- ---------
PROPERTY, PLANT AND EQUIPMENT ................ 67,936 68,149
Accumulated depreciation ............... (5,841) (8,514)
--------- ---------
Property, plant and equipment, net 62,095 59,635
--------- ---------
EQUITY INVESTMENTS ........................... 63,426 62,130
GOODWILL ..................................... 44,333 43,780
OTHER ASSETS ................................. 6,808 6,391
--------- ---------
TOTAL ASSETS ................................. $ 239,745 $ 250,105
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payables ...................... $ 21,448 $ 28,973
Accrued liabilities .................... 14,338 13,561
Deferred tax liabilities - current ..... 2,056 2,056
Current maturities of long-term debt ... 51 366
--------- ---------
Total current liabilities ........ 37,893 44,956
--------- ---------
LONG-TERM DEBT ............................... 123,440 120,824
DEFERRED TAX LIABILITIES ..................... 21,458 20,170
LONG-TERM BENEFIT PLANS AND OTHER ............ 7,121 9,535
--------- ---------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES ............................ 189,912 195,485
--------- ---------
EQUITY
Preferred stock (par value per
share - $.01) - 12.5%
participating, 10,000 shares
authorized, 1,000 shares issued
and outstanding (see Note 6) ......... 35,000 35,000
Common stock (par value per
share - $.01) - 100,000
shares authorized, 9,000
shares issued and outstanding, less
management loans of $822 and $799,
respectively (see Note 6) ............ 9,178 9,201
Retained earnings ...................... 7,005 13,987
Cumulative translation adjustment ...... (1,350) (3,568)
--------- ---------
Total equity ..................... 49,833 54,620
--------- ---------
TOTAL LIABILITIES AND EQUITY ................. $ 239,745 $ 250,105
========= =========
See notes to consolidated financial statements.
F-19
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31, April 18, March 30, December 29,
1996 - 1995 - 1996 - 1997 - 1996 -
April 17, April 17, June 29, June 28, June 28,
1996 1996 1996 1997 1997
--------- --------- --------- --------- ---------
(Predecessor Basis) (Successor Basis)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 8,741 $ 68,911 $ 47,330 $ 61,061 $ 123,299
Cost of goods sold ........................ 7,107 54,958 37,744 47,217 95,851
--------- --------- --------- --------- ---------
Gross profit .............................. 1,634 13,953 9,586 13,844 27,448
Selling, general and administrative
Expenses .............................. 937 4,812 3,023 3,825 7,727
--------- --------- --------- --------- ---------
Operating income ...................... 697 9,141 6,563 10,019 19,721
Other income (expense):
Interest expense ...................... (20) (148) (3,134) (3,147) (6,427)
Other, net ............................ (5) (5) (1) (3) (3)
--------- --------- --------- --------- ---------
Income before income taxes ................ 672 8,988 3,428 6,869 13,291
Provision for income tax .................. (269) (3,595) (1,471) (2,824) (5,475)
Income from equity investees, net ......... 267 1,174 985 944 1,582
--------- --------- --------- --------- ---------
Net income ................................ $ 670 $ 6,567 2,942 4,989 9,398
========= =========
Accrued dividends on preferred stock ...... (873) (1,225) (2,416)
--------- --------- ---------
Net income applicable to common shares $ 2,069 $ 3,764 $ 6,982
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, December 29,
1995 - April 18 - 1996 -
April 17, June 29, June 28,
1996 1996 1997
--------- --------- ---------
(Predecessor Basis) (Successor Basis)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................. $ 6,567 $ 2,942 $ 9,398
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of goodwill
and unearned revenue ................................................ 3,526 2,006 4,562
Amortization of deferred financing cost ............................. 0 173 417
Deferred tax provision .............................................. 1,404 (112) (595)
Income from equity investments, net ................................. (1,174) (985) (1,540)
Loss on sale of equipment ........................................... 0 0 11
Changes in assets and liabilities, net of the Effects of the purchase
of the company:
Accounts receivable ........................................... 1,832 1,620 (557)
Inventories ................................................... (2,883) 1,466 (4,130)
Prepaid expenses and other .................................... (187) 105 98
Accounts payable .............................................. (697) 7,784 7,525
Accrued liabilities ........................................... (289) 5,301 (570)
Other ............................................................... (131) 1,208 (6)
--------- --------- ---------
Net cash provided by operating activities ......................... 7,968 21,508 14,613
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of equipment ................................................. (1,603) (396) (3,541)
Payment for purchase of Company ........................................ 0 (192,895) 0
Proceeds from sale of equipment ........................................ 0 0 1,494
--------- --------- ---------
Net cash used in investing activities ....................... (1,603) (193,291) (2,047)
--------- --------- ---------
FINANCING ACTIVITIES:
Investment by .......................................................... (10,955) 0 0
Springs
Transfer of assets retained by Springs ................................. 4,461 0 0
Proceeds from issurance of stock ....................................... 0 45,000 0
Payment of acquisition fees, net ....................................... 0 (10,500) 0
Loans to management investors .......................................... 0 (822) 0
Proceeds from long-term borrowings ..................................... 0 160,000 0
Principal payments under long-term debt and
capital lease obligations ........................................... (29) (18,764) (2,301)
Proceeds from repayment of loans to
management investors ................................................ --------- --------- ---------
Net cash provided by (used in) financing
activities .................................................. (6,523) 174,914 (2,278)
--------- --------- ---------
NET CHANGE IN CASH ........................................................... (158) 3,131 10,288
CASH, BEGINNING OF PERIOD .................................................... 584 426 4,064
--------- --------- ---------
CASH, END OF PERIOD .......................................................... $ 426 $ 3,557 $ 14,352
========= ========= =========
CASH PAID FOR INTEREST ....................................................... $ 120 $ 516 $ 6,030
========= ========= =========
CASH PAID FOR TAXES .......................................................... $ 0 $ 100 $ 6,372
========= ========= =========
</TABLE>
Noncash Transaction: The company accrued dividends on preferred stock of $2,416
for the period of December 29, 1996 - June 28, 1997.
See notes to consolidated financial statements
F-21
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS in THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the assets,
liabilities and results of operations as of June 28, 1997 and for the period
from December 29, 1996 to June 28, 1997 of Clark-Schwebel Holdings, Inc., the
successor company ("Company"), following the change in ownership (see Note 2).
The Company's primary asset is all of the capital stock of Clark-Schwebel, Inc.,
its operating company. The statements also include the assets and liabilities of
the Company as of December 28, 1996, and the results of operations for the
period of December 31, 1995 to April 17, 1996 of Fort Mill A Inc., the
predecessor company ("Predecessor Company"), prior to the change in ownership,
and the results of operations of Clark-Schwebel Holdings, Inc., the successor
company, for the period from April 18, 1996 to June 29, 1996, following the
change in ownership. The statements of the Predecessor Company include certain
expenses that historically were accounted for only at the Springs Industries,
Inc. ("Springs") - parent company level.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany balances and transactions have been eliminated. The
balance sheet at December 28, 1996 has been derived from the audited financial
statements at that date. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for interim periods are
not necessarily indicative of results for the entire year. For further
information, refer to the Company's consolidated financial statements and
footnotes for the year ended December 28, 1996 included in the Company's Form
10-K for the year then ended.
2. CHANGE IN OWNERSHIP TRANSACTION
On February 24, 1996, the Company, Springs and affiliates of Vestar Equity
Partners, L.P. (Vestar), entered into an Agreement and Plan of Merger
(Agreement) whereby an affiliate of Vestar would acquire the Company (the
"Acquisition"). Pursuant to the Agreement, on April 17, 1996 (Closing Date),
Vestar/CS Holding Company, LLC (Vestar/CS) purchased all of the issued and
outstanding capital stock of Fort Mill A Inc. from Springs for approximately
$192,895. The sources of cash for this purchase included $110,000 of senior
notes, an equity contribution of $45,000 and bank debt. On the day following the
Closing Date, Vestar/CS had an 82% common equity interest and management
investors had an 18% common equity interest in the Company.
Under the Agreement, Springs agreed to (i) assume responsibility for
repayment of the Industrial Revenue Bonds payable in 2010 and related accrued
interest, (ii) pay $959 in certain accrued employee benefits, (iii) provide
indemnification for certain environmental, tax and other matters, (iv) retain
the accounts receivable from one customer (which totaled $2,782 as of December
30, 1995) and related $1,400 reserve, and (v) retain the $99 accrued obligation
related to the Company's Long-term Disability Plan. At the Closing Date, all
payable and receivable accounts between the Company and Springs were canceled.
The acquisition was accounted for as a purchase business combination. The
adjustment to net assets represents the step-up to fair value of the net assets
acquired as follows:
F-22
<PAGE>
Purchase price .................................................... $ 192,895
Nonfinancing portion of fees and expenses ......................... 2,780
---------
Total purchase price .............................................. 195,675
Less fair value of net assets acquired ............................ (150,547)
---------
Excess of purchase price over fair value of net assets acquired ... $ 45,128
=========
The fair values of Clark-Schwebel, Inc.'s assets and liabilities at the
date of acquisition are presented below:
Current assets ................................................... $ 68,410
Property, plant and equipment ..................................... 66,391
Equity investments ................................................ 62,314
Current liabilities ............................................... (20,282)
Other liabilities ................................................. (26,286)
---------
Net assets acquired ............................................... $ 150,547
=========
Following the acquisition, the purchase cost (including the fees and
expenses related thereto) was allocated to the tangible and intangible assets
and liabilities of the Company based upon their respective fair values. This
resulted in a step-up in the basis of inventory of $5,274 and property, plant
and equipment of $15,000. The excess of the purchase price over the fair value
of net assets acquired of $45,128 was recorded as goodwill, and is being
amortized on a straight-line basis over a period of 40 years.
Additional agreements include Transition Agreements for specified periods
in which Springs would be compensated for certain services provided to the
Company, and a Management Agreement that specifies services to be provided to
the Company by an affiliate of Vestar.
In accordance with agreements related to the change of ownership
transaction, certain assets totaling $4,461 were transferred to Springs in the
first quarter of 1996. This balance has been separately disclosed on the face of
the accompanying 1996 statements of cash flows.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies used in the
preparation of the financial statements of the Company.
Basis of Consolidation - The consolidated financial statements include the
accounts of the Company and its operating company and wholly-owned subsidiary,
Clark-Schwebel, Inc. All material intercompany amounts and transactions have
been eliminated.
Fiscal Year - The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to December 31.
Accordingly, the interim periods will also be reported on the Saturday closest
to the calendar quarter end. The fiscal year ended January 3, 1998 is referrred
to herein as 1997. The fiscal year ended December 28, 1996 is referred to herein
as 1996. The 1996 fiscal year consisted of 52 weeks, while the 1997 fiscal year
will consist of 53 weeks.
F-23
<PAGE>
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates include the allowance for doubtful
accounts receivable and the liabilities for certain long-term benefit plans.
Actual results could differ from such estimates.
Revenue Recognition - Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer and the earnings process is
complete. This generally occurs when the goods are shipped.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand
and in the bank as well as short term investments held for the purpose of
general liquidity. Such investments normally mature within three months from the
date of aquisition.
Accounts Receivable - The Company establishes an allowance for doubtful
accounts based upon factors including the credit risk of specific customers,
historical trends and other information. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for substantially all
inventories.
Property, Plant, and Equipment - Property, plant, and equipment is
recorded at cost and depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets. Estimated useful lives are as
follows:
Land improvements .................................. 10 to 20 years
Buildings and improvements ......................... 20 to 40 years
Machinery and equipment ............................ 3 to 11 years
Equity Investments - The company owns equity interests in CS-Interglas AG
(headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan)
and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are
accounted for using the equity method of accounting.
Foreign Currency - The foreign equity investments are translated at
year-end exchange rates. Equity income and losses are translated at the average
rate during the year. Cumulative translation adjustments are reflected as a
separate component of stockholders' equity.
Postretirement Benefits - Postretirement benefits are accounted for
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. SFAS No.
106 requires that the projected future cost of providing postretirement
benefits, such as health care and life insurance, be recognized as an expense as
employees render service rather than when claims are incurred.
Income Taxes - Income taxes are accounted for pursuant to SFAS 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income tax assets and
liabilities represent the future income tax effect of temporary differences
between the book and tax bases of assets and liabilities assuming they will be
realized and settled at the amounts reported in the financial statements. The
provision for income taxes included in the accompanying financial statements is
computed in a manner consistent with SFAS No. 109.
F-24
<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 28, June 28,
1996 1997
--------- ---------
<S> <C> <C>
Senior Notes, payable in 2006, interest at 10.5% ........... $ 110,000 $ 110,000
Term Loan payable in quarterly installments; subsequently
prepaid in July 1997 (see Note 6) ...................... 13,440 11,190
Revolving Credit Agreement, due 2002, interest at variable
rates .................................................. 0 0
Capitalized lease obligation payable in equal monthly
installments of $7, through June 1997 .................. 51 0
--------- ---------
Total ...................................................... 123,491 121,190
Less current maturities .................................... (51) (366)
--------- ---------
Long-term debt ............................................. $ 123,440 $ 120,824
========= =========
</TABLE>
The senior notes accrue interest at a fixed rate of 10.5% per annum, with
interest payable semiannually in arrears on April 15 and October 15. The senior
notes are not redeemable at the option of the Company prior to April 15, 2001,
except in the event of a public equity offering of the Company, at which time a
portion of the senior notes would be redeemable. The debt under the credit
facility bears interest which varies with LIBOR plus a margin which varies with
the Company's leverage ratio. On June 28, 1997 the interest rate was 7.19% per
annum. Interest is typically payable monthly. The Company pays a quarterly
commitment fee equal to 0.375% on the unused portion of the revolving credit
facility which was $55,000 at June 28, 1997.
The revolving credit facility and the senior notes contain certain
restrictive covenants which provide limitations on the company with respect to
restricted payments, indebtedness, liens, investments, dividends, distributions,
transactions with affiliates, debt repayments, capital expenditures, mergers,
and consolidations. The bank facility and senior note covenants also require
maintenance of certain financial ratios. At June 28, 1997, the Company was in
compliance with such covenants.
The aggregate five-year maturities of long-term debt subsequent to June
28, 1997 follow: 1997 - $366; 1998 - $1,665; 1999 - $2,081; 2000 - $2,498; 2001
- - $2,914. These amounts relate to the Term Loan which was subsequently prepaid
in July 1997.
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 28, June 28,
1996 1997
-------- --------
<S> <C> <C>
-------- --------
Finished goods ............................................. $ 9,264 $ 12,452
Raw material and supplies .................................. 9,254 10,093
In process ................................................. 15,215 15,581
-------- --------
Total at standard cost (which approximates average cost) ... 33,733 38,126
Less LIFO reserve .......................................... (1,100) (1,363)
-------- --------
Inventories, net ........................................... $ 2,633 $ 36,763
======== ========
</TABLE>
F-25
<PAGE>
6. Subsequent Events
On July 14, 1997, the Company amended the terms of its outstanding
participating preferred stock (the "Preferred Stock") by amending and restating
its certificate of incorporation (the "Certificate") to allow the Company to
redeem such Preferred Stock using one of the following alternatives: (i) on or
after August 14, 1997 for 12.5% Senior Debentures due 2007 (the "Senior
Debentures") of the Company and up to $5 million in cash (on the terms and
subject to the conditions set forth in the Certificate); (ii) on or after August
14, 1997 but prior to July 15, 2002 for cash in an amount equal to 112.5% of the
sum of the liquidation value of the Preferred Stock and all accumulated
dividends thereon; (iii) after July 15, 2002 for cash in an amount equal to a
percentage of the sum of the liquidation value of the Preferred Stock and all
accumulated dividends thereon (106.25% for redemptions in the year beginning on
July 15, 2002; 104.167% for redemptions in the year beginning on July 15, 2003;
102.083% for redemptions in the year beginning on July 15, 2004; and 100% for
redemptions in the year beginning on July 15, 2005 and thereafter); and (iv)
upon the consummation of a change of control transaction or a public or private
equity offering for cash in an amount equal to 106% of the liquidation value of
the Preferred Stock and all accumulated dividends thereon. All accrued but
unpaid dividends on the Preferred Stock to the date of redemption and certain
consideration (either cash or shares of the Company's Common Stock) for the
participation feature of the Preferred Stock will be payable on the date of any
such redemption. The Preferred Stock must be redeemed by the Company on July 15,
2007. Accordingly, Preferred Stock outstanding subsequent to July 14, 1997 will
not be included in the Equity classification on the Company's consolidated
balance sheet.
If the Company does not exercise one of its redemption options, or until
it does, the Company's Certificate provides that dividends will be paid
quarterly in cash at the rate of 12.5% to the extent permitted by the Credit
Agreement and the indenture governing the Senior Notes. If the Company chooses
not to redeem all of its outstanding Preferred Stock by August 28, 1997, the
holders thereof are entitled to certain shelf registration rights.
The Senior Debentures, if issued, would be subject to an indenture
containing terms similar to those contained in the indenture governing the
Senior Notes and the holders thereof would be entitled to certain registration
rights. Interest on the Senior Debentures would be payable in cash semi-annually
to the extent permitted by the Credit Agreement and the indenture governing the
Senior Notes. If the Company is unable to pay interest in cash due to the
prohibitions contained in the Credit Agreement or such indenture, interest on
the Senior Debentures would be payable in additional Senior Debentures.
Additionally, on July 14, 1997, the Company prepaid all of its outstanding
indebtedness under the Term Loan and amended the Credit Agreement to provide,
among other things, that the Company may, subject to certain conditions, pay
cash dividends on the Preferred Stock, pay up to $5 million in cash and issue
Senior Debentures in a redemption of the Preferred Stock, and make semi-annual
interest payments in cash on the Senior Debentures. The Revolving Credit
Facility under the Credit Agreement was also amended to increase the aggregate
amount of commitments thereunder to $65 million.
Vestar/CS-Holding sold the Preferred Stock on July 14, 1997 and
simultaneously purchased 10% of the outstanding Common Stock of the Company from
the management investors on a pro rata basis. Upon the consummation of that
transaction, all of the Company's outstanding loans to management were repaid in
full.
F-26
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE EXCHANGE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE BY THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE CLARK-SCHWEBEL, INC. AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
PAGE
Available Information .................................................... 4
Prospectus Summary ....................................................... 6
Summary Historical and Pro Forma Financial Data .......................... 15
Risk Factors ............................................................. 19
The Transactions ......................................................... 25
Use of Proceeds .......................................................... 27
Capitalization ........................................................... 28
Selected Historical Financial Data ....................................... 29
Unaudited Pro Forma Financial Statements ................................. 33
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................................................. 41
The Business ............................................................. 54
Management ............................................................... 62
Security Ownership ....................................................... 67
Certain Relationships and Related Transactions ........................... 69
Description of Certain Indebtedness ...................................... 71
Description of New Debentures ............................................ 73
The Exchange Offer ....................................................... 101
Certain Federal Income Tax Consequences .................................. 111
Plan of Distribution ..................................................... 111
Legal Matters ............................................................ 112
Experts .................................................................. 112
Index to Financial Statements ............................................ F-1
------------------
Until November 8, 1996, (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
[LOGO]
CLARK-SCHWEBEL
HOLDINGS, INC.
----------------------
PROSPECTUS
----------------------
OFFER TO EXCHANGE ITS
12 1/2% SERIES B SENIOR DEBENTURES
DUE 2007
FOR ANY AND ALL
OF ITS OUTSTANDING
12 1/2% SERIES A SENIOR DEBENTURES
DUE 2007
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Holdings is incorporated under the laws of the State of Delaware. Section 145 of
the General Corporation Law of the State of Delaware, inter alia, ("Section
145") provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Holdings' Certificate of Incorporation and By-laws provides for the
indemnification of directors and officers of Holdings to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as it
currently exists or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Holdings maintains and has in effect insurance policies covering all of
Holdings' directors and officers against certain liabilities for actions taken
in such capacities, including liabilities under the Securities Act of 1933.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of Clark-Schwebel
Holdings, Inc.*
3.2 Amended and Restated By-laws of Clark-Schwebel Holdings, Inc.*
4.1 Indenture dated as of August 14, 1997 between Clark-Schwebel
Holdings, Inc. and State Street Bank and Trust Company.
4.2 Rights Agreement dated as of July 14, 1997 between Clark-Schwebel
Holdings, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation.*
5.1 Form of Opinion and consent of Kirkland & Ellis.*****
9.1 Voting Trust Agreement, made as of April 17, 1996, by and among
Clark-Schwebel Holdings, Inc., Vestar/CS Holding Company, L.L.C. and
other parties thereto.**
10.1 Credit Agreement, dated as of April 17, 1996, among Clark-Schwebel
Holdings, Inc., Clark-Schwebel, Inc., and the several banks and
other financial institutions from time to time parties thereto and
The Chase Manhattan Bank (the "Agent").**
10.2 Security Agreement, dated as of April 17, 1996, made by
Clark-Schwebel Holdings, Inc. in favor of the Agent.**
10.3 Pledge Agreement, dated as of April 17, 1996, made by Clark-Schwebel
Holdings, Inc. in favor of the Agent.**
10.4 Guarantee Agreement, dated as of April 17, 1996, made by
Clark-Schwebel Holdings, Inc. in favor of the Agent.**
10.5 Management Agreement, dated as of April 17, 1996, between
Clark-Schwebel Holdings, Inc. and Springs Industries, Inc.**
10.6 Intellectual Property Security Agreement, among Clark-Schwebel
Holdings, Inc., Clark-Schwebel, Inc. and the other parties
thereto.**
10.7 Indenture, dated as of April 17, 1996, among Clark-Schwebel
Holdings, Inc., Clark-S Acquisition Corporation, CS Finance
Corporation of Delaware and Fleet National Bank, as Trustee.**
10.8 First Amendment to the Credit Agreement, dated as of March 27, 1997,
among Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc., the Agent
and the other parties thereto.***
10.9 Second Amendment to the Credit Agreement, dated as of July 14, 1997,
among Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc., the Agent
and the other parties thereto.*
- ---------------------------
* Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.
** Previously filed with the Company's Registration Statement on Form S-4,
Registration No. 333-4722.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997.
**** Previously filed with the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
***** To be filed by amendment.
II-2
<PAGE>
10.1 Executive Bonus Plan 1996.****
10.1 Executive Bonus Plan 1997.****
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*****
24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.*****
27.1 Financial Data Schedule.*/****
99.1 Form of Letter of Transmittal.*****
99.2 Form of Notice of Guaranteed Delivery.*****
99.3 Form of Tender Instructions.*****
(b) Financial Statement Schedules.
Not Applicable.
- ---------------------------
* Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.
** Previously filed with the Company's Registration Statement on Form S-4,
Registration No. 333-4722.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997.
**** Previously filed with the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
***** To be filed by amendment.
II-3
<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of the chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson, State of South
Carolina, on September __, 1997.
CLARK-SCHWEBEL HOLDINGS, INC.
By: /s/ William D. Bennison
-------------------------------------
Name: William D. Bennison
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Donald R. Burnette, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as a director and/or officer of Clark-Schwebel Holdings, Inc.), to
sign any or all amendments (including post-effective amendments) to this
registration statement and any subsequent registration statement filed pursuant
to Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement and power of attorney have been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/William D. Bennison President and September __, 1997
- -------------------------------- Director (principal
William D. Bennison executive officer)
/s/Jack P. Schwebel Chairman of the Board September __, 1997
- --------------------------------
Jack P. Schwebel
/s/Richard C. Wolfe Executive Vice September __, 1997
- -------------------------------- President and
Richard C. Wolfe Director
/s/Donald R. Burnette Vice President and September __, 1997
- -------------------------------- Chief Financial
Donald R. Burnette Officer (principal
financial officer)
/s/Kyle J. Davidson Controller (principal September __, 1997
- -------------------------------- accounting
Kyle J. Davidson officer)
/s/Norman W. Alpert Director September __, 1997
- --------------------------------
Norman W. Alpert
/s/John D. Howard Director September __, 1997
- --------------------------------
John D. Howard
/s/Sander M. Levy Director September __, 1997
- --------------------------------
Sander M. Levy
/s/Daniel S. O'Connell Director September __, 1997
- --------------------------------
Daniel S. O'Connell
II-6
Exhibit 4.1
Clark-Schwebel Holdings, Inc.
$45,994,000*
12-1/2% Senior Debentures due 2007
---------------
INDENTURE
Dated as of August 14, 1997
---------------
STATE STREET
BANK AND TRUST COMPANY
Trustee
- ----------
* An amount equal to the Debenture Exchange Amount (as defined in and
determined under the Company's Amended and Restated Certificate of
Incorporation filed on July 14, 1997 with the Secretary of State of
Delaware).
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE ............................. 1
SECTION 1.1 DEFINITIONS .................................................. 1
SECTION 1.2 OTHER DEFINITIONS ............................................ 17
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT ............ 18
SECTION 1.4 RULES OF CONSTRUCTION ........................................ 18
ARTICLE 2
THE SENIOR DEBENTURES ........................ 19
SECTION 2.1 FORM AND DATING .............................................. 19
SECTION 2.2 EXECUTION AND AUTHENTICATION ................................. 19
SECTION 2.3 REGISTRAR AND PAYING AGENT ................................... 20
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST .......................... 20
SECTION 2.5 HOLDER LISTS ................................................. 21
SECTION 2.6 TRANSFER AND EXCHANGE ........................................ 21
SECTION 2.7 REPLACEMENT SENIOR DEBENTURES ................................ 21
SECTION 2.8 OUTSTANDING SENIOR DEBENTURES ................................ 22
SECTION 2.9 TREASURY SENIOR DEBENTURES ................................... 22
SECTION 2.10 TEMPORARY SENIOR DEBENTURES .................................. 22
SECTION 2.11 CANCELLATION ................................................. 23
SECTION 2.12 DEFAULTED INTEREST ........................................... 23
SECTION 2.13 BOOK-ENTRY PROVISIONS FOR GLOBAL SENIOR Debentures ........... 23
SECTION 2.14 SPECIAL TRANSFER PROVISIONS .................................. 25
ARTICLE 3
REDEMPTION AND PREPAYMENT ...................... 27
SECTION 3.1 NOTICES TO TRUSTEE ........................................... 27
SECTION 3.2 SELECTION OF SENIOR DEBENTURES TO BE REDEEMED ................ 27
SECTION 3.3 NOTICE OF REDEMPTION ......................................... 27
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION ............................... 28
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE .................................. 28
SECTION 3.6 SENIOR DEBENTURES REDEEMED IN PART ........................... 29
SECTION 3.7 OPTIONAL REDEMPTION .......................................... 29
SECTION 3.8 NO MANDATORY REDEMPTION ...................................... 30
ARTICLE 4
COVENANTS .............................. 30
SECTION 4.1 PAYMENT OF SENIOR DEBENTURES ................................. 30
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY .............................. 30
<PAGE>
SECTION 4.3 REPORTS ..................................................... 31
SECTION 4.4 COMPLIANCE CERTIFICATE ....................................... 31
SECTION 4.5 TAXES ........................................................ 32
SECTION 4.6 STAY, EXTENSION AND USURY LAWS ............................... 32
SECTION 4.7 CHANGE OF CONTROL ............................................ 33
SECTION 4.8 ASSET SALES .................................................. 34
SECTION 4.9 RESTRICTED PAYMENTS .......................................... 37
SECTION 4.10 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK ... 40
SECTION 4.11 SALE AND LEASEBACK TRANSACTIONS .............................. 42
SECTION 4.12 LIENS ........................................................ 42
SECTION 4.13 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES ............................................... 42
SECTION 4.14 TRANSACTIONS WITH AFFILIATES ................................. 43
SECTION 4.15 LINE OF BUSINESS ............................................. 44
SECTION 4.16 [Intentionally Omitted.] ..................................... 44
SECTION 4.17 CORPORATE EXISTENCE .......................................... 44
SECTION 4.18 ISSUANCES OF GUARANTEES OF INDEBTEDNESS ...................... 44
ARTICLE 5
SUCCESSORS .............................. 45
SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS ...................... 45
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED ............................ 45
ARTICLE 6
DEFAULTS AND REMEDIES ........................ 46
SECTION 6.1 EVENTS OF DEFAULT ............................................ 46
SECTION 6.2 ACCELERATION ................................................. 48
SECTION 6.3 OTHER REMEDIES ............................................... 48
SECTION 6.4 WAIVER OF PAST DEFAULTS ...................................... 48
SECTION 6.5 CONTROL BY MAJORITY .......................................... 49
SECTION 6.6 LIMITATION ON SUITS .......................................... 49
SECTION 6.7 RIGHTS OF HOLDERS OF SENIOR Debentures TO RECEIVE PAYMENT .... 49
SECTION 6.8 COLLECTION SUIT BY TRUSTEE ................................... 50
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM ............................. 50
SECTION 6.10 PRIORITIES ................................................... 50
SECTION 6.11 UNDERTAKING FOR COSTS ........................................ 51
ARTICLE 7
TRUSTEE ............................... 51
SECTION 7.1 DUTIES OF TRUSTEE ............................................ 51
SECTION 7.2 RIGHTS OF TRUSTEE ............................................ 52
<PAGE>
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE ................................. 53
SECTION 7.4 TRUSTEE'S DISCLAIMER ......................................... 54
SECTION 7.5 NOTICE OF DEFAULTS ........................................... 54
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR Debentures ....... 54
SECTION 7.7 COMPENSATION AND INDEMNITY ................................... 54
SECTION 7.8 REPLACEMENT OF TRUSTEE ....................................... 55
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC. ............................ 56
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION ................................ 56
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY ............ 57
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE ............... 57
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE ..... 57
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE ............................... 57
SECTION 8.3 COVENANT DEFEASANCE .......................................... 57
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE ................... 58
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS ...................... 59
SECTION 8.6 REPAYMENT TO COMPANY ......................................... 60
SECTION 8.7 REINSTATEMENT ................................................ 60
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER ................... 61
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF SENIOR DEBENTURES .............. 61
SECTION 9.2 WITH CONSENT OF HOLDERS OF SENIOR DEBENTURES ................. 61
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT .......................... 63
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS ............................ 63
SECTION 9.5 NOTATION ON OR EXCHANGE OF SENIOR Debentures ................. 63
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC. ............................. 64
ARTICLE 10
[Intentionally Omitted.] ....................... 64
ARTICLE 11
[Intentionally Omitted.] ....................... 64
ARTICLE 12
MISCELLANEOUS ............................ 64
SECTION 12.1 TRUST INDENTURE ACT CONTROLS ................................ 64
<PAGE>
SECTION 12.2 NOTICES ..................................................... 64
SECTION 12.3 COMMUNICATION BY HOLDERS OF SENIOR DEBENTURES
WITH OTHER HOLDERS OF ....................................... 66
SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT .......... 66
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION ............... 66
SECTION 12.6 RULES BY TRUSTEE AND AGENTS ................................. 67
SECTION 12.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS .................................. 67
SECTION 12.8 GOVERNING LAW ............................................... 67
SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS ............... 67
SECTION 12.10 SUCCESSORS .................................................. 67
SECTION 12.11 SEVERABILITY ................................................ 67
SECTION 12.12 COUNTERPART ORIGINALS ....................................... 67
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC ............................ 68
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1) ............................................... 7.10
(a)(2) ............................................... 7.10
(a)(3) ............................................... N.A.
(a)(4) ............................................... N.A.
(b) ............................................... 7.8; 7.10; 12.2
(c) ............................................... N.A.
311(a) ............................................... 7.11
(b) ............................................... 7.11
(c) ............................................... N.A.
312(a) ............................................... 2.5
(b) ............................................... 12.3
(c) ............................................... 12.3
313(a) ............................................... 7.6
(b)(1) ............................................... N.A.
(b)(2) ............................................... 7.6
(c) ............................................... 7.6; 12.2
(d) ............................................... 7.6
314(a) ............................................... 4.9; 12.2
(b) ............................................... N.A.
(c)(1) ............................................... 12.4
(c)(2) ............................................... 7.2; 12.4
(c)(3) ............................................... N.A.
(d) ............................................... N.A.
(e) ............................................... 12.5
(f) ............................................... N.A.
315(a) ............................................... 7.1(2)
(b) ............................................... 7.5; 12.2
(c) ............................................... 7.1(1)
(d) ............................................... 7.1(3)
(e) ............................................... 6.11
316(a)(last sentence) ........................................ 2.9
(a)(1)(A) ............................................... 6.5
(a)(1)(B) ............................................... 6.4
(a)(2) ............................................... N.A.
(b) ............................................... 6.7
317(a)(1) ............................................... 6.8
(a)(2) ............................................... 6.9
(b) ............................................... 2.4
318(a) ............................................... 12.1
- ----------
N.A. means not applicable.
* This Cross-Reference is not part of the Indenture.
<PAGE>
INDENTURE, dated as of August 14, 1997, among Clark-Schwebel
Holdings, Inc. (the "Company"), and State Street Bank and Trust Company, as
trustee (the "Trustee").
Each party agrees as follows for the benefit of each other and for
the equal and ratable benefit of the Holders of the 12-1/2 % Series A Senior
Debentures due 2007 (the "Series A Senior Debentures") and the 12-1/2% Series B
Senior Debentures due 2007 (the "Series B Senior Debentures" and, together with
the Series A Senior Debentures, the "Senior Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS
"Accumulated Interest" means, as of any date of determination, the
cumulative amount of interest referred to in the first proviso to paragraph 2 of
the Senior Debenture.
"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 or is designated a Restricted
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 or Restricted Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether 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 shall
be deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback, including any disposition by means of a merger, consolidation or
similar transaction and including the issuance, sale or other transfer of any of
the capital stock of any Restricted Subsidiary of such Person) other than to the
Company or to any of its Wholly Owned Subsidiaries; and (ii) the issuance of
Equity Interests in any Restricted Subsidiaries or the sale of any Equity
Interests in any Restricted Subsidiaries, in each case, in one or a series of
related transactions, provided, that notwithstanding the foregoing, the term
"Asset Sale" shall not include: (a) the
<PAGE>
2
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company, as permitted pursuant to Section 5.1, (b) the
sale or lease of equipment, inventory, accounts receivable or other assets in
the ordinary course of business consistent with past practice, (c) a transfer of
assets by the Company to a Wholly Owned Subsidiary or by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, (d) an issuance
of Equity Interests by a Wholly Owned Subsidiary to the Company or to another
Wholly Owned Subsidiary, (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) the sale, lease, conveyance or other disposition of the Joint
Ventures, the assets of the Joint Ventures or any interest therein, (h)
Permitted Investments or (i) any cash dividend, distribution, Investment or
payment made pursuant to the first or second paragraph of Section 4.9.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Borrowing Base" means, as of any date, an amount equal to the sum
of (i) 85% of the face amount of all Eligible Accounts Receivable owned by the
Company and its Restricted Subsidiaries as of such date, and (ii) 65% of the
book value (calculated on first in, first out basis) of all Eligible Inventory
owned by the Company and its Restricted Subsidiaries as of such date, all
calculated on a consolidated basis and in accordance with GAAP, calculated as of
the end of the most recently completed fiscal quarter.
"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
<PAGE>
3
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 shall 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 of its common stock (other than a public offering
pursuant to a registration statement on Form S-8), Vestar and its Affiliates
(collectively, the "Initial Investors") cease to have, directly or indirectly,
in the aggregate at least 51% of the voting power of the voting stock of the
Company or (ii) after the initial public offering by 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
stock of the Company on a fully diluted basis after giving effect to the
conversion and exercise of all outstanding warrants, options and other
securities of the Company, as the case may be (whether or not such securities
are then currently convertible or exercisable) 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, calculated on such fully diluted basis,
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 and its
Subsidiaries taken as a whole to any person or group (other than a Wholly Owned
Subsidiary or the Initial Investors), or (iv) during any period of two
consecutive calendar years, individuals who at the beginning of such period
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 shareholders of the Company, as the case may be,
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
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4
any reason to constitute a majority of the directors of the Company, as the case
may be, then in office.
"Company Order" means a written order or request signed in the name
of an Officer and delivered to the Trustee.
"Consolidated EBITDA" means, with respect to the Company and its
Restricted Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) to the extent deducted from
Consolidated Net Income for such period, (x) the Fixed Charges for such period,
plus (y) non-cash dividends on the Company's preferred stock, 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 Restricted 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 Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent that
the Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Restricted 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 Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof that is a Subsidiary Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (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
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income of, or any dividends
or other distributions from, any Unrestricted Subsidiary, to the extent
otherwise included, shall be excluded, whether or not distributed to the Company
or one of its Restricted Subsidiaries, (vi) income or loss attributable to
discontinued operations shall be excluded; (vii) any increase in cost of sales
or other
<PAGE>
5
write-offs resulting from the purchase accounting treatment of the Acquisition
or other acquisitions shall be excluded; and (viii) all other extraordinary,
unusual or nonrecurring gains or losses shall be excluded.
"Consolidated Net Worth" of a Person at any date means the amount by
which the assets of such Person and its consolidated Restricted Subsidiaries
(less any revaluation or other write-up subsequent to the date of this Indenture
in any such assets (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)) exceed the sum of
(a) the total liabilities of such Person and its consolidated Restricted
Subsidiaries, plus (b) any Disqualified Stock of such Person or any consolidated
Restricted Subsidiaries of such Person issued to any Person other than such
Person or a wholly owned Restricted Subsidiary of such Person, in each case
determined in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.2 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Agreement" means, collectively, (i) that certain Credit
Agreement, as in effect on the date of this Indenture, by and among the Company,
C-S, Inc., the lenders that may be from time to time parties thereto and The
Chase Manhattan Bank (formerly known as Chemical Bank), as administrative agent,
as the foregoing may from time to time be amended, renewed, supplemented or
otherwise modified at the option of the parties thereto, including increases in
the principal amount thereof; and (ii) after The Chase Manhattan Bank, as
administrative agent, has acknowledged in writing that the Credit Agreement has
been terminated and all then outstanding Indebtedness thereunder or with respect
thereto have been repaid in full in cash and discharged, any successors to or
replacements of (as designated by the board of directors of C-S, Inc. in its
sole judgment, and evidenced by a resolution) such Credit Agreement, as such
successors or replacements may from time to time be amended, renewed,
supplemented, modified or replaced, including increases in the principal amount
thereof.
"C-S, Inc." means Clark-Schwebel, Inc., a Delaware corporation.
"C-S Indenture" means the Indenture dated as of April 17, 1996 among
C-S, Inc., the Company and the subsidiary guarantors named therein and State
Street Bank and Trust Company (successor to Fleet National Bank), as trustee, as
in effect on the date hereof.
"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.
"Definitive Senior Debentures" means Senior Debentures that are in
the form of the Senior Debenture attached hereto as Exhibit A, that do not
include the information called for by footnote 1 thereof.
<PAGE>
6
"Depositary" means, with respect to the Senior Debentures issuable
or issued in whole or in part in global form, the Person specified in Section
2.3 hereof as the Depositary with respect to the Senior Debentures, until a
successor shall have been appointed and become such Depositary pursuant to the
applicable provision of this Indenture, and, thereafter, "Depositary" shall 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 Senior Debentures mature.
"Eligible Accounts Receivable" means at a particular date, all
accounts receivable owned by the Company and Restricted Subsidiaries (i) which
are not 90 or more days past due; (ii) which are not owed by an obligor which
has taken any of the actions or suffered any of the events of the kind described
in clause (ix) under Section 6.1; (iii) which are not subject to any asserted
dispute, off-set, counterclaim or defense on the part of the account debtor or
to any asserted claim on the part of the account debtor denying liability under
such account in whole or in part and (iv) which are not owed by an obligor in
respect of which 50% or more of the accounts receivable are 90 or more days past
due or uncollectible.
"Eligible Inventory" means at the time of any determination thereof,
all inventory (less reserves for obsolescence) of the Company and Restricted
Subsidiaries as to which the following requirements have been fulfilled: (a) the
Company or a Restricted Subsidiary has lawful and absolute title to such
Inventory; and (b) none of such inventory is obsolete, unsalable, damaged or
otherwise unfit for sale or further processing.
"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 a Public Equity Offering or a Private Equity
Offering, as applicable.
"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 Senior
Debentures for Series A Senior Debentures.
"Existing Indebtedness" means the Indebtedness of the Company and
its Restricted Subsidiaries in existence on the date of this Indenture, until
such amounts are repaid.
<PAGE>
7
"Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of 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 Restricted 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 Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Restricted 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, but excluding from the
calculation of fixed charges amortization of financing costs (except to the
extent referred to in the parenthetical in clause (i) of this definition).
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or repays any
Indebtedness (other than the incurrence or repayment of revolving credit
borrowings used for working capital, except to the extent that a repayment is
accompanied by a permanent reduction in revolving credit commitments) 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 shall 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 Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and shall give pro forma effect to the
Consolidated EBITDA and Indebtedness of the Person which is the subject of any
such acquisition, 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, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed
<PAGE>
8
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
"Global Senior Debenture" means a Senior Debenture that contains the
paragraph referred to in footnote 1 to the form of the Senior Debenture attached
hereto as Exhibit A.
"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 Senior Debenture 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 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), the maximum fixed repurchase price of
Disqualified Stock issued by such Person in each case, if held by any Person
other than the Company or a Wholly Owned Subsidiary of the Company, and, to the
extent not otherwise included, the Guarantee by such Person of any Indebtedness
of any other Person.
<PAGE>
9
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" has the meaning given to such term in the
Senior Debenture.
"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 (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the books of such Person) or capital
contributions (excluding commission, travel, relocation 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 of any direct or
indirect parent of the Company shall not be deemed to be an Investment.
"Joint Venture" means (a) each of Clark-Schwebel Corporation,
Clark-Schwebel Tech-Fab Company, CS-Interglas AG and Asahi-Schwebel Co., Ltd.,
(b) any other Person whose sole asset is directly or indirectly (i) a Joint
Venture (unless such Joint Venture or Person is a Restricted Subsidiary by
virtue of an Investment pursuant to clause (d) of the definition of "Permitted
Investment") (ii) any interest in a Joint Venture and (iii) Joint Venture Funds.
"Joint Venture Funds" means any distributions or dividends, directly
or indirectly, of or from any of the Joint Ventures or interests in the Joint
Ventures or any proceeds from the sale of, or distributions or dividends from,
any of the Joint Ventures.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, in the city of the Corporate Trust Office
of the Trustee, 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, payment
may be made on the next succeeding day that is not a Legal Holiday, and no
interest shall 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 any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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10
"Liquidated Damages" means all liquidated damages then owing
pursuant to the Registration Rights Agreement.
"Management Advisory Agreement" means the agreement dated as of
April 17, 1996, among Vestar, the Company and C-S, Inc. as in effect on April
17, 1996, with only such amendments, alterations, modifications or waivers
thereto which are not materially adverse to the interests of the C-S, Inc. or
the holders of Senior Debentures.
"Maturity Date" means July 15, 2007.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP, and before reduction
for non-cash preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (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) and (iii) fees and expenses related to the
acquisition of C-S, Inc. in an amount not to exceed $11.5 million.
"Net Proceeds" means the aggregate cash proceeds received by the
Company in respect of any Asset Sale (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any 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), and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP and net of any Purchase Money Obligations
relating to the assets comprising such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; 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 Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they shall not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
<PAGE>
11
"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 Senior Debentures 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.
"Officers' Certificate" means with respect to any Person a
certificate signed on behalf of such Person by two Officers of such Person, one
of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of such Person, that
meets the requirements of Section 12.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.5 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Permitted Investments" means (a) any Investments permitted by the
C-S Indenture (regardless of whether such Indenture is in effect at the time of
such Investment); (b) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.8; (c) Investments by the Company or any Restricted Subsidiary in
cash in an amount not to exceed $5.0 million in the aggregate; (d) Investments
by the Company or any Restricted Subsidiary in cash in an amount not to exceed
$15.0 million in the aggregate to enable the Company or any Restricted
Subsidiaries to purchase or otherwise acquire equity interests in the Joint
Ventures; provided that upon the consummation of any such Investment pursuant to
this clause (d) the Joint Venture in which the Investment is made becomes a
Restricted Subsidiary; (e) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Subsidiary or in satisfaction of judgments; (f) the conversion or
exchange of debt of CS-Interglas AG for common securities of CS-Interglas AG;
(g) the contribution of shares of stock or other equity securities of an
Unrestricted Subsidiary to another Subsidiary; (h) Investments in any Wholly
Owned Subsidiary of the Company (or in CS Interglas AG to the extent it is a
Wholly Owned Subsidiary of the Company) and that is engaged in the same or a
similar line of business as the Company and its Restricted Subsidiaries were
engaged in on the date of this Indenture and reasonable extensions or expansions
thereof; or (i) Investments by the Company in any Person if as a result of such
Investment (1) 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
Restricted Subsidiaries were engaged in on the date of this 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 engaged in the same or a
<PAGE>
12
similar line of business as the Company and its Restricted Subsidiaries were
engaged in on the date of this Indenture and reasonable extensions or expansions
thereof; and (j) Investments by the Company or any of its Restricted
Subsidiaries using Joint Venture Funds.
"Permitted Liens" means (i) Liens securing (a) Indebtedness
permitted by clause (i) or clause (viii) under Section 4.10 and (b) related
Hedging Obligations; (ii) Liens in favor of the Company or any Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary of the Company; (v) Liens on property existing
at the time of acquisition thereof by the Company or any Restricted Subsidiary
of the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (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 this 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 shall be required in conformity with GAAP shall 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
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $2.5 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (xii) nonconsensual Liens incurred in the ordinary course
of business of any foreign subsidiary that is a Restricted Subsidiary that (a)
are not incurred in connection with the borrowing of money or the obtaining of
advances of 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
such Restricted Subsidiary; (xiii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (xiv) 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 Restricted Subsidiaries; (xv) Purchase
Money Liens (including extensions and renewals thereof); (xvi) judgment and
attachment Liens not giving rise to an Event of Default; (xvii) Liens arising
out of consignment or similar arrangements for the sale of goods; (xviii) any
interest or title of a lessor in property subject to any capital lease
<PAGE>
13
obligation or operating lease; (xix) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; and (xx) Liens permitted
under the C-S Indenture.
"Permitted Refinancing Debt" means (a) any Indebtedness included in
the definition of "Permitted Refinancing Debt" in the C-S Indenture and (b) any
other Indebtedness of the Company or any of its Restricted Subsidiaries issued
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of the Company or any of
its Restricted Subsidiaries; provided that: (i) the principal amount 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 final maturity date at least as
late as the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Senior
Debentures, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Senior Debentures on terms at least as favorable to the Holders of
Senior Debentures as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company, other business entity 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).
"Private Equity Offering" means a private offering of (i) Equity
Interests of the Company other than Disqualified Stock of the Company or (ii) of
Equity Interests 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 of the Company (other than
Disqualified Stock of the Company).
"Private Placement Legend" means the legend initially set forth on
the Senior Debentures in the form set forth on Exhibit A.
"Public 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 of the Company other than Disqualified
Stock of the Company or (ii) of Equity Interests of the Company's parent or
indirect parent corporation 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 of the Company (other than Disqualified Stock of the
Company).
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14
"Purchase Money Lien" means a Lien granted on an asset or property
to secure a Purchase Money Obligation permitted to be incurred under this
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 Restricted
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 Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 14, 1997, 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.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debenture Custodian" means the Trustee, as custodian with
respect to the Global Senior Debentures, or any successor entity thereto.
"Senior Notes" means the 10 1/2% Senior Notes due 2006 issued
pursuant to the C-S Indenture in a principal amount not to exceed $110 million.
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"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).
"Subsidiary Change of Control" means, with respect to a Restricted
Subsidiary, such time as (i) prior to the initial public offering by such
Restricted Subsidiary of its common stock (other than a public offering pursuant
to a registration statement on Form S-8), Vestar and its Affiliates
(collectively, the "Initial Investors") cease to have, directly or indirectly,
in the aggregate at least 51% of the voting power of the voting stock of such
Restricted Subsidiary or the Company ceases to own, directly or indirectly, 100%
of the voting power of such Restricted Subsidiary or (ii) after the initial
public offering by such Restricted Subsidiary 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 such Restricted Subsidiary which
indicates that, or such Restricted Subsidiary 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 stock of such Restricted Subsidiary on a fully diluted basis after giving
effect to the conversion and exercise of all outstanding warrants, options and
other securities of such Restricted Subsidiary, as the case may be (whether or
not such securities are then currently convertible or exercisable), and (B) such
person or group has become, directly or indirectly, the beneficial owner of a
greater percentage of the voting capital stock of such Restricted Subsidiary,
calculated on such fully diluted basis, than beneficially owned by the Initial
Investors or the Company, or (iii) the sale, lease or transfer of all or
substantially all of the assets of such Restricted Subsidiary and its
Subsidiaries taken as a whole to any person or group (other than the Initial
Investors or the Company or any of its Subsidiaries), or (iv) during any period
of two consecutive calendar years, individuals who at the beginning of such
period constituted the board of directors of such Restricted Subsidiary
(together with any new directors whose election by the board of directors of
such Restricted Subsidiary or whose nomination for election by the shareholders
of such Restricted Subsidiary, as the case may be, 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 such Restricted Subsidiary, as the case may be, then in office.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss.77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Transfer Restricted Senior Debentures" means securities that bear
or are required to bear the Private Placement Legend.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (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 Restricted Subsidiaries. Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by Section 4.9. If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.10, the Company shall be in default of
such covenant). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.10 and (ii) no Default or Event of Default would be
in existence following such designation. Notwithstanding anything to the
contrary in the foregoing, to the extent a Joint Venture is or becomes, as the
case may be, a Subsidiary, it is or it shall, as the case may be, initially be
an Unrestricted Subsidiary (A) except to the extent that it becomes a Subsidiary
in connection with an Investment pursuant to clause (d) of the definition of
"Permitted Investment" or (B) unless such Subsidiary is designated by the Board
of Directors as a Restricted Subsidiary for purposes of this Indenture pursuant
to a Board Resolution at the time such Joint Venture becomes a Subsidiary.
"Vestar" means Vestar Equity Partners, L.P.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that shall 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 Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) (or in
the case of CS-Interglas AG 90% of the outstanding Capital Stock or other
ownership interests) shall at the time be owned by such Person or by one or more
Wholly Owned Subsidiaries of such Person. Unrestricted Subsidiaries shall not be
included in the definition of Wholly Owned Subsidiary for any purposes of this
Indenture.
SECTION 1.2 OTHER DEFINITIONS
Defined
Term in Section
- ---- ----------
"Affiliate Transaction" 4.14
"Agent" 2.14
"Asset Sale Offer" 4.8
"Asset Sale Offer Period" 4.8
"Asset Sale Offer Amount" 4.8
"Asset Sale Purchase Date" 4.8
"Bankruptcy Law" 6.1
"Benefitted Party" 11.1
"Change of Control Offer" 4.7
"Change of Control Offer Period" 4.7
"Change of Control Payment" 4.7
"Change of Control Purchase Date" 4.7
"Covenant Defeasance" 8.3
"Custodian" 6.1
"DTC" 2.13
"Event of Default" 6.1
"Excess Proceeds" 4.8
"Holdings" 10.1
"Interest" 2.13
"Legal Defeasance" 8.2
"Notice of Default" 6.1
"Paying Agent" 2.3
"Payment Blockage Notice" 10.3
"Payment Default" 6.1
"Registrar" 2.3
"Restricted Payments" 4.9
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18
"Securities Act" 2.6
"Senior Debentures" Preface
"Series A Senior Debentures" Preface
"Series B Senior Debentures" Preface
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Senior Debentures;
"indenture security Holder" means a Holder of a Senior Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Senior Debentures means the Company and any
successor thereto.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections
or rules adopted by the SEC from time to time.
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ARTICLE 2
THE SENIOR DEBENTURES
SECTION 2.1 FORM AND DATING
The Senior Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Senior Debentures may have notations, legends or endorsements required by law,
stock exchange rule or usage. Each Senior Debenture shall be dated the date of
its authentication. The Senior Debentures shall be in denominations of $1,000
and integral multiples thereof; provided that any additional Senior Debentures
to be issued by the Company in lieu of interest payments as provided in
paragraph 2 of the Senior Debenture shall be issued in the denominations equal
to the aggregate principal amount of such interest payment. The Series A Senior
Debentures and the Series B Senior Debentures will be the same except that the
Private Placement Legend will be omitted from the Series B Senior Debentures.
The terms and provisions contained in the Senior Debentures shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Senior Debentures shall be issued initially in the form of one or
more permanent Global Senior Debentures in registered form, substantially in the
form set forth in Exhibit A (including the text referred to in footnote 1
thereto), deposited with, or on behalf of, The Depositary Trust Company (the
"Depositary") and registered in the name of Cede & Co. or such other nominee, as
nominee of the Depositary. The aggregate principal amount of any Global Senior
Debenture may from time to time be increased or decreased by adjustments made on
the records of the Registrar and the Depositary.
Notwithstanding the foregoing, Senior Debentures issuable to
"accredited investors" within the meaning of Regulation D promulgated pursuant
to the Securities Act shall be issued, and Senior Debentures offered and sold in
reliance on Rule 144A may be issued, in certain circumstances provided for in
this Indenture, in the form of Definitive Senior Debentures in registered form
in substantially the form set forth in Exhibit A (but without including the text
referred to in footnote 1 thereto).
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SECTION 2.2 EXECUTION AND AUTHENTICATION
Two Officers of the Company shall sign the Senior Debentures for the
Company by manual or facsimile signature. The Company's seal shall be reproduced
on the Senior Debentures and may be in facsimile form.
If an Officer whose signature is on a Senior Debenture no longer
holds that office at the time a Senior Debenture is authenticated, the Senior
Debenture shall nevertheless be valid.
A Senior Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Senior Debenture has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
of its Officers, authenticate (a) Senior Debentures for original issue up to the
aggregate principal amount stated in paragraph 4 of the Senior Debentures and
(b) Senior Debentures for an original issue up to an aggregate principal amount
equal to the Accumulated Interest due on an Interest Payment Date. The aggregate
principal amount of Senior Debentures outstanding at any time may not exceed
such amount except as provided in Section 2.7 hereof. The authentication order
shall specify which series of Senior Debentures shall be authenticated and
issued.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Senior Debentures. An authenticating agent may
authenticate Senior Debentures whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
SECTION 2.3 REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Senior
Debentures may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Senior Debentures may be presented
for payment ("Paying Agent"). The Registrar shall keep a register of the Senior
Debentures and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Senior Debenture Custodian with respect to the
Global Senior Debentures.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Senior
Debentures, and shall notify the Trustee of any default by the Company in making
any such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
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21
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Senior Debentures.
SECTION 2.5 HOLDER LISTS
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss.312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of the Holders of Senior
Debentures, and the Company shall otherwise comply with TIA ss.312(a).
SECTION 2.6 TRANSFER AND EXCHANGE
(a) Subject to the provisions of Sections 2.13 and 2.14, when Senior
Debentures are presented to the Registrar with a request to register the
transfer of such Senior Debentures or to exchange such Senior Debentures for an
equal principal amount of Senior Debentures of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
the requirements for such transaction are met; provided, however, that the
Senior Debentures surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Senior Debentures
at the Registrar's written request. No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or other
governmental charge payable upon exchanges or transfers pursuant to Section 2.10
or 9.5).
Any Holder of the Global Senior Debenture shall, by acceptance of
such Global Senior Debenture, agree that transfers of beneficial interests in
such Global Senior Debenture may be effected only through a book-entry system
maintained by the Holder of such Global Senior Debenture (or its agent), and
that ownership of a beneficial interest in the Global Senior Debenture shall be
required to be reflected in a book-entry system.
SECTION 2.7 REPLACEMENT SENIOR DEBENTURES
If any mutilated Senior Debenture is surrendered to the Trustee, or
the Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Senior Debenture, the Company shall issue and
the Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Senior
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22
Debenture if the Trustee's requirements are met. If required by the Trustee or
the Company, an indemnity bond must be supplied by the Holder that is sufficient
in the judgment of the Trustee and the Company to protect the Company, the
Trustee, any Agent and any authenticating agent from any loss that any of them
may suffer if a Senior Debenture is replaced. The Company may charge for its
expenses in replacing a Senior Debenture.
Every replacement Senior Debenture is an additional obligation of
the Company and shall be entitled to all of the benefits of this Indenture
equally and proportionately with all other Senior Debentures duly issued
hereunder.
SECTION 2.8 OUTSTANDING SENIOR DEBENTURES
The Senior Debentures outstanding at any time are all the Senior
Debentures authenticated by the Trustee except for those cancelled by it, those
delivered to it for cancellation, those reductions in the interest in a Global
Senior Debenture effected by the Trustee in accordance with the provisions
hereof, and those described in this Section as not outstanding. Except as set
forth in Section 2.9 hereof, a Senior Debenture does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Senior Debenture.
If a Senior Debenture is replaced pursuant to Section 2.7 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Senior Debenture is held by a bona fide purchaser.
If the principal amount of any Senior Debenture is considered paid
under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases
to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Senior Debentures payable on that date, then on and after that
date such Senior Debentures shall be deemed to be no longer outstanding and
shall cease to accrue interest.
SECTION 2.9 TREASURY SENIOR DEBENTURES
In determining whether the Holders of the required principal amount
of Senior Debentures have concurred in any direction, waiver or consent, Senior
Debentures owned by the Company, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Senior Debentures that a Trustee knows
are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY SENIOR DEBENTURES
Until definitive Senior Debentures are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Senior
Debentures upon a written order of the Company signed by two Officers of the
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23
Company. Temporary Senior Debentures shall be substantially in the form of
Definitive Senior Debentures but may have variations that the Company considers
appropriate for temporary Senior Debentures and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Definitive Senior Debentures in exchange for
temporary Senior Debentures.
Holders of temporary Senior Debentures shall be entitled to all of
the benefits of this Indenture.
SECTION 2.11 CANCELLATION
The Company at any time may deliver Senior Debentures to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Senior Debentures surrendered to them for registration of transfer, exchange
or payment. The Trustee and no one else shall cancel all Senior Debentures
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy cancelled Senior Debentures (subject to the
record retention requirement of the Exchange Act). Certification of the
destruction of all cancelled Senior Debentures shall be delivered to the
Company. The Company may not issue new Senior Debentures to replace Senior
Debentures that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Senior
Debentures, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, in each case at the rate
provided in the Senior Debentures and in Section 4.1 hereof. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Senior Debenture and the date of the proposed payment. The Company
shall fix or cause to be fixed each such special record date and payment date,
provided that no such special record date shall be less than 10 days prior to
the related payment date for such defaulted interest. At least 15 days before
the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
SECTION 2.13 BOOK-ENTRY PROVISIONS FOR GLOBAL SENIOR Debentures
(a) The Global Senior Debentures initially shall be registered in
the name of Cede & Co., as the nominee of the Depositary.
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Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Senior
Debenture held on their behalf by the Depositary, or the Trustee as the Senior
Debenture Custodian, or under the Global Senior Debenture, and the Depositary
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of the Global Senior Debenture for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Senior Debenture.
(b) Transfers of Global Senior Debentures shall be limited to
transfers in whole, but not in part, to the Depositary, its successors or their
respective nominees. Interests of beneficial owners in the Global Senior
Debentures (each an "Interest") may be transferred to one beneficial owner to
another Agent Member or exchanged for Definitive Senior Debentures in accordance
with the rules and procedures of the Depositary and the provisions of this
Indenture (including the restrictions on transfer contained in Section 2.14
which shall fully apply in all respects to transfer of such Interests as if such
Interests are evidenced by a Definitive Senior Debenture ). In addition,
Definitive Senior Debentures shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Senior Debentures if (i) the
Depositary for the Senior Debentures notifies the Company that the Depositary is
unwilling or unable to continue as Depositary for the Global Senior Debentures
and a successor Depositary for the Global Senior Debentures is not appointed by
the Company within 90 days after delivery of such notice; or (ii) the Company,
at its sole discretion, notifies the Trustee in writing that it elects to cause
the issuance of Definitive Senior Debentures under this Indenture, then the
Company shall execute, and the Trustee shall, upon receipt of an authentication
order in accordance with Section 2.2 hereof, authenticate and deliver,
Definitive Senior Debentures in an aggregate principal amount equal to the
principal amount of the Global Senior Debentures in exchange for such Global
Senior Debentures.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Senior Debenture to beneficial owners taking a
Definitive Senior Debenture pursuant to paragraph (b), the Registrar shall
reflect on its books and records the date and a decrease in the principal amount
of the Global Senior Debenture in an amount equal to the principal amount of the
beneficial interest in the Global Senior Debenture to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Definitive Senior Debentures of like tenor and amount.
(d) In connection with the transfer of any Interest from one
beneficial owner to another Agent Member not taking a Definitive Senior
Debenture, but an Interest, pursuant to paragraph (b), the Depositary shall
reflect on its books and records the date, the name of the transferor and
transferee, and the amount of the Interest transferred.
(e) In connection with the transfer of Global Senior Debentures as
an entirety to beneficial owners pursuant to the second sentence of paragraph
(b), the Global Senior Debentures shall be deemed to be surrendered to the
Trustee for cancellation, and the
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Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Senior Debentures, an equal aggregate principal amount of
Definitive Senior Debentures of authorized denominations.
(f) Any Definitive Senior Debenture constituting a Transfer
Restricted Senior Debenture delivered in exchange for an interest in a Global
Senior Debenture pursuant to paragraph (b) shall, except as otherwise provided
by paragraphs (a)(i)(x) and (y) of Section 2.14, bear the Private Placement
Legend.
(g) The Holder of any Global Senior Debenture may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Senior Debentures.
SECTION 2.14 SPECIAL TRANSFER PROVISIONS
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Senior Debenture constituting a Transfer Restricted
Senior Debenture, or an Interest in a Global Senior Debenture constituting a
Transfer Restricted Senior Debenture to any Institutional Accredited Investor
which is not a QIB:
(i) The Registrar shall register the transfer of any
Definitive Senior Debenture constituting a Transfer Restricted Senior
Debenture, whether or not such Senior Debenture bears the Private
Placement Legend, if (x) the requested transfer is after August 14, 2000,
or (y) in the case of a transfer to an Institutional Accredited Investor
which is not a QIB, the proposed transferee has delivered to the Registrar
a certificate substantially in the form of Exhibit B hereto and the
Trustee and Registrar have received both an Opinion of Counsel and an
Officers' Certificate directing transfer; and
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in a Global Senior Debenture, upon receipt by the
Registrar of (x) the certificate and opinions, if any, required by
paragraph (i) above and (y) instructions given in accordance with the
Depositary's and the Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Definitive Senior
Debentures) a decrease in the principal amount of a Global Senior Debenture in
an amount equal to the principal amount of the beneficial interest in a Global
Senior Debenture to be transferred, and (b) the Company shall execute and the
Trustee shall authenticate upon receipt of a Company Order, and deliver one or
more Definitive Senior Debentures of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Senior Debenture
constituting a Transfer
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26
Restricted Senior Debenture, or an Interest in a Global Senior Debenture
constituting a Transfer Restricted Senior Debenture to a QIB:
(i) The Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on the form of Senior Debenture (or a similar certificate) stating, or
has otherwise advised the Company and the Registrar in writing, that the
sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Senior Debenture (or a similar certificate) stating, or has otherwise
advised the Company and the Registrar in writing, that it is purchasing
the Senior Debenture for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A and covering the other matters covered in the form of Senior
Debenture; and
(ii) If the proposed transferee is an Agent Member, and the
Senior Debentures to be transferred consist of Definitive Senior
Debentures which after transfer are to be evidenced by an interest in the
Global Senior Debenture, upon receipt by the Registrar of instructions
given in accordance with the Depositary's and the Registrar's procedures
and the proposed transferee has advised the Company and the Registrar in
writing that the transferee is a QIB and that the sale has been made in
compliance with the provisions of Rule 144A, the Registrar and the
Depositary shall reflect on its books and records the date and an increase
in the principal amount of the Global Senior Debenture in an amount equal
to the principal amount of the Definitive Senior Debentures to be
transferred, and the Trustee shall cancel the Definitive Senior Debentures
so transferred.
(c) Private Placement Legend. All Senior Debentures originally
issued shall bear the Private Placement Legend. Upon the transfer, exchange or
replacement of Senior Debentures (or Interest in a Global Senior Debenture) not
bearing, and not required to bear, the Private Placement Legend, the Registrar
shall deliver Senior Debentures that do not bear the Private Placement Legend
and, in the case of an Interest, remove any corresponding indication on its
books and records. Upon the transfer, exchange or replacement of Senior
Debentures bearing the Private Placement Legend, the Registrar shall deliver
only Senior Debentures that bear the Private Placement Legend (and in the case
of an Interest, continue to denote corresponding indications on its books and
records) unless (i) the circumstances contemplated by paragraph (a)(i)(x) of
this Section 2.14 exist, (ii) there is delivered to the Registrar and the
Trustee an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Senior Debenture has been sold pursuant to an
effective registration statement under the Securities Act.
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27
(d) General. By its acceptance of any Senior Debenture, each Holder
of such a Senior Debenture acknowledges the restrictions on transfer of such
Senior Debenture set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Senior Debenture only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.13 or this Section 2.14
until at least 6 years after the Maturity Date. The Company shall have the right
to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE
If the Company elects to redeem Senior Debentures pursuant to the
optional redemption provisions of Section 3.7 hereof, it shall furnish to the
Trustee, at least 45 days (unless a shorter period is acceptable to the Trustee)
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the clause of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Senior
Debentures to be redeemed and (iv) the redemption price.
SECTION 3.2 SELECTION OF SENIOR DEBENTURES TO BE REDEEMED
If less than all of the Senior Debentures are to be redeemed at any
time, the Trustee shall select the Senior Debentures to be redeemed among the
Holders of the Senior Debentures in compliance with the requirements of the
principal national securities exchange, if any, on which the Senior Debentures
are listed or, if the Senior Debentures are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Senior
Debentures to be redeemed shall be selected, unless otherwise provided herein,
not less than 30 nor more than 60 days prior to the redemption date by the
Trustee from the outstanding Senior Debentures not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the
Senior Debentures selected for redemption and, in the case of any Senior
Debenture selected for partial redemption, the principal amount thereof to be
redeemed. Senior Debentures and portions of Senior Debentures selected shall be
in amounts of $1,000 or integral multiples of $1,000; except that if all of the
Senior Debentures of a Holder are to be redeemed, the entire outstanding amount
of Senior Debentures held by such Holder, even if not an integral multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Senior Debentures called for
redemption also apply to portions of Senior Debentures called for redemption.
SECTION 3.3 NOTICE OF REDEMPTION
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Senior Debentures are to be redeemed at its
registered address.
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The notice shall identify the Senior Debentures to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Debenture is being redeemed in part, the portion
of the principal amount of such Senior Debenture to be redeemed and that, after
the redemption date upon surrender of such Senior Debenture, a new Senior
Debenture or Senior Debentures in principal amount equal to the unredeemed
portion shall be issued upon cancellation of the original Senior Debenture;
(d) the name and address of the Paying Agent;
(e) that Senior Debentures called for redemption (other than a
Global Senior Debenture) must be surrendered to the Paying Agent to collect the
redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Senior Debentures called for redemption ceases to accrue on
and after the redemption date;
(g) the paragraph of the Senior Debentures and/or Section of this
Indenture pursuant to which the Senior Debentures called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Senior
Debentures.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (unless a shorter time is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Senior Debentures called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent immediately available funds
sufficient to pay the redemption price of and accrued interest on and Liquidated
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29
Damages on all Senior Debentures to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to the Company any money deposited with the
Trustee or the Paying Agent by the Company in excess of the amounts necessary to
pay the redemption price of, and accrued interest on, all Senior Debentures to
be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Senior Debentures or the portions of Senior Debentures called for
redemption. If a Senior Debenture is redeemed on or after an interest record
date but on or prior to the related interest payment date, then any accrued and
unpaid interest shall be paid to the Person in whose name such Senior Debenture
was registered at the close of business on such record date. If any Senior
Debenture called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Senior
Debentures and in Section 4.1 hereof.
SECTION 3.6 SENIOR DEBENTURES REDEEMED IN PART
Upon surrender of a Senior Debenture that is redeemed in part, the
Company shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Senior Debenture
equal in principal amount to the unredeemed portion of the Senior Debenture
surrendered. The records of the Registrar and the Depositary shall reflect any
partial redemption of any Global Senior Debenture.
SECTION 3.7 OPTIONAL REDEMPTION
(a) Except as set forth in clause (b) of this Section 3.7, the
Senior Debentures shall not be redeemable at the Company's option prior to July
15, 2002. Thereafter, the Senior Debentures shall 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 redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on July 15 of the years indicated below:
Year Percentage
2002.............................................. 106.250%
2003.............................................. 104.167%
2004.............................................. 102.083%
2005 and thereafter............................... 100.00%
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(b) Notwithstanding the provisions of clause (a) of this Section
3.7, the Senior Debentures may be redeemed in whole or in part, at the option of
the Company, after January 15, 1998, at a redemption price of 106% of the
principal amount thereof, in each case plus an amount in cash equal to all
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of an Equity Offering; provided, that
such redemption shall occur within 60 days of the date of the closing of such
Equity Offering.
(c) Notwithstanding the provisions of clause (a) of this Section 3.7
or Section 4.7, Senior Debentures may be redeemed in whole or in part, at the
option of the Company, after January 15, 1998, at a redemption price of 106% of
the principal amount thereof, in each case plus an amount in cash equal to all
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, in the event of a Change of Control or a Subsidiary Change of
Control.
(d) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Section 3.1 through 3.6 hereof.
SECTION 3.8 NO MANDATORY REDEMPTION
The Company shall not be required to make mandatory redemption
payments with respect to the Senior Debentures.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF SENIOR DEBENTURES
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Senior Debentures on the dates and in the manner
provided in the Senior Debentures. Principal, premium, if any, and interest
payable in cash shall be considered paid on the date due if the Paying Agent, if
other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern
Time on the due date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal, premium, if any,
and interest then due. The Company shall pay all Liquidated Damages, if any, in
the same manner on the dates and in the amounts set forth in the Registration
Rights Agreement. The Company will promptly notify the Trustee of a Registration
Default under the Registration Rights Agreement and any cure thereof.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Senior
Debentures to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Senior Debentures may
be surrendered for registration of transfer or for exchange and where notices
and demands to or upon the Company in respect of the Senior Debentures and this
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31
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Senior Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3 hereof.
SECTION 4.3 REPORTS
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Senior Debentures are outstanding, the Company shall furnish to
all Holders of Senior Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if 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 SEC on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the SEC, at any time after the Company files a registration
statement with respect to the Exchange Offer, the Company shall file a copy of
all such information and reports with the SEC for public availability (unless
the SEC will not accept such a filing) and shall promptly make such information
available to securities analysts and prospective investors upon request.
(b) For so long as any Senior Debentures remain outstanding, the
Company shall furnish to all 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.
SECTION 4.4 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
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32
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Senior
Debentures is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.3(a) hereof shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Senior Debentures are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.5 TAXES
The Company shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Senior Debentures.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter
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33
in force, that may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law has been enacted.
SECTION 4.7 CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior
Debentures shall 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 Senior
Debentures not otherwise redeemed by the Company pursuant to Section 3.7(c)
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, if any, thereon to the date
of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Debentures pursuant to the procedures required by this
Indenture and described in such notice. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Debentures as a
result of a Change of Control.
The Change of Control Offer shall 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 Change
of Control Offer Period (the "Change of Control Purchase Date"), the Company
shall purchase all Senior Debentures tendered in response to the Change of
Control Offer. Payment for any Senior Debentures so purchased shall be made in
the same manner as cash 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 shall be paid to the Person in whose name a Senior Debenture is
registered at the close of business on such record date, and no additional
interest shall be payable to Holders who tender Senior Debentures pursuant to
the Change of Control Offer.
Upon the commencement of a Change of Control Offer, the Company
shall send, by first class mail, a notice to each of the Holders, with a copy of
each such notice to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Senior Debentures pursuant
to the Change of Control Offer. The Change of Control Offer shall be made to all
Holders. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(a) that the Change of Control Offer is being made pursuant to
this covenant and the length of time the Change of Control Offer shall
remain open;
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34
(b) the purchase price and the Change of Control Purchase
Date;
(c) that any Senior Debenture not tendered or accepted for
payment shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment,
any Senior Debenture accepted for payment pursuant to the Change of
Control Offer shall cease to accrete or accrue interest after the Change
of Control Purchase Date;
(e) that Holders electing to have a Senior Debenture purchased
pursuant to any Change of Control Offer shall be required to surrender the
Senior Debenture, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Debenture completed, or transfer by
book-entry transfer, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice at least
three days before the Change of Control Purchase Date; and
(f) that Holders shall be entitled to withdraw their election
if the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Change of Control Offer
Period, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Senior Debenture the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Senior Debenture purchased.
On the Change of Control Purchase Date, the Company shall, to the
extent lawful, (1) accept for payment all Senior Debentures 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
Senior Debentures (or portions thereof) so tendered and (3) deliver or cause to
be delivered to the Trustee the Senior Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount of Senior
Debentures (or any portion thereof) being purchased by the Company. The Paying
Agent shall promptly mail to each Holder of Senior Debentures so tendered the
Change of Control Payment for such Senior Debenture, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Senior Debenture equal in principal amount to any unpurchased
portion of the Senior Debentures surrendered, if any; provided that each such
new Senior Debenture shall be in a principal amount of $1,000 or an integral
multiple thereof. To the extent that less than all of the outstanding Senior
Debentures are tendered pursuant to a Change of Control Offer, the Company may
use any proceeds from a Change of Control for general corporate purposes.
SECTION 4.8 ASSET SALES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale in excess of $10.0 million unless (i)
the Company (or the Restricted
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35
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 Restricted 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, and (ii) at least 75% (100% in the case
of lease payments) of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that
the amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables), of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Senior Debentures) that are assumed by the transferee of any such assets and (y)
any notes or other obligations received by the Company or any such Restricted
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), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the Company's actual receipt of any Net
Proceeds from an Asset Sale, the Company may apply such Net Proceeds (a) to
permanently reduce long-term Indebtedness of a Restricted Subsidiary, (b) to
permanently reduce Indebtedness (and, in the case of revolving Indebtedness, to
permanently reduce the commitments) under the Credit Agreement, or (c) to make
an investment in another business, the making of a capital expenditure or the
acquisition of other tangible assets, in each case, in the same or a similar
line of business as the Company and its Restricted Subsidiaries were engaged in
on the date of this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the preceding sentence of this paragraph
shall be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million, the Company will be required to make an
offer to all Holders of Senior Debentures (an "Asset Sale Offer") to purchase
the maximum principal amount of Senior Debentures 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 thereon to the date of
purchase, in accordance with the procedures set forth in this Indenture. To the
extent that the aggregate amount of Senior Debentures tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Senior Debentures surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Senior Debentures to be
purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Asset Sale Offer shall 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 Period"). No
later than five Business Days after the termination of the Asset Sale Offer
Period (the "Asset Sale Purchase Date"), the Company shall purchase the
principal amount of Senior Debentures 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 Senior Debentures tendered in response to the
Asset Sale Offer. Payment for any Senior Debentures so purchased shall be made
in the same manner as interest payments are made.
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36
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 shall be paid to the Person in whose name a Debenture is registered at
the close of business on such record date, and no additional interest shall be
payable to Holders who tender Senior Debentures pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Senior Debentures pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
covenant and the length of time the Asset Sale Offer shall remain open;
(b) the Asset Sale Offer Amount, the purchase price and the Asset
Sale Purchase Date;
(c) that any Senior Debenture not tendered or accepted for payment
shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any
Senior Debenture accepted for payment pursuant to the Asset Sale Offer
shall cease to accrete or accrue interest after the Asset Sale Purchase
Date;
(e) that Holders electing to have a Senior Debenture purchased
pursuant to any Asset Sale Offer shall be required to surrender the Senior
Debenture, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Senior Debenture completed, or transfer by book-entry
transfer, to the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice at least three days
before the Asset Sale Purchase Date;
(f) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Senior Debenture the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Senior Debenture purchased;
(g) that, if the aggregate principal amount of Senior Debentures
surrendered by Holders exceeds the Asset Sale Offer Amount, the Company
shall select the Senior Debentures to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that
only Debentures in denominations of $1,000, or integral multiples thereof,
shall be purchased); and
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37
(h) that Holders whose Senior Debentures were purchased only in part
shall be issued new Senior Debentures equal in principal amount to the
unpurchased portion of the Senior Debentures surrendered (or transferred
by book-entry transfer).
On or before the Asset Sale Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Asset Sale Offer Amount of Senior Debentures or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount
has been tendered, all Debentures tendered, and shall deliver to the Trustee an
Officers' Certificate stating that such Senior Debentures 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,
shall 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 Senior Debentures tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Senior
Debenture, and the Trustee, upon delivery of an Officers' Certificate from the
Company, shall authenticate and mail or deliver such new Senior Debenture to
such Holder, in a principal amount equal to any unpurchased portion of the
Senior Debenture surrendered. Any Senior Debenture not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Asset Sale
Purchase Date.
SECTION 4.9 RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
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 Restricted
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 Restricted Subsidiary of
the Company; (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to the Senior Debentures, except in accordance with the scheduled mandatory
redemption or repayment provisions set forth in the original documentation
governing such Indebtedness (but not pursuant to any mandatory offer to
repurchase upon the occurrence of any event); or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(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
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38
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 Section 4.10; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture and all Restricted Payments
made by the Restricted Subsidiaries during the period commencing after
April 17, 1996 through the date of this Indenture, is less than the sum
of, without duplication, (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after April 17, 1996 to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) to the extent not included in the amount
described in clause (i) above, 100% of the aggregate net cash proceeds
received after April 17, 1996 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 Restricted
Subsidiary that have been converted into, or cancelled in exchange for,
Equity Interests of the Company (other than Equity Interests (or
convertible debt securities) sold to a Restricted Subsidiary or an
Unrestricted Subsidiary of the Company and other than Disqualified Stock
or debt securities that have been converted into Disqualified Stock), plus
(iii) 100% of any cash dividends received by the Company or a Wholly-Owned
Subsidiary from an Unrestricted Subsidiary of the Company, plus (iv) 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 April 17, 1996, plus
(v) to the extent that any Restricted Investment that was made after April
17, 1996 is sold to an unaffiliated purchaser for cash or otherwise
liquidated or repaid for cash, the cash proceeds realized with respect to
such Restricted Investment (less the cost of disposition, if any).
The foregoing provisions shall 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 this
Indenture; (ii) 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); (iii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests 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); (iv) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net cash proceeds from (X) an incurrence of
Permitted Refinancing Indebtedness or (Y) the
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39
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); (v) the
distribution of the Joint Ventures or interests in the Joint Ventures or Joint
Venture Funds; (vi) the declaration or payment of any dividend to the Company
for, or the direct repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted 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 Restricted Subsidiaries') 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 shall not exceed $1.0 million in
any fiscal year (plus any amount available for such payments hereunder since
April 17, 1996 which have not been used for such purpose) or $5.0 million in the
aggregate (in each case, net of the cash proceeds received by the Company from
subsequent reissuances of such Equity Interests to new members of management);
(vii) loans to members of management of the Company or any Restricted Subsidiary
the proceeds of which are used for a concurrent purchase of Equity Interests of
the Company; (viii) payments under the Management Advisory Agreement; (ix)
payments by the Company of director's fees and the reasonable expenses of its
directors in an aggregate amount not to exceed $100,000 per year; (x) any
principal payment on, or purchase, redemption, defeasance or other acquisition
or retirement for value of any Indebtedness that is subordinated to the Senior
Debentures out of Excess Proceeds available for general corporate purposes after
consummation of purchases of Senior Debentures pursuant to an Asset Sale Offer;
and (xi) any payments permitted under the C-S Indenture (and amounts expended in
respect of such payments under this clause (xi) shall be excluded or included,
as applicable, in the calculation of the aggregate amount of Restricted Payments
under this Indenture made by the Restricted Subsidiaries to the extent such
amounts are excluded or included, as applicable, in the calculation of
"Restricted Payments" as defined in and calculated under the C-S Indenture);
provided however that in the case of any transaction described in clauses (i),
(ii), (iii), (iv) and (vi) no Default or Event of Default shall have occurred
and be continuing immediately after such transaction. In determining the
aggregate amount of Restricted Payments made after the date of this Indenture,
100% of the amounts expended pursuant to the foregoing clauses (ii), (iii),
(iv)(Y), (vi) and (vii) shall be included in such calculation and none of the
amounts expended pursuant to the foregoing clauses (i), (iv)(X), (v), (viii),
(ix) and (x) shall be included in such calculation.
The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary (subject to clause (c) of the definition of "Permitted
Investments") if such designation would not cause a Default. For purposes of
making such determination, all outstanding Investments (other than Investments
of Joint Venture Funds) by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated shall be deemed to
be Restricted Payments at the time of such designation and shall reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments shall be deemed to constitute
Investments (i) in any Subsidiary that was not formerly a Joint Venture, 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 or (ii) in any Subsidiary that was
formerly a Joint Venture, in an amount
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40
equal to the amount of such Investments made by the Company or a Restricted
Subsidiary since the date of this Indenture. Such designation shall 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) shall 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 Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculation required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
SECTION 4.10 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company shall not, and shall not permit any of its Restricted
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 that the Company shall not
issue any Disqualified Stock and shall not permit any of its Restricted
Subsidiaries and Unrestricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company and its Restricted Subsidiaries may
incur Indebtedness (including Acquired Indebtedness) or issue shares of
Disqualified 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 2.00 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 shall 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 Restricted
Subsidiary pursuant to this paragraph.
The foregoing provisions shall not apply to:
(i) Indebtedness permitted under Section 4.10 of the C-S Indenture
(regardless of whether such Indenture is in effect);
(ii) the incurrence by the Company and its Restricted Subsidiaries
of the Existing Indebtedness and the Guarantee by the Company of
Indebtedness under the Credit Agreement in an amount not to exceed the
amount referred to in paragraph (i) of Section 4.10 of the C-S Indenture;
<PAGE>
41
(iii) the incurrence by the Company of Indebtedness represented by
the Senior Debentures;
(iv) the incurrence by the Company or any of its Restricted
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 Restricted 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 Restricted
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 this Indenture to be
incurred;
(vi) the incurrence by the Company or any of its Restricted
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 shall 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 Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by this Indenture to be incurred;
(viii) the incurrence by the Company, its Restricted Subsidiaries
and its foreign subsidiaries that are Restricted Subsidiaries 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 $15.0 million; provided that such Indebtedness incurred by
foreign subsidiaries that are Restricted Subsidiaries shall not exceed an
aggregate principal amount at any time outstanding 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 shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(x) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance
<PAGE>
42
bonds securing the performance of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in connection with the
disposition of any business, assets or Restricted Subsidiary of the
Company (other than guarantees or similar credit support by the Company or
any of its Restricted Subsidiaries of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary 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 Restricted Subsidiaries in
connection with such disposition.
Notwithstanding any other provision of this covenant, a Guarantee of
Indebtedness permitted by the terms of this Indenture at the time such
Indebtedness was incurred shall not constitute a separate incurrence of
Indebtedness.
SECTION 4.11 SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary may enter into a sale and leaseback
transaction if (i) the Company or such Restricted Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.10 and (b) incurred a Lien to
secure such Indebtedness pursuant to Section 4.12, (ii) the net cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and the proceeds of such
transaction are applied in compliance with, Section 4.8.
SECTION 4.12 LIENS
The Company shall not, and shall not permit any of its Restricted
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.
SECTION 4.13 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) (a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries,
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43
(ii) make loans or advances to the Company or any of its Restricted Subsidiaries
or (iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of this
Indenture, (b) the Credit Agreement or the C-S Indenture including the Senior
Notes, as the case may be, in each case as in effect as of the date of this
Indenture, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the Credit
Agreement or the C-S Indenture (including the Senior Notes), as the case may be,
in each case as in effect on the date of this Indenture, (c) this Indenture and
the Senior Debentures, (d) applicable law, (e) any instrument governing Acquired
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such 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 this Indenture, (f) by
reason of customary non-assignment 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
this 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 or (i) any
restriction or encumbrance contained in contracts for sale of assets permitted
by this Indenture in respect of the assets being sold pursuant to such contract;
(j) or restrictions or encumbrances on dividends and distributions to the
Company or any of its Restricted Subsidiaries under any Indebtedness permitted
by this Indenture that are no more restrictive with respect to such dividend and
other payment restrictions than those contained in the Credit Agreement or the
C-S Indenture, as the case may be, in each case as in effect on the date of this
Indenture.
SECTION 4.14 TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make 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 Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction entered into after the
date of this Indenture involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an
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44
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 Restricted
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; provided that the following
shall not be deemed to be Affiliate Transactions; (t) the existence of, or the
performance by the Company under the terms of, any securityholders agreement,
registration rights agreement voting trust agreement, loan document with
employees or purchase agreement with employees to which the Company is a party
on the date of this Indenture including any amendment thereto; provided, that
any such amendment is no more disadvantageous to the holders of the Debentures
in any material respect than the original agreement as in effect on the date of
this Indenture; (u) reasonable compensation paid to, and indemnity provided on
behalf of, officers and directors of the Company, C-S, Inc. or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management; (v) any employment agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary;
(w) transactions between or among the Company and/or its Wholly Owned
Subsidiaries; (x) the provision of administrative or management services by C-S,
Inc. or any of its officers to any of the Company or the Restricted
Subsidiaries; (y) fees paid and reimbursement of out-of-pocket expenses pursuant
to the Management Advisory Agreement; and (z) transactions permitted by Section
4.9.
SECTION 4.15 LINE OF BUSINESS
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any line of business which is not the same, similar,
ancillary, complementary or related to the businesses in which the Company and
its Restricted Subsidiaries are engaged on the date of this Indenture.
SECTION 4.16 [Intentionally Omitted.]
SECTION 4.17 CORPORATE EXISTENCE
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the -Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Senior Debentures.
SECTION 4.18 ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any
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45
Indebtedness of the Company (other than Guarantees or pledges to secure
Indebtedness under this Indenture and any Guarantees of the Company or any
Restricted Subsidiary of Indebtedness under the C-S Indenture and the Credit
Agreement) unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to this Indenture providing for the Guarantee
of the payment of the Senior Debentures by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness. Notwithstanding the
foregoing, any such Guarantee by a Restricted Subsidiary of the Senior
Debentures shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person that is not an Affiliate of the Company, of all of the Capital Stock
of such Restricted Subsidiary held (directly or indirectly through one or more
Subsidiaries of the Company) by the Company, or all or substantially all the
assets of such Restricted Subsidiary, which sale, exchange or transfer is made
in compliance with the applicable provisions of the Indenture.
ARTICLE 5
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company shall 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 directly and/or indirectly through its Restricted
Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets determined on a consolidated
basis for the Company and its Restricted Subsidiaries taken as a whole 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
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company, under the Senior Debentures and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; (iv) 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 shall have
been made (A) shall 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) shall, 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 Section 4.10; and (v)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel addressed to the Trustee with respect to the foregoing
matters.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.1 hereof, the successor corporation
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46
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor of the Company shall not be relieved from the obligation to pay
the principal of and interest on the Senior Debentures except in the case of a
sale of all of the Company's assets that meets the requirements of Section 5.1
hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on, or
Liquidated Damages with respect to, any Senior Debenture when the same
becomes due and payable and the Default continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of or
premium, if any, on any Senior Debenture when the same becomes due and
payable at maturity, upon redemption or otherwise;
(3) the Company fails to observe or perform any covenant, condition
or agreement on the part of the Company to be observed or performed
pursuant to Sections 4.7, 4.8, 4.9, 4.10, 4.11 or 5.1 hereof;
(4) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Senior Debentures or this Indenture
and the Default continues for the period and after the notice specified
below;
(5) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness
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for money borrowed by the Company or any of its Restricted Subsidiaries
(or the payment of which is Guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists or shall be created hereafter, 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 (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 such Indebtedness, together with the principal amount
of any other Indebtedness as to which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $5.0 million or
more;
(6) a final judgment or final judgments for the payment of money
(not fully covered by insurance) are entered by a court or courts of
competent jurisdiction against the Company or any of its Restricted
Subsidiaries and such judgment or judgments remain undischarged and unpaid
for a period (during which execution shall not be effectively stayed) of
60 days, provided that the aggregate of all such undischarged and unpaid
judgments exceeds $5.0 million;
(7) The Company or any of its Significant Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case,
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) generally is not paying its debts as they become due; or
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Subsidiary in an
involuntary case, or
(b) appoints a Custodian of the Company or any Subsidiary or
for all or substantially all of the property of the Company or any
Subsidiary, or
(c) orders the liquidation of the Company or any Subsidiary,
(d) and in each case the order or decree remains unstayed and
in effect for 60 consecutive days.
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48
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
An Event of Default shall not be deemed to have occurred under
clause (3), (5), (6) or (7) until the Trustee shall have received written notice
from the Company or any of the Holders or unless a Responsible Officer shall
have knowledge of such Event of Default. A Default under clause (4) is not an
Event of Default until the Trustee notifies the Company, or the Holders of at
least 25% in principal amount of the then outstanding Senior Debentures notify
the Company and the Trustee, of the Default and the Company does not cure the
Default within 60 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
SECTION 6.2 ACCELERATION
If an Event of Default (other than an Event of Default specified in
clauses (8) and (9) of Section 6.1 relating to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary) occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of the then
outstanding Senior Debentures by written notice to the Company and the Trustee
may declare the unpaid principal of and any accrued interest on all the Senior
Debentures to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately (together with the premium
referred to in Section 6.1, if applicable). If an Event of Default specified in
clause (8) or (9) of Section 6.1 relating to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in principal amount of the
then outstanding Senior Debentures by written notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default (except nonpayment
of principal or interest that has become due solely because of the acceleration)
have been cured or waived.
SECTION 6.3 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Senior Debentures or to enforce the performance of any
provision of the Senior Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Senior Debentures or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder of a Senior Debenture in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS
Holders of not less than a majority in aggregate principal amount of
the then outstanding Senior Debentures by notice to the Trustee may on behalf of
the Holders of all of the Senior Debentures waive an existing Default or Event
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49
of Default and its consequences hereunder, except a continuing Default or Event
of Default in the payment of the principal of, premium and Liquidated Damages,
if any, or interest on, the Senior Debentures (including in connection with an
offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Senior Debentures may rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then outstanding
Senior Debentures may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Senior
Debentures or that may involve the Trustee in personal liability.
SECTION 6.6 LIMITATION ON SUITS
A Holder of a Senior Debenture may pursue a remedy with respect to
this Indenture or the Senior Debentures only if:
(a) the Holder of a Senior Debenture gives to the Trustee
written notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Senior Debentures make a written request to the Trustee
to pursue the remedy;
(c) such Holder of a Senior Debenture or Holders of Senior
Debentures offer and, if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Senior Debentures do not give the
Trustee a direction inconsistent with the request.
A Holder of a Senior Debenture may not use this Indenture to prejudice the
rights of another Holder of a Senior Debenture or to obtain a preference or
priority over another Holder of a Senior Debenture.
SECTION 6.7 RIGHTS OF HOLDERS OF SENIOR DEBENTURES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Senior Debenture to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Senior Debenture, on or after
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50
the respective due dates expressed in the Senior Debenture (including in
connection with an offer to purchase), or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.1(7)(a) or(b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Senior Debentures and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Senior Debentures allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Senior Debentures), its creditors or
its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7 hereof. To the extent that the payment
of any such compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 7.7
hereof out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties that
the Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Senior Debentures or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
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51
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Senior Debentures for amounts due and unpaid
on the Senior Debentures for principal and Liquidated Damages, if any, and
interest, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Senior Debentures for principal, premium and
Liquidated Damages, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders of Senior Debentures pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Senior Debenture pursuant to Section 6.7 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Senior Debentures.
ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
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53
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Section 4.1 hereof, the Trustee shall
have no duty to inquire as to the performance of the Company's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge
of any Default or Event of Default except (i) any Event of Default occurring
pursuant to Sections 6.1(1), 6.1(2) and 4.1 or (ii) any Default or Event of
Default of which a Responsible Officer of the Trustee shall have received
written notification or obtained actual knowledge.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters as it may see fit and if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company personally or by agent or
attorney.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Debentures and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
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54
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the TIA) it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue as trustee or resign. Any Agent may
do the same with like rights and duties. The Trustee is also subject to Sections
7.10 and 7.11 hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Senior Debentures, it
shall not be accountable for the Company's use of the proceeds from the Senior
Debentures or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Senior Debentures or any other document in connection with the
sale of the Senior Debentures or pursuant to this Indenture other than its
certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Senior Debentures
a notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Senior Debenture, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Senior Debentures.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR Debentures
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Senior Debentures remain
outstanding, the Trustee shall mail to the Holders of the Senior Debentures a
brief report dated as of such reporting date that complies with TIA ss.313(a)
(but if no event described in TIA ss.313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted). The Trustee
also shall comply with TIA ss.313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss.313(c).
A copy of each report at the time of its mailing to the Holders of
Senior Debentures shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Senior Debentures are listed in accordance with TIA
ss.313(d). The Company shall promptly notify the Trustee when the Senior
Debentures are listed on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
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55
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses (including reasonable attorneys' fees) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.7) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
Person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Senior Debentures on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Senior Debentures. Such Lien shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Sections 6.1(8) or 6.1(9) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.313(b)(2) to
the extent applicable.
SECTION 7.8 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
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The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Senior
Debentures of a majority in principal amount of the then outstanding Senior
Debentures may remove the Trustee by so notifying the Trustee and the Company in
writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Senior Debentures may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Senior Debentures of at least 10% in principal amount of the then
outstanding Senior Debentures may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Senior
Debenture who has been a Holder of a Senior Debenture for at least six months,
fails to comply with Section 7.10, such Holder of a Senior Debenture may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Senior Debentures. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
provided all sums owing to the Trustee hereunder have been paid and subject to
the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.8, the Company's obligations under Section
7.7 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
<PAGE>
57
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss.310(a)(1), (2) and (5). The Trustee is subject to TIA
ss.310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA ss.311(a), excluding any creditor
relationship listed in TIA ss.311(b). A Trustee who has resigned or been removed
shall be subject to TIA ss.311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.2 or 8.3 hereof be applied to all outstanding Senior
Debentures upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Senior
Debentures on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Senior Debentures, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Debentures and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Senior Debentures
to receive solely from the trust fund described in Section 8.4 hereof, and as
more fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on such Senior
Debentures when such payments are due, (b) the Company's obligations with
respect to such Senior Debentures under Article 2 and Section 4.2 hereof, (c)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
the Company's obligations in connection therewith and (d) this Article Eight.
Subject to compliance with this Article Eight, the Company may exercise its
option under this Section 8.2 notwithstanding the prior exercise of its option
under Section 8.3 hereof.
SECTION 8.3 COVENANT DEFEASANCE
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
<PAGE>
58
of the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 4.7, 4.8, 4.9, 4.10, 4.11,
4.12, 4.13, 4.14, 4.15 and 4.18 hereof with respect to the outstanding Senior
Debentures on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Senior Debentures shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Senior
Debentures shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Senior
Debentures, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.1 hereof,
but, except as specified above, the remainder of this Indenture and such Senior
Debentures shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.1 hereof of the option applicable to this Section 8.3 hereof,
subject to the satisfaction of the conditions set forth in Section 8.4 hereof,
Sections 6.1(5) through 6.1(7) hereof shall not constitute Events of Default.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Senior Debentures:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States 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
and Liquidated Damages, if any, and interest on the outstanding Senior
Debentures on the stated date for payment thereof or on the applicable
redemption date, as the case may be, and the Company must specify whether
the Senior Debentures are being defeased to maturity or to a particular
redemption date;
<PAGE>
59
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this 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 shall
confirm that, the Holders of the outstanding Senior Debentures 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;
(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Senior Debentures 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;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of
the proceeds of which will be used to defease the Senior Debentures
pursuant to this Article Eight concurrently with such incurrence) or
insofar as Sections 6.1(8) or 6.1(9) hereof is concerned, at any time in
the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this 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;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that on 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;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
<PAGE>
60
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Senior
Debentures shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Senior Debentures and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Senior
Debentures of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.4 hereof or the principal
and interest received in respect thereof.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.6 REPAYMENT TO COMPANY
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, Liquidated Damages, if any, or interest on any Senior Debenture and
remaining unclaimed for two years after such principal, and premium, if any,
Liquidated Damages, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Senior Debenture shall
thereafter, as a creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.7 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
<PAGE>
61
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Senior
Debentures shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Senior Debenture
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Senior Debentures to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF SENIOR DEBENTURES
Notwithstanding Section 9.2 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Senior Debentures without
the consent of any Holder of a Senior Debenture:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Debentures in addition to
or in place of certificated Senior Debentures;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Senior Debentures in the case of a merger or
consolidation pursuant to Article Five hereof;
(d) to provide for Guarantees permitted pursuant to Section 4.18;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Debentures or that does not
adversely affect the legal rights hereunder of any Holder of the Senior
Debentures; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.2 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF SENIOR DEBENTURES
Except as provided below in this Section 9.2, the Company and the
Trustee may amend or supplement this Indenture (including Sections 4.7 and 4.8
hereof) and the Senior Debentures may be amended or supplemented with the
<PAGE>
62
consent of the Holders of at least a majority in principal amount of the Senior
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Senior Debentures), and, subject to
Sections 6.4 and 6.7 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on the Senior Debentures, except a payment default resulting
from an acceleration that has been rescinded) or compliance with any provision
of this Indenture or the Senior Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Senior
Debentures (including consents obtained in connection with a tender offer or
exchange offer for the Senior Debentures).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Senior Debentures as aforesaid, and
upon receipt by the Trustee of the documents described in Section 7.2 hereof,
the Trustee shall join with the Company in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior
Debentures under this Section 9.2 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Senior Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the
Holders of a majority in aggregate principal amount of the Senior Debentures
then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Senior Debentures. However, without
the consent of each Holder affected, an amendment or waiver may not (with
respect to any Senior Debentures held by a non-consenting Holder):
(a) reduce the principal amount of Senior Debentures whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Senior Debenture or alter or waive any of the provisions with respect to
the redemption of the Senior Debentures, except as provided above with
respect to Sections 4.7 and 4.8 hereof;
<PAGE>
63
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Senior Debenture;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Senior Debentures (except a
rescission of acceleration of the Senior Debentures by the Holders of at
least a majority in aggregate principal amount of the then outstanding
Senior Debentures and a waiver of the payment default that resulted from
such acceleration);
(e) make any Senior Debenture payable in money other than that
stated in the Senior Debentures;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Senior Debentures to
receive payments of principal of, premium or Liquidated Damages, if any,
or interest on the Senior Debentures;
(g) waive a redemption payment with respect to any Senior Debenture
(other than a payment required by Sections 4.7 or 4.8 hereof); or
(h) make any change in Section 6.4 or 6.7 hereof or in the foregoing
amendment and waiver provisions.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the Senior
Debentures shall be set forth in an amended or supplemental Indenture that
complies with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Senior Debenture is a continuing consent by the
Holder of a Senior Debenture and every subsequent Holder of a Senior Debenture
or portion of a Senior Debenture that evidences the same debt as the consenting
Holder's Senior Debenture, even if notation of the consent is not made on any
Senior Debenture. However, any such Holder of a Senior Debenture or subsequent
Holder of a Senior Debenture may revoke the consent as to its Senior Debenture
if the Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
SECTION 9.5 NOTATION ON OR EXCHANGE OF SENIOR Debentures
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Debenture thereafter authenticated. The
Company in exchange for all Senior Debentures may issue and the Trustee shall
authenticate new Senior Debentures that reflect the amendment, supplement or
waiver.
<PAGE>
64
Failure to make the appropriate notation or issue a new Senior
Debenture shall not affect the validity and effect of such amendment, supplement
or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive and (subject to Section 7.1) shall be fully protected in relying
upon, an Officer's Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental indenture is authorized or permitted
by this Indenture.
ARTICLE 10
[Intentionally Omitted.]
ARTICLE 11
[Intentionally Omitted.]
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss.318(c), the imposed duties shall control.
SECTION 12.2 NOTICES
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
<PAGE>
65
If to the Company:
Clark-Schwebel Holdings, Inc.
c/o Vestar Equity Partners, L.P.
245 Park Avenue, 41st Floor
New York, New York 10167
Telephone No.: (212) 949-6500
Telecopier No.: (212) 808-4922
Attention: Sander M. Levy
and to:
Clark-Schwebel Holdings, Inc.
c/o Clark-Schwebel, Inc.
P.O. Box 2627
2200 South Murray Avenue
Anderson, SC 29622
Telephone No.: (803) 260-3377
Telecopier No.: (803) 260-3377
Attention: William Bennison and Donald Burnette
If to the Trustee:
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Attention: Corporation Trust Administration
Telephone No.: (860) 986-2064
Telecopier No.: (860) 986-7920
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
<PAGE>
66
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss.313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.3 COMMUNICATION BY HOLDERS OF SENIOR DEBENTURES WITH OTHER HOLDERS OF
SENIOR DEBENTURES
Holders may communicate pursuant to TIA ss.312(b) with other Holders
with respect to their rights under this Indenture or the Senior Debentures. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss.312(c).
SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company, upon request, shall furnish
to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss.314(a)(4)) shall comply with the provisions of TIA
ss.314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
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67
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.6 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No past, present or future director, officer, employee, incorporator
or stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Senior Debentures, this Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Senior Debenture waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Senior Debentures.
SECTION 12.8 GOVERNING LAW
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE AND THE SENIOR DEBENTURES.
SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
SECTION 12.10 SUCCESSORS
All agreements of the Company in this Indenture and the Senior
Debentures shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 12.11 SEVERABILITY
In case any provision in this Indenture or in the Senior Debentures
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 12.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
<PAGE>
68
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
<PAGE>
69
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed,
as of the date first written above.
CLARK-SCHWEBEL HOLDINGS, INC.
By:
---------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------------
Name:
Title:
<PAGE>
Exhibit A
(Face of Senior Debenture)
12-1/2% [Series A] [Series B] Senior
Debentures due 2007
No. $________
CLARK-SCHWEBEL HOLDINGS, INC.
promise to pay to _______________________________________ or registered assigns,
the principal sum of ________________________________ Dollars on ________, 2007.
Interest Payment Dates:
Record Dates:
Dated:
CLARK-SCHWEBEL HOLDINGS, INC.
By:
----------------------------
Name:
[Corporate Seal]
By:
----------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Senior Debentures referred to in the within-mentioned
Indenture:
STATE STREET BANK AND TRUST COMPANY, as Trustee
By:
----------------------------
Authorized Signatory
Dated:
A-1
<PAGE>
(Back of Senior Debenture)
122% [Series A] [Series B] Senior
Debentures due 2007
[Unless and until it is exchanged in whole or in part for Senior
Debentures in definitive form, this Senior Debenture may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary. Unless this certificate is presented by an
authorized representative of [The Depository Trust Company (55 Water Street, New
York, New York) ("DTC")], to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of [Cede & Co.] or such other name as may be requested by an authorized
representative of DTC (and any payment is made to [Cede & Co.] or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, [Cede & Co.], has an
interest herein.]1/
THE SENIOR DEBENTURE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THE SENIOR DEBENTURE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SENIOR DEBENTURE EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A
UNDER THE SECURITIES ACT. THE HOLDER OF THE SENIOR DEBENTURE EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SENIOR DEBENTURE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT
- ----------
1. This paragraph should be included only if the Senior Debenture is issued
in global form.
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AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THE SENIOR DEBENTURE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(1) ABOVE.
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. Interest. Clark-Schwebel Holdings, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Senior
Debenture at 122% per annum from its date of issuance until maturity and shall
pay the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages semi-annually in arrears on January 15 and July 15 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Senior
Debentures will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance; provided that if
there is no existing Default in the payment of interest, and if this Senior
Debenture is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be January 15, 1998. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages, if any, (without regard
to any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Senior
Debentures (except defaulted interest) and Liquidated Damages to the Persons who
are registered Holders of Senior Debentures at the close of business on the
January 1 or July 1 next preceding the Interest Payment Date, even if such
Senior Debentures are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest, provided, however that if on any Interest Payment
Date C-S, Inc. could not dividend or distribute a sufficient amount of cash to
the Company under the terms of the C-S Indenture or the Credit Agreement in
order to make such interest payment in cash, the Company may make such interest
payment in the form of additional Senior Debentures having an aggregate
principal amount equal to the amount of such interest. The Senior Debentures
will be payable as to principal, premium if any, interest and Liquidated
Damages, if any, 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 cash interest and Liquidated Damages, if any, may be made by check
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mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and cash interest, premium, if any, and
Liquidated Damages, if any, on, all Global Senior Debentures and all other
Senior Debentures the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee under the
Indenture, will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company or any of
its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Senior Debentures under an
Indenture dated as of ____ __, 1997 ("Indenture") between the Company and the
Trustee. The terms of the Senior Debentures include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Senior
Debentures are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Senior Debentures are
unsecured obligations of the Company limited to $________(2) million in
aggregate principal amount plus an additional aggregate principal amount equal
to any Accumulated Interest.
5. Optional Redemption.
(a) Except as set forth in clause (b) and clause (c) of Section 5 of
this Senior Debenture, the Senior Debentures will not be redeemable at the
Company's option prior to July 15, 2002. Thereafter, the Senior Debentures 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 redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 15 of the
years indicated below:
- ----------
2. Equal to the Debenture Exchange Amount (as defined and determined under
the Company's Amended and Restated Certificate of Incorporation filed on
July 14, 1997 with the Secretary of State of Delaware).
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Year Percentage
2002............................................................... 106.250%
2003............................................................... 104.167%
2004 .............................................................. 102.083%
2005 and thereafter................................................ 100.00%
(b) Notwithstanding the provisions of clause (a) of Section 5 of
this Senior Debenture, the Company may redeem the Senior Debentures, in whole or
in part, after January 15, 1998 at a redemption price of 106% of the principal
amount thereof, in each case plus an amount in cash equal to all accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net proceeds of an Equity Offering; provided, that such redemption will
occur within 60 days of the date of the closing of such Equity Offering.
(c) Notwithstanding the provisions of clause (a) of Section 5 or
7(a) of this Senior Debenture, the Company may redeem the Senior Debentures, in
whole or in part, at the option of the Company, after January 15, 1998, at a
redemption price of 106% of the principal amount thereof, in each case plus an
amount in cash equal to all accrued and unpaid interest and Liquidated Damages,
if any, thereon to the redemption date, in the event of a Change of Control or a
Subsidiary Change of Control.
(d) Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder whose Senior
Debentures are to be redeemed at its registered address. Senior Debentures in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Senior Debentures held by a Holder are to
be redeemed. Unless the Company defaults in making such redemption payment, on
and after the redemption date interest ceases to accrue on Senior Debentures or
portions thereof called for redemption.
6. Mandatory Redemption.
The Company shall not be required to make mandatory redemption
payments with respect to the Senior Debentures.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of
Senior Debentures not otherwise redeemed by the Company pursuant to Section 5(c)
of this Senior Debenture 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 Senior Debentures 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
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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 Senior Debentures pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Debentures as a
result of a Change of Control.
On the Change of Control Purchase Date, the Company will, to the
extent lawful, (1) accept for payment all Senior Debentures 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
Senior Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount of Senior
Debentures or portions thereof being purchased by the Company. The Paying Agent
will promptly mail to each Holder of Senior Debentures so tendered the Change of
Control Payment for such Senior Debentures, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Senior Debenture equal in principal amount to any unpurchased portion of
the Senior Debentures surrendered, if any; provided that each such new Senior
Debenture will be in a principal amount of $1,000 or an integral multiple
thereof.
(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale in excess of $10.0 million unless (i)
the Company (or the Restricted 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 Restricted
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, and
(ii) at least 75% (100% in the case of lease payments) of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto, excluding contingent liabilities and trade payables),
of the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Senior Debentures, 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 Restricted 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), shall be deemed to be cash for purposes of this provision.
Within 360 days after the Company's actual receipt of any Net
Proceeds from an Asset Sale, the Company may apply such Net Proceeds (a) to
permanently reduce long-term Indebtedness of a Restricted Subsidiary, (b) to
permanently reduce Indebtedness (and, in the
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<PAGE>
case of revolving Indebtedness, to permanently reduce the commitments) under the
Credit Agreement, or (c) to make an investment in another business, the making
of a capital expenditure or the acquisition of other tangible assets, in each
case, in the same or a similar line of business as the Company or its Restricted
Subsidiaries were engaged in on the date of the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will
be required to make an offer to all Holders of Senior Debentures (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Debentures 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
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Senior Debentures
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Senior Debentures surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Senior Debentures to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
8. Denominations, Transfer, Exchange. The Senior Debentures are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Senior Debentures may be registered and
Senior Debentures may be exchanged as provided in 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
need not exchange or register the transfer of any Senior Debenture or portion of
a Senior Debenture selected for redemption, except for the unredeemed portion of
any Senior Debenture being redeemed in part. Also, it need not exchange or
register the transfer of any Senior Debentures for a period of 15 days before a
selection of Senior Debentures to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Senior
Debenture may be treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions,
the Indenture or the Senior Debentures may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Senior Debentures, and any existing default or compliance with any
provision of the Indenture or the Senior Debentures may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Senior Debentures. Without the consent of any Holder of a Senior Debenture, the
Indenture or the Senior Debentures may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior
Debentures in addition to or in place of certificated Senior Debentures, to
provide for the assumption of the
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Company's obligations to Holders of the Senior Debentures in case of a merger or
consolidation, to provide for Guarantees permitted pursuant to Section 4.18 of
the Indenture, to make any change that would provide any additional rights or
benefits to the Holders of the Senior Debentures or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
11. Defaults and Remedies. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Senior Debentures; (ii) default in payment when due of the
principal of or premium, if any, on the Senior Debentures; (iii) failure by the
Company to comply with Section 4.7, 4.8, 4.9, 4.10, 4.11 or 5.1 of the
Indenture; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Senior Debentures; (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 Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the 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 Restricted 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) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or group of Restricted
Subsidiaries that, 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 Senior Debentures may
declare all the Senior Debentures 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 Senior Debentures will
become due and payable without further action or notice. Holders of the Senior
Debentures may not enforce the Indenture or the Senior Debentures except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Senior Debentures may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Senior Debentures 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 Senior
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Senior Debentures waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
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Event of Default in the payment of interest on, or the principal of, premium and
Liquidated Damages, if any, on the Senior Debentures. 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.
12. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Senior Debentures or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Senior Debenture
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Debentures.
14. Authentication. This Senior Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
15. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
16. Additional Rights of Holders of Transfer Restricted Senior
Debentures. In addition to the rights provided to Holders of Senior Debentures
under the Indenture, Holders of Transferred Restricted Senior Debentures shall
have all the rights set forth in the Registration Rights Agreement dated as of
the date of the Indenture, between the Company and the parties named on the
signature pages thereof (the "Registration Rights Agreement").
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Debentures and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Debentures or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
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Clark-Schwebel Holdings, Inc.
c/o Clark-Schwebel, Inc.
2200 South Murray Avenue
Anderson, SC 29622
Attention: William D. Bennison and Donald Burnette
Telephone No.: (803) 225-7028
Telecopier No.: (803) 260-3377
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ASSIGNMENT FORM
For value received, I or we assign and transfer this Senior Debenture to
- --------------------------------------------------------------
- --------------------------------------------------------------
(Print or type name, address and zip code of assignee)
- --------------------------------------------------------------
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint ________________________ agent to transfer this Senior
Debenture on the books of the Company. The agent may substitute another to act
for him.
In connection with any transfer of this Senior Debenture occurring
prior to after August 14, 2000, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that:
[Check One]
[ ] (a) this Senior Debenture is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities
Act of 1933) in compliance with the exemption from registration
under the Securities Act of 1933 provided by Rule 144A thereunder.
or
[ ] (b) this Senior Debenture is being transferred other than in accordance
with (a) above and documents and, if required by the Trustee or the
Company, legal opinions are being furnished which comply with the
conditions of transfer set forth in this Debenture and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Debenture in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.14 of the Indenture shall have
been satisfied.
Date: __________________________
Your Signature: ______________________
(Sign exactly as your name appears on
the face of this Senior Debenture)
Signature Guarantee
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TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Senior Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933 and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: _______________________ _____________________________
NOTICE: To be executed by
an executive officer
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Option of Holder to Elect Purchase
If you want to elect to have this Senior Debenture purchased by the
Company pursuant to Section 4.7 or 4.8 of the Indenture, check the box below:
|_| Section 4.7 |_| Section 4.8
If you want to elect to have only part of the Senior Debenture
purchased by the Company pursuant to Section 4.7 or Section 4.8 of the
Indenture, state the amount you elect to have purchased:
$____________________
Date:____________________ Your Signature: ___________________________
(Sign exactly as your name appears
on the Debenture)
Tax Identification No.: ___________________
Signature Guarantee.
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Exhibit B
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INSTITUTIONS
We are delivering this letter in connection with an offering of 122%
of Senior Debentures due 2007 (the "Senior Debentures") of Clark-Schwebel
Holdings, Inc. (the "Company").
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act"), or an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act (an "Institutional Accredited Investor");
(ii) any purchase of Senior Debentures by us will be for our
own account or for the account of one or more other Institutional
Accredited Investors;
(iii) in the event that we purchase any Senior Debentures, we
will acquire Senior Debentures having a minimum purchase price of at least
$100,000 for our own account and for each separate account for which we
are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks of
purchasing Senior Debentures;
(v) we are not acquiring Senior Debentures with a view to any
distribution thereof in a transaction that would violate the Securities
Act or the securities laws of any State of the United States or any other
applicable jurisdiction; provided that the disposition of our property and
the property of any accounts for which we are acting as fiduciary shall
remain at all times within our control; and
(vi) we have read the Company's filings with the Securities
and Exchange Commission since January 1, 1997 and acknowledge that we have
had access to such financial and other information, and have been afforded
the opportunity to ask such questions of representatives of the Company
and receive answers thereto, as we deem necessary in connection with our
decision to purchase Senior Debentures.
We understand that the Senior Debentures are being offered in a
transaction not involving any public offering within the meaning of the
Securities Act and that the Senior Debentures have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any notes, that such Senior Debentures may be offered,
resold, pledged or otherwise transferred only (i) to a person whom we reasonably
believe to be a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United
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States in a transaction meeting the requirements of Rule 904 under the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (ii) to the Company or (iii) pursuant to an effective registration
statement, and, in each case, in accordance with any applicable securities laws
of any State of the United States or any other applicable jurisdiction. We
understand that the registrar and transfer agent will not be required to accept
for registration of transfer any Senior Debentures, except upon presentation of
evidence satisfactory to the Company that the foregoing restrictions on transfer
have been complied with. We further understand that the Senior Debentures
purchased by us will be in the form of definitive physical certificates and that
such certificates will bear a legend reflecting the substance of this paragraph.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
-------------------------------------
(Name of Purchaser)
By:
----------------------------------
Name:
Title:
Address:
B-2
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------------------------
(dollars in thousands)
1992 1993 1994 1995 1996 1996 1996 1996
------- ------- ------- ------- ------- ------- ------- -------
(Predecessor) (3.5 months) (8.5 months) (12 Months)
(Predecessor) (Successor) (Combined) (Pro Forma)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes ....... $ 3,238 $ 8,620 $12,037 $21,189 $ 8,988 $12,969 $21,957 $21,957
Equity income (loss) ............. (297) 13 529 3,393 82 1,811 1,893 1,893
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary items .............. 2,941 8,633 12,566 24,582 9,070 14,780 23,850 23,850
Fixed charges:
Cash interest expense ............ 473 401 401 401 148 9,458 9,606 15,207
Dividends on preferred stock ..... N/A N/A N/A N/A N/A 5,185 5,185 0
Amortization of bond issue
costs ............................ 14 21 21 21 6 411 417 417
Amortization of deferred debt .... 0 0 0 0 0 192 192 192
Interest expense on rental expense 401 194 144 128 41 124 165 165
------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges .............. 888 616 566 550 195 15,370 15,565 15,981
======= ======= ======= ======= ======= ======= ======= =======
Income before income taxes,
extraordinary items and fixed
charges .......................... 3,829 9,249 13,132 25,132 9,265 30,150 39,415 39,831
======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges .......................... 4.3 15.0 23.2 45.7 47.5 2.0 2.5 2.5
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
SIX MONTHS ENDED
--------------------------------------------------------------
(dollars in thousands)
1997 1997
1996 1996 1996 Historical Pro Forma
------- ------- ------- ---------- ---------
(3.5 Months) (2.5 Months) (6 Months)
(Predecessor) (Successor) (Combined) (Successor) (Successor)
<S> <C> <C> <C> <C> <C>
Income before income taxes ....... $ 8,988 $ 3,428 $12,416 $13,291 $10,416
Equity income (loss) ............. 82 521 603 1,582 1,582
------- ------- ------- ------- -------
Income before income taxes and
extraordinary items .............. 9,070 3,949 13,019 14,873 11,998
Fixed charges:
Cash interest expense ............ 148 2,981 3,129 6,010 8,885
Dividends on preferred stock ..... N/A 1,443 1,443 3,993 0
Amortization of bond issue
costs ............................ 6 118 124 282 282
Amortization of deferred debt .... 0 55 55 135 135
Interest expense on rental expense 41 36 77 91 91
------- ------- ------- ------- -------
Total fixed charges .............. 195 4,633 4,828 10,511 9,393
======= ======= ======= ======= =======
Income before income taxes,
extraordinary items and fixed
charges .......................... 9,265 8,582 17,847 25,384 21,391
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges .......................... 47.5 1.9 3.7 2.4 2.3
======= ======= ======= ======= =======
</TABLE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of Clark-Schwebel Holdings, Inc.:
Clark-Schwebel, Inc., a Delaware corporation
Subsidiaries of Clark-Schwebel, Inc.:
Clark-Schwebel Holding Corporation, a New York corporation
Clark-Schwebel Foreign Sales Corporation, a U.S. Virgin Islands corporation
Clark-Schwebel International, Inc., a Delaware corporation
Clark-Schwebel Group Hong Kong, Ltd., a foreign corporation
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
September 26, 1997
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Clark-Schwebel Holdings,
Inc. on Form S-4 of our report dated February 9, 1996 (February 24, 1996 as to
Note 2), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Summary Historical
and Pro Forma Financial Data," "Selected Historical Financial Data" and
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
September 26, 1997
